‘Together we are stronger’
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This book is a special dedication to my wife Alice and my sons
Preston, Presley, and Prescott
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TABLE OF CONTENTS
The Enterprising
Environment……………………….8
Possible Enterprising Environment questions…………………….…….14
Setting Up a New
Enterprise…………………………15
Possible Setting Up a New Enterprise questions………………….…….31
Business
Planning………………………..………..…32
Possible Business Planning questions ..…….……...........................…’.36
Enterprise Finance and Securing
Investors.……….37
Possible Enterprise Finance and Securing Investors questions……….42
Markets and Marketing.………….………….…..…48
Possible Markets and Marketing questions…………………….…..…56
Operations Management.…………………..……....57
Possible Operations Management questions………………….…….70
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ENTERPRISING ENVIRONMENT F4 COMPLETE NOTES
Lesson objectives
•
Define the terms opportunities and risks
•
Identify opportunities for the rise of businesses
•
Explain opportunities for the rise of businesses
•
Identify risks faced by business enterprises
•
Explain risks faced by business enterprises
Business opportunities
Def: Denotes a favourable situation that will enable the business to manipulate and benefit
from the environment
Ways in which opportunities might arise
A real and successful entrepreneur is one with the ability to identify opportunities when they
present themselves, this will increase the chances of success in a business and reduce the
chances of failure of the business.
•
Risk of failure - businesses that are guided by poorly thought business plan are
doomed even before they start operating, the business will operate as a headless
chicken running in every direction and failing to run a course that will enable it to be
successful.
•
Identifying the need for a company’s product - this will involve the identification
of consumer tastes and preferences, entrepreneurs are mainly concerned with the
demand of the company’s products because if the willingness of consumers to
purchase a company’s product is high that means the business becomes a price setter
and a market leader.
•
Ability to meet demand - demand is the willingness of a customer to buy a certain
product at a certain time, place and price, as a reputable business that needs to
maintain its goodwill it will increase its productivity to suit the unexpected rise in
demand of a firm’s product or fan allow itself to be flexible to meet a rise in demand
of its products.
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•
New technology - the introduction of new and sophisticated technology enables the
business top explore different avenues that will increase its chances of success in goal
achievement, new tech enables the production of goods to be done efficiently at lower
cost hence enjoying competitive advantage over its rivals by selling high quality and
low-priced goods on the market enabling the business to become again a market
leader and price setter.
•
Research and development (R & D) - this involves the identification of consumer
needs and making sure they are catered for through development of the best products
that cater for their tastes and preferences. development allows the business to upgrade
the available products so as to extend their life on the market (product life cycle
extension)
•
Recognising areas for expansion - business enterprises are mainly concerned with
the returns they will get when operating hence expansion priority is given to areas of
the business that are profitable or high-income generating projects. This move will
enable the business to fight cut throat competition that exist on the market for
example the business can also identify new markets for the existing products of the
business.
•
Changes in tastes, preferences and fashion - human beings are dynamic animals
with tastes and preferences changing every second, hence a business that is up to date
with these changes will benefit from being a market leader and having large market
share hence being a market leader and price setter. for example, consumers moved
from skin jeans to ripped jeans over a short spree of time.
•
Changes in the structure and size of the population - Changes i the population
structure creates great opportunities especially if the population increases hence this
will create an opportunity to increase sales and profit margins for the business as
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customer base increases and if it offers what the customers really need (tastes and
preferences)
•
Changes in real income - fluctuations in income levels of individuals in an economy
can create opportunities especially if it goes up, this will increase the consumers
marginal propensity to spend (buying power). this will enable the business to benefit
from increased sales and profit margins. real income can be affected by inflation
•
Globalisation - globalisation enables the removal of restrictions in trade and allows
businesses to operate across national frontiers, this will enable the business to widen
its markets and enjoy the benefits of low production costs and stable economies that
allow investors to reap abnormal benefits.
•
Government policies - there are certain policies that might be introduced by the
government that will benefit the business enterprises such restriction of foreign
business in our country, more so, the assistance of small to medium firms by the
government such as the establishment of the Small Enterprise Development
Corporation (SEDCO) that offers loans to establishing businesses. Furthermore, the
government can allow businesses to enjoy tax holiday especially those that are loyal
in tax payment to encourage growth and development of the businesses
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Business risks
Def: these are unfavourable situations that will limit the business from manipulating and
benefiting from the environment
•
Legal risks - businesses operate in an environment in which the government sets
rules and regulations that are dynamic hence some of the laws can be unfavourable to
businesses such as quality controls in compliance with the minimum standards
required by the standards association of Zimbabwe (SAZ), this will increase business
costs and affect business profits thereby leading to failure of business enterprises
•
Risk of competition/ market risks - businesses operate in environments that
comprise of rival businesses that will provide the same goods and services to the
market hence if business fails to provide the goods and services in accordance with
the tastes and preferences of the consumers the business will lose its market share,
sales volume and profit margins hence leading to failure of the business.
•
Manpower risk - businesses need manpower to operate hence some of the businesses
will end up employing unskilled labour, this will lead to rise of nepotism in the
business hence leading to failure since the individuals employed do not have the skill
sets that will enable the business to flourish and be adoptable to the ever-changing
environment
•
Financial risks - businesses require financial capital to start up or to acquire
resources such as physical resources such land and buildings and sophisticated tech
that will enable the business to be adoptable to the ever-changing tastes and
preferences of the customers hence failure to get financial resources will to failure of
the business.
•
Management risks - employing management that will apply certain methods of
leadership that affects the moral of the staff, managers that have less experience in the
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management process are bound to make mistakes that will make the business fail,
one-way communication and authoritarian style of leadership can have negative
impact on business objectives hence failure.
•
Political risks - political instability is a demotivating factor top investments and
establishment of business enterprises, businesses are prone to looting vandalism by
people taking advantage of the politically unstable economy hence discouraging
business activity.
•
Government policies - policies that are set by the government change over periods of
time some can be favourable and some unfavourable and can lead to either success or
failure of the business. for instance, the increase in the tax rate and price controls on
products can have detrimental effects on business enterprises.
•
Risk of theft (burglary) or misappropriation of funds - businesses that fail to keep
proper accounting records suffers from inventory theft and misappropriation of funds
in the business hence this will lead to failure of the business enterprise
•
Location risks - businesses that locate in areas that have less markets and raw
materials tend to fail since businesses rely on materials, low costs and abundant
customers to have high sales and profit margins.
Risk control techniques include the following:
1. Avoidance technique
this means a business decides to stop a particular activity or not start it in the first
place for example, a business decides to observe quality control measures & avoid
laws suits & reworking costs.
2. Loss prevention techniques
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This technique implements measures to reduce the frequency of loss for example
business that have trucks prohibit the trucks to have unauthorised passengers hence
loss prevention
3. Loss reduction technique
Loss reduction is a loss control technique that is designed to decrease loss severity.
Example, the business may prohibit any visitors to go on a tour without ids &
protective gear.
4. Duplication
Duplication means having spare parts or equipment so you can continue business as
usual if a loss occurs.
5. Separation
Separation means dispersing assets or activities so that if, for example, a natural
disaster occurs, it will not wipe out all of the business’ assets or activities
Implement risk control techniques
➢ After identifying risks in your business, assessing them, and examined possible risk
control techniques, you now need to implement those techniques.
➢ Someone has to take charge in implementing the techniques, and this could be the
manager, or owner.
➢ The person in charge puts safety first above winning or profits.
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THE ENTERPRISING ENVIRONMENT POSSIBLE QUESTIONS
✓ distinguish between internal and external stakeholders
✓ explain the role of each internal and external stakeholder
✓ differentiate resources and capabilities
✓ explain the need for resources in an enterprise
✓ explain reasons for analysing capabilities
✓ identify different types of resources required in an enterprise
✓ identify the internal and external environmental factors
✓ describe the internal and external environmental factors
✓ identify different ways of acquiring resources
✓ analyse different forms of resource ownership
✓ justify ownership of resources
✓ explain various ways of sustainable use of resources
✓ explain the importance of using resources sustainably
✓ identify business constraints
✓ explain the business constraints
✓ identify opportunities and risks for enterprise
✓ investigate opportunities and risks associated with local business enterprises
✓ identify risks associated with business enterprises
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SETTING UP A NEW ENTERPRISE COMPLETE NOTES
BUSINESS ORGANISATIONS
Lesson Objectives:
➢ Define the terms risk, limited liability and corporate legal personality
➢ Identify risks associated with forming of business enterprises
➢ explain the concepts of limited liability and corporate legal personality
➢ evaluate the importance of limited liability
➢ identify the legal formalities needed in the formation of business enterprises
➢ identify ways of measuring sizes of a business
➢ evaluate the methods used to measure business size
➢ discuss the role of Small to Medium Enterprises [SMEs]
➢ identify government assistance to SMEs
➢ identify methods of business growth
➢ evaluate methods of business growth
➢ assess the effects of business growth
Risk
➢ these are the items or situations that cause failure or hinder success of a business e.g.
lack of capital, competition
Risks associated with setting up a business
➢ Managerial risks
➢ Compliance risks
➢ Financial risks
➢ Technological risks
➢ Location risks
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➢ Manpower risks
➢ Funding risks
Ownership
➢ it is an act of possessing a business this can be done by introducing capital to the
business or buying shares in a company
Corporate legal personality
➢ this is when a business is treated as a fictitious human being which can sue or be sued
[it can sue its owners or the owners can sue the business]
Limited liability
➢ Shareholders have limited liability and this means that in the event they fail to pay
debts they only lose the amounts that they invested and not their personal property.
Importance
➢ Safeguards personal property
➢ Gives security for one to investment
➢ Enables owners to make decisions [loan acquisition vs repayment}
Documents used in the formation of companies
Memorandum of Association
➢
Is used in the formation of private and public limited companies.
➢
Is prepared by the company founders/their representatives.
➢
Is sent to the Registrar of companies for approval.
➢
Contains:
 The name of the company followed by the words “private limited” or abbreviation
thereof for private limited companies and “plc” for public limited companies.
 The address of the company and its registered office address.
 The purpose or objects of the company.
 The names of the first company’s director(s).
 The amount of share capital to be issued to shareholders.
 The classes of shares to be issued.
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➢
A statement whether a company is either “private” or “public”
➢
A statement that the liability of the shareholders is limited.
➢
An undertaking by the promoters to form a registered company and purchase a stipulated
number of shares.
Importance:
➢
Is an application to register a company.
➢
Is used during the formation of a company.
➢
A company’s charter which governs the company’s relationship with the outside world.
Articles of Association
➢
Is prepared by the founders of the company or their representatives.
➢
Is sent to the Registrar of companies, together with the memorandum of association for
approval.
➢
Contains the rules and regulation with regards to:
 The rights, duties and powers of the directors.
 The method of electing directors.
 The number of directors.
 The procedure for calling an Annual General Meeting as well as other shareholder
meetings.
 The voting rights of each class of shareholders.
 The issue, transfer and forfeiture of shares.
 The method of dealing with any alterations in the amount of share capital.
 The method of distributing profits and carrying out company accounts audits.
 The borrowing powers of the company.
➢
Shows the name and address of the company.
Importance:
➢
Lays down the rules and regulations for the internal affairs of the company.
Certificate of incorporation
➢
Is prepared by the Registrar of companies.
➢
Is sent to a company which applied for registration.
➢
Contains:
 The date and place where the company was registered.
 The name of the company and the address of the registered office.
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 The signature of the Registrar of Companies.
Importance:
➢
Acts as a birth certificate which shows that the company was formed.
➢
I issued when the Registrar of companies is satisfied with the Memorandum and Articles of
Association and the Statutory Declaration that they are in accordance with the Companies
Act.
➢
Allows a company to engage in contracts.
➢
Allows a public limited company to raise capital by selling shares to members of the public.
➢
Enables a private limited company to commence trading but a public limited company
requires a Certificate of Trading before starting trading operations.
Statutory Declaration
➢
Is prepared by the company founders or their representatives.
➢
Is submitted to the Registrar of Companies.
➢
Contains:
 The name and address of the company.
 The address of the company’s registered office.
 The address of the registrar of companies.
 The names and signatures of the company’s founders or their representative.
Importance:
➢
Shows compliance with the provisions of the Companies Act.
➢
Is a signed statement by the company founders that they have acted in accordance with all the
requirements of the Companies Act.
Certificate of Trading
➢
Is prepared and issued by the Registrar of Companies.
➢
Is issued:
 to public limited companies only
 After the certificate of incorporation has been issued and the minimum capital has
been raised.
Contains:
➢
The date and place of issue.
➢
The name of the company and the address of the company’s addresses.
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➢
The name/signature and address of the Registrar of companies.
Importance:
➢
Issued when the Registrar of companies is satisfied and convinced that a Public Limited
Company has raised the minimum amount of capital.
➢
Allows public limited companies to start trading.
➢
I used by a public limited company to apply for a listing on the Zimbabwe Stock Exchange.
Prospectus
➢
Is prepared by founders of the company or an issuing house after the registration of a public
limited company.
➢
Is sent for approval to the registrar of companies before members of the public are invited to
subscribe for shares.
➢
Issued to members of the public by public limited companies only.
➢
Contains the following:
 An application form for members of the public who wish to buy shares
 A closing date for the application.
 A narration of the history and background of the company up to present time.
 A summary of the future plans of the company.
 The current financial position of the company.
 The profit record of the company.
 The number of shares to be sold to the public.
 The price for each share.
➢
A statement to the effect that a request has been made for permission to quote shares on the
stock exchange.
Importance:
❖
Acts as an invitation (advertisement) to members of the public to buy shares.
❖
Useful to an investor who wants to assess his risk in making an application to buy shares.
Measuring business size
Businesses can vary greatly in terms of size, there is no localised way which a business can
be categorized in terms of size but takes into consideration a number of factors. Business size
can be measured in a number of ways. The most common are:
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➢ number of employees
➢ value of Output
➢ value of sales
➢ value of capital employed.
Number of employees
The greater the number of workers the larger the size of the business or vice versa the lesser
the number of workers the smaller the size of the business. This is method is easy to calculate
and compare with other businesses.
Limitation:
Some firms use production methods which employ very few people but which produce high
Output levels. This is true for automated factories which use of latest computer-controlled
equipment. These firms are called capital-intensive firms - they use a great deal of capital
(high cost) equipment to produce their output. Therefore, a company with high output levels
could employ fewer people than a business which produced less output.
Value of output
The greater the number of goods produced the larger the size of the business or vice versa the
lesser the number of goods produced the smaller the size of the business. Calculating the
value of Output is a common way of comparing business size in the same industry- especially
in manufacturing industries.
Limitations:
A high level of Output does not mean that a business is large when using the other methods
of measurement. A firm employing few people might produce several very expensive
computers each year. This might give higher Output figures than a firm selling cheaper
products but employing more workers. The value of Output in any time period might not be
the same as the value of sales if some goods are not sold.
Value of sales
The greater the number of goods sold the larger the size of the business or vice versa the
lesser the number of goods sold the smaller the size of the business. This is often used when
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comparing the size of retailing businesses - especially retailers selling similar products (for
example, food supermarkets).
Limitations:
It could be misleading to use this measure when comparing the size of businesses that sell
very different products (for example, a market stall selling sweets and a retailer of luxury
handbags or perfumes).
Value of capital employed
The greater the value of capital employed the larger the size of the business or vice versa the
lesser the value of capital employed the smaller the size of the business. This means the total
value of capital invested into the business.
Limitations:
This has a similar problem to that of the 'number of employees' measure. A company
employing many workers may use labour-intensive methods of production. These give low
Output levels and use little capital equipment.
Market share
The greater the value of market share the larger the size of the business or vice versa the
lesser the value of market share the smaller the size of the business. The proportion of a
firm’s sales to the total market sales expressed as a percentage. It is calculated as follows:
Total sales of a business * 100
Total sales on the market
Limitations:
It could be misleading to use this measure when comparing the size of businesses that sell
products in a very small [niche market] (for example, a market stall selling sweets and a
retailer of luxury handbags or perfumes).
NB: generally, a firm with high market share is among the leaders and is likely to be large.
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Market capitalisation
The greater the value of market capitalisation the larger the size of the business or vice versa
the lesser the value of market capitalisation the smaller the size of the business. Market
capitalisation is the total value of a company’s issued shares. It can be used only for
businesses that have shares ‘quoted’ on the stock exchange (i.e. public limited companies).
It is calculated as follows:
Market capitalisation = Current share price * total number of shares issued
Limitations:
It could be misleading to use this measure when comparing the size of businesses that issue
share on the stock exchange since the prices of the businesses, this is mainly fr enterprises in
the same industry.
NB: this form of comparison is not stable since share prices tend to change every day.
Generally, there is no perfect way of comparing the size of businesses. It is quite common to
use more than one method and to compare the results obtained.
Small to Medium Enterprises SMEs
Advantages
➢ Entrepreneurs create new businesses. In many cases, entrepreneurial activities
increase competition and, with technological or operational changes, it can increase
productivity as well.
➢ Small businesses broaden the base of participation in business by ordinary people in
Society in the process this creates more jobs.
➢ Small businesses are more likely than large companies to produce specialty goods and
services and custom-demand items.
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➢ Innovations improve the quality of life by multiplying consumers' choices. They
enrich people's lives in numerous ways by, making life easier, improving
communications, providing new forms of entertainment and improving health care.
➢ Entrepreneurial behaviour drives innovation and growth for the economy and for
individual companies since it involves a willingness to take advantage of unexploited
opportunities. Thus, entrepreneurs play a crucial role in mobilising resources and
promoting economic growth and socioeconomic development. Tills is particularly
true in the developing world, where successful small businesses are primary engines
of job creation and poverty reduction.
➢ Create your own destiny - Entrepreneurs are their own bosses, this enables creativity
and innovativeness
➢ They make quick decisions, choose whom to do business with and 'what work they
will do and decide what hours to work, as well as what to pay and whether to take
vacations.
➢ Reach your full potential- Entrepreneurs can do what they are passionate about.
➢ Reap impressive profit – Entrepreneurship offers a greater possibility of achieving
significant financial rewards than working for someone else.
➢ Contribute to Society and be recognised for your efforts - most entrepreneurs help the
local economy, but some, through their innovations, contribute to society as a whole.
One example is entrepreneur Strive Masiyiwa, who co-founded Econet and helps the
Zimbabwean community through offering scholarships. Corporate Social
Responsibility [CSR]
➢ Collect prestige - There is prestige in being the person in charge, thereby complying
with Maslow’s hierarchy of needs
➢ Infrastructural development – they can be involved in building of roads, hospitals and
schools assisting the community
➢ Revenue to the government through payment of taxation to the ZIMRA which can be
used in other sectors to enable economic growth e.g. public sector i.e. ZINWA
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➢ Raise standards of living – provision of goods and services that will ensure the life of
the local people is made easy and better.
➢ Economic development – this will be achieved through increase in the gross domestic
product [GDP]and gross national product [GNP]
➢ Technology is introduced in to the country which will be used to improve the quality
of goods and services provided to the customers hence satisfaction
➢ Provide competition to large organisations hence quality products are produced and
eliminates consumer exploitation
Disadvantages
➢ The uncertainty of income - There is no guarantee of earning money and the income
can vary daily, monthly and yearly, unlike a salary, which is fixed.
➢ The risk of losing entire investment - If the venture is not successful, the resources
that were invested go to waste.
➢ The long hours and hard work - This is especially the case when establishing the
venture. An entrepreneur has no set times to start and finish work. They work as long
as the situation demands.
➢ The high levels of stress – This result from the desire to see the project succeeding
and the desire not to waste time and money.
➢ Maybe overworked – due to level of commitment they will end up working for long
hours and over holidays
➢ May evade payment of taxes – majority will operate as backyard industries hence will
avoid paying taxes hence creating a burden to the few tax payers
➢ Some are engaged in illegal business dealings e.g. selling of drugs that need doctor’s
prescription over the counter and without any prescription
➢ May be involved in smuggling of illegal products
➢ Some may be involved in political issues thereby creating political instability which is
not a favourable situation for enterprising
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Government assistance to Business enterprise
➢ Training and development of the workers and entrepreneurs through conduction of
workshops
➢ Launching campaigns to support new business start-ups
➢ Offer loans and overdrafts through the Small to Medium Enterprises [SMEs]
➢ The government can offer subsides to businesses so that their products become less expensive
➢ The government can allow tax holidays or concessions for organisations that are loyal and do
not miss payments
➢ Offer a conducive economic environment such as low interest, tax and lending rates
➢ Allowing attachees to go and learn skills from small firms
➢ The government can conduct market research of markets either local or abroad
Ways of business growth
Internal growth (or organic growth)
➢ This is the expansion of a business by means of opening new branches, shops or
factories.
➢ it refers to the expansion of the existing firm naturally benefitting from success, a
profitable firm will be financing expansion by reinvesting profits. Though slow, this
type of growth is relatively easy to manage and to absorb
NB: it helps to avoid problems of excessively fast growth, which tend to lead to inadequate
capital (overtrading) and management problems associated with bringing two businesses
together that often have different attitudes and cultures.
External growth
➢ This is normally business expansion achieved by means of merging with or taking
over another business, from either the same or a different industry
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Takeover
➢ This is when a company buys over 50% of the shares of another company and
becomes the controlling owner of it.
➢ It is when a predator firm swallows up another firm by buying more than 50% of its
shares, usually the company taken over remains distinct but now a controlling interest
is enjoyed by the predator firm.
➢ A takeover is often referred to as an ‘acquisition’. There are two types of takeovers
namely:

Friendly takeover – the firm being taken over encourages it for it will have
mutual benefits to both enterprises
 Hostile takeover – the firm being taken over fights to prevent the predator
from obtaining a controlling interest
NB: public limited companies are open to takeovers.
Merger
➢ This is an agreement by shareholders and managers of two businesses to bring both
firms together under a common board of directors with shareholders in both
businesses owning shares in the newly merged business
➢ it refers to a measure of voluntary agreement and fusing of the organisations rather
than just a change of ownership
Reasons for a merger
*to acquire:
➢ Outlets
➢ Markets
➢ A dominant position in market
➢ Intangible assets such as patents
➢ Control over supplies
➢ Products
➢ Economies of scale
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➢ Productive facilities
➢ Strength to combat foreign
➢ The benefits of plant specialization
competition
➢ Control over the development of
rival industries
Integration and Synergy
➢ Synergy literally means that “the whole is greater than the sum parts” (i.e. the 2 + 2 =
5 effect)
➢ Integration it is often assumed that the new, larger business will be more successful
than the two, formerly separate, businesses were. Integration can be in two ways
namely:
 Horizontal
 Vertical
▪
Forward
▪
Backward
Horizontal integration
➢ This is the growth of a business into activities of a similar nature.
➢ This is integration with firms in the same industry and at the same stage of production
e.g. Baker’s inn Vs Lobels
Advantages
➢ To reduce competition and secure market domination
➢ Reduce risks
➢ Secure the advantage of being large (buyer of inputs)
➢ Prevent price wars and/or duplication
➢ Increase financial strength
➢ Compete in world markets
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➢ Protect themselves from a hostile takeover
➢ Rationalise production e.g. concentrating all output on one site as opposed to two
➢ Achieve economies of scale
➢ Acquire the intangible assets of other companies e.g. goodwill, patents, trade names
Disadvantages
➢ Monopoly can lead to exploitation of consumers
➢ Complexity makes management difficult
➢ Bureaucracy and bottlenecks affect adaptability to environmental changes
➢ There is risk of loss of jobs when integration occurs
➢ Conflicts may arise due to differences in organisational cultures
Vertical integration
This type of integration can either be forward or backward
Vertical forward integration
➢ This is the growth of a business along the chain of production into the activities of its
customer
➢ it is basically integration with a business in the same industry but a customer of the
existing business e.g. a manufacturer opening own outlets
Advantages
➢ Secures and safeguards a secure outlet for the firm’s products – may now exclude
competitors’ products (that is, crowd off competitors from outlets)
➢ Establish a distribution network
➢ L ink successive stages in production
➢ Eliminate middlemen and absorb their share of profits
➢ Control the image of outlets
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➢ Gain economies of scale
➢ Gives control over quality, price and delivery times of supplies
Disadvantages
➢ Monopoly can lead to exploitation of consumers
➢ Complexity makes management difficult
➢ Bureaucracy and bottlenecks affect adaptability to environmental changes
➢ There is risk of loss of jobs when integration occurs
➢ Conflicts may arise due to differences in organisational cultures
Vertical backward integration
➢ This is the growth of firm along the chain of production into the activities of its
supplier
➢ It is basically integration with a business in the same industry but a supplier of the
existing business e.g. a wholesaler/retailer starting manufacturing activities
Advantages
➢ Secure supplies
➢ Gives control over quality, price and delivery times of supplies
➢ Gain economies of scale
➢ Encourage joint research and development into improved quality of supplies of
components
➢ Eliminate middlemen and absorb their share of their profits
➢ Crowd out competitors from supplies (business may now control supplies of materials
to competitors)
➢ Link successive stages in production
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Disadvantages
➢ May lack experience of managing a supplying company – a successful steel producer
will not necessarily make a good manager of a coal mine
➢ Supplying business may become complacent due to having a guaranteed customer
Conglomerate [diversification] integration
➢ The business now has activities in more than one industry. This means that the
business has diversified its activities and this will spread the risks taken by the
business e.g. a newspaper business took over a social networking company.
➢ If sales of newspapers tell due to changing consumer demand, sales from advertising
on social network sites could be rising at the same time due to increased interest in
this form of communication.
• There might be a transfer of ideas between the different sections of the business
even though they operate in different industries e.g. shoe and clothing manufacturers.
Problems of Mergers and Takeovers
➢ Increased size leading to diseconomies of scale
➢ Loss of key employees in the upheaval of a merger
➢ Shortage of funds after financing a takeover
➢ Inadequacies of senior management in a new large organization
➢ Loss of managerial control
➢ Poor industrial relations (conflicts)
➢ Inflexibility
➢ Communication problems due to lengthened chain of command
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➢ Coordination problems because of being too large
➢ Motivation problems
➢ Over-specialisation leading to boredom
NB: The existence of these diseconomies’ points to the danger of excessive growth in the
firm.
Impacts of growth of business on stakeholders
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1. Shareholders
Positive
➢ More dividends
➢ Greater stability
➢ Less vulnerable to takeovers
Negative
➢ Loss of control
➢ Dilution of earnings per share
2. Government
Positive
➢ More employment
➢ Greater tax revenue base
➢ Greater GDP
Negative
➢ Loss of jobs (due to mechanization)
➢ Emergency of monopolies
3. MANAGERS
Positive
➢ Promotional opportunities
➢ Better salaries
➢ Greater status
➢ Job security
Negative
➢ Wider spans of control – greater workload
➢ Loss of jobs
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➢ Loss of status
4.WORKERS
Positive
➢ Job security
➢ Better wages
➢ Better working conditions
➢ Promotional opportunities
➢ More varied career opportunities
Negative
➢ Loss of jobs (due to rationalization)
➢ Alienation
5. CUSTOMERS
Positive - Due to competition:
➢ More innovative products hence, improved quality
➢ Wider choice (greater variety)
➢ Low prices
➢ Better customer services
Negative - Due to monopoly:
➢ Less choice
➢ Too high prices
➢ Shoddy products
Effects of business growth
Advantages
➢ Eliminates one competitor.
➢ Mechanisation leading to mass production
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➢ Low cost of production
➢ Economies of scale
➢ Possible economies of scale.
➢ Scope for rationalising production, e.g. concentrate output on one site instead of two.
➢ Increased power over suppliers.
➢ Business is able to control the promotion and pricing of its own products.
➢ Secures an outlet for the fi rm’s products – may now exclude competitors’ products.
➢ Gives control over quality, price and delivery times of supplies.
➢ Encourages joint research and development into improved quality of supplies.
➢ Business may control supplies of materials to competitors.
➢ Diversifies the business away from its original industry and markets.
➢ This should spread risk and may take the business into a faster-growing market.
➢ Promotional opportunities
Disadvantages
➢ Diseconomies of scale
➢ Conflicts within the business
➢ Monopolies will lead to exploitation of consumers
➢ Complexity leads to difficulty in management
➢ Lack of job security
➢ Loss of jobs due to mechanisation
➢ Increased cost due to the need for research and development
➢ Loss of ownership and control
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SETTING UP A NEW ENTERPRISE POSSIBLE QUESTIONS
identify forms of unincorporated business enterprises
describe the forms of unincorporated business’ enterprises
explain advantages and disadvantages of unincorporated business enterprises
explain the purpose of business enterprises
identify forms of incorporated business enterprises
explain the features of incorporated business enterprises
analyse the benefits and limitations of different incorporated business enterprises
identify the requirements of setting up a business enterprise
establish a sole proprietorship or partnership business enterprise
explain issues concerning business ethics
evaluate the importance of being ethical in business
apply business ethics in their projects
describe factors influencing business growth
discuss the reasons why some businesses failure
suggest solutions to causes of business failure
Outline forms of business enterprises
describe the features of different forms of business enterprises
analyse the advantages and disadvantages of each form of business enterprise
compare and contrast different forms of business enterprises
justify reasons why new business enterprises need support
identify ways of support given to new business enterprises
explain why some enterprises grow and others remain small
discuss advantages and disadvantages of business enterprises being small or large
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identify risks associated with formation of new business enterprise
explain the concepts of corporate legal personality and limited liability
evaluate the importance of limited liability
perform fundraising activities to raise money for mini-enterprises
identify legal formalities required in the formation of a business enterprise
explain the contents of business documents required in the formation of a business
enterprise
Identify ways of measuring business size
evaluate the methods of measuring business size
discuss the role of Small to Medium Enterprises (SMEs) in the economy
identify government assistance to SMEs
identify methods of business growth
evaluate methods of business growth
assess the effects of business growth
apply at least one method of business growth to available business enterprises
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BUSINESS PLANNING F4 COMPLETE NOTES
Lesson objectives
•
Implement designed business plans on selected projects
•
Manage selected projects
Business plan
Def: This is a document that is drafted by the owners of the business and contains the
objectives and aims that a business intends to achieve in a certain period of time for example
6 months or 10 years to come
Projects
Def: this a large undertaking that is complex and needs resources and good management to
be successful for example construction of a sky scrapper
Business planning implementation
Success of an undertaking depends on the business plan that is designed, and the
implementation of the well thought business plan. the management needs to have resources
that will enable the undertaking within the stipulated timeframe, delays in a single stage will
affect the whole business duration of the undertaking. Inputs to successful execution
Vision and goals - Success starts with a compelling and clearly articulated description of the
to be or future. Specifically, it should describe what the services, products, markets,
customers, systems, resources, processes, staff, skills and assets look like.
Visibility - is critical and often overlooked. Leaders, teams and staff must have visibility of
the vision, goals, reasons for change and plans. They should not be confined to documents in
drawers or on servers – get them up for people to see.
Alignment - leadership, teams and individuals must be aligned with the vision for the future,
the case for action, the decisions taken and the action that is required for success. Successful
implementation is not possible without alignment.
Release planning - successful implementation usually requires systematic release planning –
planning and releasing changes as manageable and achievable steps. A common major pitfall
in change implementation is attempting to release the entire change at once which often leads
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to delays, unnecessary stress and failure. An example of release planning is a plan to climb to
Mount Everest – no one goes straight to the top.
Brainstorm possibilities
This is the stage at which the project manager may consider all the different possibilities or
outcomes of the project. This will be a summary of the whole implementation process. the
brainstorming process can be done in different ways such as:
1.
Brain writing - In this nonverbal brainstorming method, everyone writes down three
ideas that relate to the topic of the brainstorm.
2. Figure storming - In figure storming, the group picks a well-known figure who is not
in the room it could be a boss, a fictional character, or a well-known public figure—
and discuss how that person would approach the problem or think about this idea. For
example, you might ask: How would Strive Masiyiwa approach this problem.
3. Round-robin brainstorming - In a round-robin brainstorm, every member of the
meeting participates, contributing one idea to the brainstorm.
4. Mind mapping - Sometimes, the first idea shared with the group isn’t the right idea,
but it sparks three better ideas—that’s where mind mapping comes in.
5. Star bursting - Star bursting is a later-stage brainstorming technique that can be
implemented when a group has already selected an idea to elaborate upon and
potentially execute.
6. Change of scenery- Moving your brainstorm outside to a casual lunch place or even a
different floor in your building can help get new ideas flowing. Physical space plays a
big part in how employees work, think, and feel.
Planning and budget establishment Communication
1. Share your purpose - your purpose is the company’s reason for existence. This
statement should be the key driver that influences your business strategy and decisionmaking. You should communicate the company’s purpose in a way that is simple and
relatable to all employees.
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2. Give employees the big picture - in order for employees to appreciate how your
business strategy is superior to your competitors,’ they need to be aware of what is
happening in your industry.
3. Prioritize messages - there will be frequent updates in terms of your business
strategy and a communication goal should be to prioritize them based on importance,
you should aim to share inspirational messages with your team, accomplishments and
new ideas serve as encouragement to your employees.
4. Remain present - even though it can be difficult to meet with all of your staff, an
effective communication goal of your business strategy should be to set aside time to
make periodic visits to staff on the frontline.
5. Use storytelling - a business strategy can be a dull and static document. Bring your
strategy to life with the power of storytelling. Everyone can relate to a good story, so
include this as a goal to effectively communicate your business strategy.
6. Invest in your employees - Your employees are the ‘face’ of your business. It
follows that your employees’ understanding and adoption of your business’s strategic
values will impact on the way they relate to customers
7. Diversify the delivery - An effective communication goal should be to experiment
with different Medias to deliver information about your business strategy.
8. Be relatable - with more high-level executives using social media to connect with
customers, there’s no excuse to remain unconcerned in relation to your employees.
9. Create interest - some employees just come to work for a pay check. As far as
they’re concerned, they do their jobs well, get compensated, and that’s the end of it.
Conduct controls and risk assessment
“Controlling is the process of establishing and implementing mechanisms to ensure that
objectives are achieved” Top managers use controls to guide and effect change in the
organisations they lead. Four types of controls are identified.
1. Preliminary controls
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•
Anticipate and prevent possible problems
•
Planning and organising are key functions in preliminary control
•
Is also called feed forward control
•
Example of preliminary control is preventative maintenance, such as routinely tune up
of engines of busses transporting participants, to prevent breakdowns
2. Concurrent controls
•
Concurrent controls are actions taken during transformation to ensure that standards
are met
•
Key success is quality control
•
Example, player assistance out on a golf course, if employees are not satisfied
supervisors know it early on and fix the problem before the game is over
3. Rework controls
•
Rework controls are action taken to fix output
•
Rework is necessary when preliminary and concurrent controls fail
•
Example, Gilbert makes defective rugby balls (outputs), it is too late; the company
cannot change the past
4. Damage controls
•
Damage controls are actions taken to minimize negative impacts on customer
attributable to faulty output
•
When a faulty product or service gets to a customer, damage control is needed
•
Forms of damage control are to refund the purchase price, fix the product, re-perform
the service, or replace the product with a new one.
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Execution
1. First check your view of the reality of your situation.
➢ If you start with a distorted or biased view of what your company needs, no execution
is likely to achieve the results that win.
➢ Also, if you are not totally committed in spirit, as well as resources, to a strategic
change, it probably won't happen.
➢ Doing what it takes to win involves risk and sacrifice
2. Replace strategic planning with a change process.
➢ Strategy must be a process, with an implementation system behind it, rather than just
a periodic event.
➢ The process must focus not only on the "what" but also on the "how." This must
include metrics and tracking, with the necessary systems and resources to act,
recalibrate, and iterate as required.
3. Create the environment and equip people to succeed.
➢ Strategic execution requires a business environment where everyone is on board, and
able to complete their part of the process.
➢ Team members must be engaged and enabled to do the job that means aligned,
equipped, coached, supported, and valued for the work and changes ahead.
➢ Communicate with people, not at people, before, during, and after you develop any
strategic initiative.
4. Be selective in recruiting and building the right team.
➢ Look for people with a growth mindset, rather than a fixed mindset that may be hard
to change.
➢ Give special attention to traits that fit your specific customer context, or a higher
purpose you espouse, such as a focus on the environment.
➢ Beware of biases that can work against strategic initiatives.
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5. Personalize your commitment and lead the initiative.
➢ Don't allow yourself to be the enemy by letting external distractions take priority,
being selectively inaccessible, or not making timely decisions. Control your ego, and
practice being vulnerable at the right time to maintain their respect.
➢ Your team commitment must be evident and actions consistent.
Evaluate the outcome
1. Schedule - project management success is often determined by whether or not you kept to
the original timeline. Experienced project managers know how hard that is, but it’s a little bit
easier if you continually evaluate your progress as you go.
2. Quality - the end of a project phase is a good time for a quality review. You can check
both the quality of your project management practices, are you following the change
management process every time and so on and also the deliverables.
3. Cost - many executives would rate cost management as one of their highest priorities on a
project, so evaluating how you the project is performing financially is crucial. Compare your
current actual spend to what you had budgeted at this point. If there are variances, look to
explain them. You can use a project dashboard to check your actual spend in real time.
4. Stakeholder Satisfaction - your wider team – your stakeholders – are essential in getting
much of the work done, so it’s worth checking in with them. Find out how they are feeling
about the project right now and what you could be doing differently.
5. Performance - finally, you’ll want to go back to the business case and see what you
originally agreed upon. How is your project shaping up? are the different departments able to
achieve set objectives?
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BUSINESS PLANNING POSSIBLE QUESTIONS
➢ explain business planning and a business plan
➢ describe importance of business planning
➢ explain importance of a business plan
➢ design a mini-business plan
➢ identify different business objectives
➢ describe business planning process
➢ discuss importance of each business planning step
➢ execute business planning process
➢ explain components of a business plan
➢ explain the importance of a business plan
➢ develop a business plan
➢ implement designed business plans on selected projects
➢ manage selected projects
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ENTERPRISE FINANCE AND SECURING INVESTORS F4 FULL NOTES
Lesson objectives
➢ define the cost
➢ classify costs
➢ explain the break-even analysis
➢ construct a break -even chart
➢ calculate:
✓ break-even point
✓ breakeven output
✓ margin of safety
➢ discuss the importance of break-even analysis.
Costs
Def: these are business’ day to day running expenses that are incurred by an organisation and
are classified as fixed and variable costs.
Fixed costs
Def: these are business’ day to day expense incurred by a business and remain constant
despite an increase in the level of production. These costs will be even if the business does
not produce anything. E.g. rent, salaries, insurance
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Fixed cost gragh
120
100
100
100
100
100
100
200
300
Output [units]
400
costs
80
60
40
20
0
Variable costs
Def: these are business’ day to day expense incurred by a business that vary or change with a
decrease or an increase in the level of production. These costs will be 0 if the business does
not produce anything. E.g. direct materials, direct labour, direct selling costs
Variable cost gragh
350
300
300
costs
250
200
200
150
100
100
50
0
0
100
200
300
Output [units]
400
Total costs
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Def: this attained by adding an enterprise’s fixed and variable costs, if the total costs are in
excess of sales revenue the enterprise will have a loss whilst if sales revenue is in excess of
total costs the enterprise will have a profit
Total cost gragh
450
400
400
350
costs
300
300
250
200
200
150
100
100
50
0
100
200
300
Output [units]
400
Direct costs
Def: these are costs incurred by a business that are directly related to a particular product and
can be traced up to the final product e.g. direct materials, direct labour costs
Indirect costs
Def: these are costs incurred by a business that are not directly related to a particular product
and cannot be traced up to the final product and can also be called overheads e.g. rent,
supervisors salaries
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Break-even chart
700
600
costs $
500
400
300
200
100
0
100
200
300
400
Output [units]
Total cost
Fixed costs
sales revenue
Profit
This the gap between sales revenue and total costs [where sales revenue exceeds total costs]
the grey line is above the blue line. This stage the business will have more revenue than
spending more than total costs due to high market share.
Loss
This the gap between total costs and sales revenue [where total costs exceeds sales revenue]
the blue line is above the grey line. This stage the business will spending more than the
revenue maybe due to intensive advertising and low market share.
Margin of safety
This is the gap that is on the graph, which lies between the sales revenue and the break-even
quantity. This is an area that a business feels safe to operate because anything to the left will
lead to losses.
Break-even point
This the point where total cost and total revenue are equal and there is no profit or loss. This
point is better than operating at a loss [point where the blue line meets the grey line. This
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means the sales revenue has reached a level that they are adequate enough to cover for costs
without making a profit or loss.
Break even quantity
This is the volume of goods that are sold to ensure that the costs are covered and there is no
loss. From the graphical presentation above the break-even quantity is 200 units
Break-even price
This is the price at which goods will be sold and be able to meet the costs incurred by the
business and not make a profit or loss
Cost Volume -Profit analysis/ Break-even analysis
This is a graphical presentation that seeks to show the relationship between total revenue,
total costs and profits or losses of an organisation. This will comprise of ratios calculated to
show the same information presented on a graph
➢ enables to see the volume of sale that will earn the business a profit
➢ enables the business to price its products
➢ identify the total costs of a business so that it can work towards reducing the costs to
earn a profit
➢ enables management to understand effects of cost fluctuations
➢ enables the business to launch a certain product basing on its profitability
Advantages of the cost volume profit analysis/ break-even charts
➢ Managers are able to read off from the graph the expected profit or loss to bemade at
any level of output.
➢ The impact on profit or loss of certain business decisions can also be shown by
redrawing the if the manager graph decides to increase output level and the selling
price.
➢ If revenue rises, he break-even point of production falls and maximum profit rises
which will be a wise decision.
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➢ The break-even chart can also be used to show the safety margin - the amount by
which sales exceed the break-even point.
Limitations of break-even charts
➢ Break-even charts are constructed assuming that all goods produced by the firm are
actually sold - the graph does not show the possibility that inventories may build up if
not all goods are sold.
➢ Fixed Costs only remain constant if the scale of production does not change. E.g.
example, a decision to double output is almost certainly going to increase fixed Costs.
➢ Break-even charts concentrate on the break-even point of production, but there are
many other aspects of the operations of a business which need to be analysed by
managers, for example how to reduce wastage or how to increase sales.
➢ The simple charts used in this section have assumed that costs and revenues can be
drawn with straight lines.
FORMULAE
1. Contribution (also known as contribution margin
) Sales-variable costs
2. Contribution per unit = Selling price per unit - variable cost per unit
3. Contribution/Sales ratio (profit volume ratio)
(Or contribution margin ratio)
4. Profit =
Contribution × 100
Sales
Total sale proceeds - total costs [fixed costs+ variable costs]
5. i) Margin of safety
profit
C/s ratio
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ii)
Margin of safety ratio (M.O.S as a %)
=
Actual Sales-Break even
sales × 100
Actual sales
6. Break even quantity
Total Fixed Costs
Contribution/unit
7. Break even value Break even quantity × selling price/unit
or Total fixed costs × selling price/unit
C/S ratio
8. Level of sales required to achieve targeted
Profit (quantity-units)
Fixed costs + target profit
contribution/unit
Case study example
Preston Ltd makes wooden desks. The production level in units is10 000 per year. selling
price of each desk is $50. The variable costs of materials and production labour are $20. The
monthly fixed costs are $24 000.
Calculate the following at the end of the year
a) Contribution per unit
b) contribution
c) Break-even quantity
d) Contribution sales ratio
e) Break-even value
f) Profit
g) Margin of safety
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Contribution per unit
Selling price – variable costs
50 – 20
= $30/unit
Contribution
Sales – variable costs
[(10 000 * 50) – (10 000*20)]
500 000 - 200 000
$300 000
Break-even quantity
Total Fixed Costs
Contribution/unit
[24 000 * 12 months]
30
288 000
30
9 600 units
Contribution sales ratio/ contribution margin ratio
Contribution × 100
Sales
300 000 × 100
500 000
60 %
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Break-even in value
Total Fixed Costs * selling price
Contribution/unit
[24 000 * 12 months] * 50
30
288 000 * 50
30
14400 000
30
$ 480 000
Alternative method
Total Fixed Costs
Contribution/ sales ratio
[24 000 * 12 months]
300 000/500 000
288 000
0.6
$ 480 000
1. Profit =
Total sale proceeds - total costs [fixed costs+ variable costs]
10 000 * 50 – (24 000 * 12) +(10 000 * 20)
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500 000 – 288 000 + 200 000
500 000 – 488 000
12 000
i) Margin of safety in units
profit
Contribution/sales ratio
12 000
60%
20 000 units
Margin of safety in value
profit *selling price
Contribution/sales ratio
12 000 * 50
60%
$100 000
Margin of safety in units
Actual sales - break even sales
[(10 000 * 50) – (9600 * 50)]
500 000 - 480 000
20 000 units
Margin of safety in units
Break even sales * selling price
20 000 * 50
1000 000
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Budgets and budgeting
Lesson objectives
➢ Define the term budget
➢ Explain the concept of budgeting and budgets
➢ Identify different types of budgets
➢ Prepare different types of budgets
➢ Explain the importance of budgets
Def: A budget is a detailed financial plan usually quantitative covering a defined period of
time often quarterly.
Def: This is a plan for the future containing numerical or financial targets.
Def: it is a financial plan of future cost and revenue of the business of a stipulated period of
time often a quarterly.
Functions of budgets
The functions of budgets are represented by the following acronym C.R.U.M.P.E.C
C – Coordination - facilitate coordination of activities through discussions with different
departments and divisions. The departments will have to be coordinated and made to work
together to achieve set objectives.
R – Responsibility - facilitate monitoring and control of expenditure. It enables managers to
compare actual performance with the budgeted target. Variances will be identified and causes
identified for corrective action to be taken.
U- Utilisation of resources - There is effective allocation of resources. The business will not
spend resources more than it has access to. It will set priorities on how to use funds.
M – motivation - By giving freedom within the budget, middle management and the
employees can be motivated since they are involved in the setting of targets/ objectives.
P- Planning - facilitate setting of targets to be achieved. Employees work better if they have
realistic targets. This enables the tasks to be done properly with minimum confusion and
conflicts.
E – Evaluation of performance - can be used to assess performance of individual
employees. Actual performance is measured against a quantitative target.
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C – Communication- it facilitates two-way communication between superiors and
employees, departments in the organisation. This may be through budget meetings to discuss
allocation of resources.
Limitations of budgets
➢ Budgeting is costly to the business. It uses up resources like time taken up setting
budgets and other related costs.
➢ It may lead to unnecessary expenditure by departmental heads towards year end if
they realise, they still have some unused allocated funds to justify future budget
increases.
➢ The budgets prepared depend on the accuracy of information available and plans.
➢ There is rigidity especially with budgeted costs. e.g. budgets can be set so that older
vehicles must be kept rather than replaced which can lead to customer dissatisfaction
and lost orders because deliveries are unreliable.
➢ Budgets may demotivate workers who fail to meet targets and also if the workers are
not consulted when setting budgets, it will be more difficult to use the budget to
motivate them
➢ Budgets may lead to departmental conflicts over allocation of resources.
➢ Workers may view budgets as pressure devices imposed by management
➢ Some managers may overstate expected costs and understate revenue to avoid
responsibility for future over expenditures.
Types of budgets
➢ There are different types of budgets prepared by enterprises namely:
✓ Sales budget
✓ Production budget
✓ Material purchases budget
✓ Cash budget
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Sales budget
Collerette Pompom
Cacti
Total
Sales volume
XXX
XXX
XXX
XXXX
Price per unit
X
X
X
XX
Total value
XXX
XXX
XXX
XXXX
Cacti
Total
Dahlia Limited makes three products Collerette, Pompom, and Cacti.
Budgeted Sales
Collerette
2,000 @ £100
Pompom
4,000 @ £130
Cacti
3,000 @ £150
Required:
Using the information above, complete the sales budget template:
Collerette Pompom
Sales volume
2 000
4 000
3 000
9 000
Price per unit
100
130
150
380
Total value
200 000
520 000
450 000
3420 000
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Production budget proforma
Collerette Pompom
Cacti
Total
Sales volume
XXX
XXX
XXX
XXXX
Add closing inventory
XX
XX
XX
XXX
XXX
XXX
XX
XXXX
Less opening inventory
[XX]
[XX]
[XX]
[XXX]
Production
XXX
XXX
XXX
XXXX
In addition to the sales figures given in Exercise 1, Dahlia Ltd intends to have the following
stocks of finished goods.
Finished Stock Budget
Collerette Pompom Cacti
Opening Stock Units
500
800
700
Closing Stock Units
600
1,000
800
Cacti
Total
Required:
Using this information, complete the production budget for Dahlia Ltd.
Collerette Pompom
Sales volume
2 000
4 000
3 000
9 000
Add closing inventory
600
1 000
800
2 400
2 600
5 000
3 800
11 400
Less opening inventory
[500]
[800]
[700]
[2 000]
Production
2 100
4 200
3 100
9 400
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Cash budgets
➢ This a final account that shows the amount of cash a business has, this cash can either
be sufficient or insufficient [surplus/ deficit]
➢ If income is in excess of expenditure this means the business has a cash surplus whilst
if expenditure is in excess of income this means the business has a cash deficit
➢ A cash budget is prepared on a monthly or quarterly basis, the balance in the first
month or quarter is brought forward in the next month or quarter
Proforma of a cash budget
Cash budget
Inflows
Jan
Feb
Mar
Sales
xx
xx
xx
Donations
xx
--
--
Disposals of assets
--
xx
--
Total inflows
xxx
xxx
xx
Acquisitions of assets
xx
--
--
Purchases
xx
xx
xx
Wages and salaries
xx
xx
xx
General expenses
x
x
x
Drawings
x
x
x
Total outflows
[xx]
[xx]
[xx]
Net inflows/ outflows
xxx
xx
xx
Opening balance
--
xx
xxx
Closing balance
xx
xxx
xxx
Outflows
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Dahlia Limited had the following information for a a 3rd of the year to April 2019
Jan
Feb
Mar
April
Purchase of materials
3 000
3 000
5 000
7 000
Cash sales
15 000 15 000
20 000
25 000
Rent and other expenses
15 000 15 000
25 000
15 000
Payments from debtors
5 000 5 000
7 000
8 000
Opening balance
3 000
Required:
Prepare a cash budget for the four months to 30 April 2019
Cash budget for Dahlia Ltd for the period of January to April 2019
January
February
March
April
Receipts
$
$
$
$
Cash Sales
15 000
15 000
20 000
25 000
Receipts from debtors
5 000
5 000
7 000
8 000
Total inflows
20 000
20 000
27 000
33 000
Purchase of materials
3 000
3 000
5 000
7 000
Rent and other expenses
15 000
15 000
25 000
15 000
Total outflows
18 000
18 000
30 000
22 000
Net inflows/ outflows
2 000
2 000
[3000]
11 000
Add opening balance
5 000
7 000
9 000
6 000
Closing balance
7 000
9 000
6 000
17 000
Payments
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NB// the closing balance $7 000 in the first month [January] becomes the opening balance in
the next month [February] $7 000.
Ways of securing investors
Fear of the unknown is basically an instinct human have adopted, this is what drives
investors, an environment full of uncertainties discourages investors whilst a stable
environment that offers security attracts investors. This is basically a two-way traffic which is
part government and part enterprise through the following:
➢ Favourable government policy
➢ Good corporate governance
➢ Reputable brand
Favourable government policies
➢ The government plays a pivotal role in ensuring that it provides the best environment
that will attract investors through the following:
✓ Economic stability
✓ Taxation
✓ Infrastructural development
✓ Training and development of the labour market
Economic stability
➢ The government should ensure it puts in place economic systems that favour growth
and development of business such as free market and mixed economy.
➢ If the government ensures that the conditions are favourable the market will be full of
both local and external investors willing to take risks and get returns on their
investment.
➢ The government should ensure that it offers low and stabilise the following:
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✓ Inflation – the government will ensure that it keeps the inflation rate as low as
possible to encourage development of enterprises, stable inflation will attract
investors since they will security on their investments
✓ Interest rates – the government will make sure to keep interest rates as low as
possible to allow borrowing and increasing the buying power [marginal
propensity to spend]. This will increase sales of organisations hence allowing
them to have security visa vee cut throat competition.
✓ Currency – the government will ensure that the local currency is stable visa
vee other currencies e.g. USD Vs ZWD. This will enable business to buy
components outside cheaply hence can sell their products at low prices e.g.
Mazda and G-tel.
➢ Taxation
✓ The government must ensure that it charges tax that is fair to the enterprises so
that they encourage them to operate and earning more profits
✓ The government can also have a policy that businesses that pay religiously and
loyally taxes for a certain period they should have tax exemptions or tax
holidays
➢ Infrastructural development
✓ The government should chip in and assist in the development of infrastructure
that can be utilised by the businesses and encouraging their development e.g.
roads and communication networks.
✓ The government both national and local should develop boreholes, market
places for both Agric products and clothing that will be conducive and meet
their legal requirements
➢ Training and development
✓ The government can also develop Training centres and vocational training
institutes where the local individuals can enhance and advance their skills for
them to be marketable locally and abroad, this will enable development to
advance in terms of innovation.
Good corporate governance
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➢ Corporate governance these are the rules laws and regulations that govern businesses
➢ The government and businesses should try by all means to ensure that it offers a good
corporate governance to attract investors both local and international investors.
➢ Government and businesses can utilise the best economic system that will attract
investors yet they can also monitor the activities of the private sector [mixed
economy]
➢ The government should have favourable and conducive environment that will enable
the private sector businesses to operate very well.
➢ The government can also try to ensure that there will be political stability within the
country, can also have effective anti-corruption measures this will ensure that
unnecessary costs will be charged to businesses.
Developing and nurturing brands to be reputable
➢ Having reputable brands within the business will create brand loyalty and goodwill,
this will attract investors both local and international since they have a guarantee that
the shareholder value will increase.
➢ Such brands can also instil confidence in the investors since these are not products
with an uncertain future e.g. Econet, Samsung, Toyota
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ENTERPRISE FINANCE AND SECURING INVESTORS POSSIBLE QUESTIONS
• explain the need for finance in an enterprise
• explain investment and saving
• identify sources of finance
• differentiate between internal and external sources of finance
• explain advantages and disadvantages of various sources of finance
• identify factors to consider when choosing sources of finance
• explain importance of keeping accurate financial records
• prepare an income statement
• draw a statement of financial position
• prepare a simple cash budget
• describe a cash budget
• explain the meaning of working capital
• identify components of working capital cycle
• discuss importance of managing working capital
• explain ways of managing working capital
• control working capital in a given enterprise
• prepare an income statement
• draw a statement of financial position
• identify different types of financial institutions
• explain functions of different financial institutions
• classify costs
• explain break-even analysis
• construct a break-even chart
• calculate break-even point, output and margin of safety for a business venture
• discuss importance of breakeven analysis
• explain the concepts of budgeting and budgets
• identify different types of budgets
• prepare a budget for an enterprise
• explain the importance of budgeting
• explain different ways of attracting investors
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MARKETS AND MARKETING F4 COMPLETE NOTES
MARKET RESEARCH
Lesson objectives
➢ Define the term market segmentation
➢ Explain the concept of economic integration
➢ Describe the aims of different economic blocs
➢ Explain the advantages and disadvantages of economic integration
➢ Define the term marketing
➢ Identify the marketing mix variables
➢ Explain the marketing mix variables
➢ Evaluate the impact of the marketing mix variables on marketing
Marketing
Def: it is identification, anticipating and satisfying consumer tastes and preferences for a
profit
Economic integration
Def: it is a process where neighbouring counties come together to form an organ that will be
responsible for the welfare of member states through elimination of tariffs e.g. Southern
African Development Community [SADC], Common Market for Eastern and Southern
Africa [COMESA], Economic Community of West African States [ECOWAS], African
Union [AU]
Trading blocs
Features of trading blocs
A trading bloc is a group of countries that has removed trade restrictions between and among
member states in order to facilitate trade.
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It is a preferential trade agreement between a sub-set of countries, which are usually
neighbouring countries or countries that are geographically close and is designed to
significantly reduce and eventually eliminate trade barriers within member countries.
Southern African
Development Community [SADC]
Common Market for
Economic Community of West
Eastern and Southern
African States [ECOWAS]
Africa [COMESA]
Angola
Energy conservation and
Burundi
Benin
Comoros
Burkina Faso
DRC
Cape Verde
Djibouti
Cote d’Ivoire
Egypt
Gambia
Eritrea
Ghana
development
Botswana
Agricultural research and
animal disease control
Lesotho
Soil and water
conservation and land
utilisation
Malawi
Fisheries, wildlife and
forestry
Mauritius
Tourism
Mozambique Transport and
communication
South Africa
Finance and investment
Ethiopia
Guinea Bissau
Swaziland
Manpower development
Kenya
Liberia
and trade
Tanzania
Industry and trade
Libya
Mali
Zambia
Development fund and
Seychelles
Nigeria
Madagascar
Senegal
Malawi
Sierra Leone
mining
Zimbabwe
Food security
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Mauritius
Togo
Rwanda
Sudan
Swaziland
Uganda
Zambia
Zimbabwe
Southern African Development Community [SADC]
Aims:
➢ Improvement of living conditions of people in southern Africa
➢ Reduce economic dependence of SADC members
➢ Pooling of resources to implement national, and regional policies
Advantage of SADC
➢ Forms a significant economic unit with a GDP of approximately 40 billion
➢ The countries are close to each other hence they share common problems
➢ There is a greater market due to bilateral and multi-lateral trade
Disadvantages
➢ Different political ideologies
➢ Individually SADC is poverty stricken
➢ There is no free market approach in SADC
➢ Economic dependence on South Africa especially on transport and mining
➢ Some counties Historically are tied to south Africa such as Botswana, Lesotho and
Swaziland
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Common Market for Eastern and Southern Africa [COMESA]
Aims:
➢ Improve economic and commercial cooperation in the region
➢ Transformation of the structure of production of national economies in the region
➢ Promotion of regional trade amongst member states through monetary arrangements
➢ Development of basic and strategic industries
➢ Promotion of cooperation in agricultural development
➢ Improvement of transport links
➢ Development f technical and professional skills
➢ Create a regional common market
Economic Community of West African States [ECOWAS]
Aims:
➢ To develop a complete customs union
➢ Increase trade between member states
➢ Improve communication
➢ To finance dam projects and mineral extraction
➢ To establish a common currency
Problems
➢ Dependency syndrome to rich countries
➢ Regional countries are poverty stricken
➢ Political differences [ideologies]
➢ Variations in scales in different counties
➢ Inefficient communication systems
Aims of trading blocs
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➢ Reduce reliance on countries outside the bloc, therefore encouraging the bloc to be
independent.
➢ Promote trade among member states by reducing tariffs.
➢ Foster peace, friendship and understanding among member countries.
➢ Assist each other economically during problematic times.
➢ Bargain powerfully as a group when negotiating for financial assistance or debt
cancellation.
➢ Mobilise resources together and share ideas or technology as a group.
Advantages of trading blocs
➢ These are advantages of trading blocs.
➢ They are a form of regional economic integration.
➢ They promote free trade between members.
➢ They encourage political commitment to regional organisation.
➢ Members with geographical proximity can form close ties.
➢ Transport costs remain low due to the close proximity of members.
➢ They give more trading security.
➢ They encourage the extension of existing global multilateral trading systems.
➢ They are similar or compatible trading regimes for bonds, for example, countries with
almost the same levels of economic development.
➢ They are countries with similar levels of per capita gross national product (gross
national income).
Disadvantages of trading blocs
➢ They encourage regional trade as opposed to global free trade.
➢ They lead to more fragmented world trade or economy.
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➢ This trade liberalism is discriminatory, meaning it applies only to the member
countries of the bloc, not those outside the bloc.
➢ They are detrimental to global free trade.
Marketing Mix
Marketing mix consists of the 4Ps, that is, Product, Place, Price and Promotion.
This refers to controllable variables that are considered by the organization when coming up
with ways of responding to the market’s demand.
It is the total assortment of product, place, price and promotion.
1.Product
It is the total set of characteristics designed to provide quality to the customers.
It is anything that can be offered to marketing for attention.
It considers variety, size, packaging, brand names and product features.
2.Price
It is the monetary value attached to a product.
It is what the product is expected to be worthy.
It is the value which is used for the exchange of products.
It consists of credit terms, discounts, pricing strategies and policies.
3.Promotion
It is a set of tools or tactics which are used to encourage consumers to buy the product, for
example, sales promotion. This include advertising, personal selling, publication etc.
4. Place
These are tactics involved in moving goods to the right consumers at the right time.
It includes issues on channels, coverage, location and transport.
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This is a term used to describe all the activities that go into the marketing a product or
service. The marketing mix helps the company to:
➢ Design and supply products that are demanded by the market
➢ Place the products in the market
➢ Support products with a suitable promotion
➢ Sell products at a realistic price.
The variables of the marketing mix, also known as the four 'P's, include:
Product, Price, Promotion, Place.
Product
The product itself is the most important variable of the marketing mix as it is the reason why
the business exists.
Type of products.
There are several types of products such as:
➢ Consumer goods
➢ Consumer services
➢ Producer goods.
Some are sold to consumers and some to other businesses. Let's look at these types of
products in a bit more detail.
➢ Consumer goods are goods that are consumed by people. They can be goods that do
not last long, such as food and cleaning materials. Some goods last quite a long time
and give enjoyment over a long period of lime, such as furniture and computers.
➢ Consumer services are services that are produced for people, such as dry cleaning,
hairdressing and education.
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➢ Producer goods are goods that are produced for other businesses to use. They are
used in the production process, such as machinery and electrical components.
➢ Producer services are services that are produced to assist other businesses, such as
accounting and insurance.
Successful Marketing depends upon branding and packaging which play a pivotal role in the
marketing of products.
Branding
Manufacturers of most products do not sell them directly to customers. They are sold to
businesses or retailers, who then sell directly to customers.
This means that a brand has to be created for the product to show off the product's unique
features. Branding includes:
➢ The brand name is a unique name given to a product to distinguish it from other
brands.
➢ Businesses use brands for their products, so that consumers can easily identify their
products and also to encourage consumers to keep buying their products and not those
of their competitors. When consumers do this, itis known as brand loyalty.
➢ Brand image is an image or identity given to a product that gives it a personality of
its own and distinguish it from competitor brands. The brand image gives the
assurance of guaranteed quality to customers.
Packaging
This is the physical container for a product or the outside wrapping of a product. The
packaging of a product has the following functions.
➢ It gives protection to the product and prevents it from getting spoilt.
➢ Packaging carries information about the product, such as the ingredients used to make
the product and also the expiry date of the product.
➢ It should also help the product to be used easily.
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➢ It should allow for easy transportation of the product.
➢ Packaging is also used for promoting the product. Packaging catches the eye and
therefore draws the attention of the customer to a product.
➢ The brand image will be reinforced by its packaging.
Product life cycle [PLC]
The product life cycle (PLC) describes the stages that a product will go through from its
introduction to its decline. It is much like the life cycle of a human being from birth through
their teens and middle age, to death. These are the stages:
➢ Introduction
➢ Growth
➢ Maturity
➢ Decline.
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Stages in detail.
➢ Product development is the first stage. The product is developed and tested and tried
through market research before finally being launched. There are no sales at this
point.
➢ The introduction of the product is when it placed on the market. Consumers are not
aware of the product; therefore, sales will grow. No profits are made at this stage but
the business only recovers its production costs. The type of customers that are found
under this category are known as innovators [these taste products for the first time]
➢ The growth of the product happens when sales start to grow rapidly, and as a result
the company starts to enjoy some profits. The type of customers that are found under
this category are known as early adopters
➢ Maturity is the stage when sales only increase slowly. Competition then increases
until profits are very high. The type of customers that are found under this category
are known as late adopters
➢ Decline occurs when sales drop as new products come along, or because the product
has lost appeal to its customers. The product will usually be removed from the market
when sales become very low and prices need to be reduced in order to sell the
product. The type of customers that are found under this category are known as
laggards
The process of the product life depends on each product, as well as on the type of product. A
product life cycle is presented in a graphical manner as below
Extension of the product life cycle
Mostly when a product reaches the maturity or saturation stage of its cycle, a business may
prevent sales from falling by extending the PLC. There are many ways a business can do this
and these include:
➢ Using a new advertising campaign
➢ Introducing new packaging for the product
➢ selling through different retail outlets
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➢ selling the product into new markets, such as opening up export markets
➢ introducing new variations of the new product, such as a soft drink company that
introduces sugar-free variations of their products
Price
Price is the second 'P' in the marketing mix, this is a very important element of the marketing
as it is the only 'P' that brings in revenue. Price includes these two elements:
➢ factors that influence price
➢ Pricing strategies.
Factors that influence price
The price that a business decides to charge for its product will be influenced by internal and
external costs.
➢ Internal factors include:
✓ The cost of production of the product – the higher the cost of production
the higher the prices of products whereas the lower the cost of production the
lower the price of the products
➢ External factors are factors such as:
✓ Supply – the higher the supply of products on the market the lower the prices
of the product whilst the lower the supply of products on the market the higher
the price of the products’
✓ Government policies – the government is the one that is responsible for
setting rules, laws and regulations such as price control act that will affect
prices of products on the market
✓ Consumer perceptions - this is act of consumers jumping into conclusions
based on a particular product or brand. This might be based on the quality of
the product or the brand name of the product
✓ Availability of substitutes – the availability of products that can replace the
product on the market e.g. margarine vs peanut butter
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✓ Nature of the product – this mainly centre on whether the product is a basic
need or not, if it is a basic need which means its highly demanded in our
everyday life e.g. mealie-meal hence the price will be high
✓ Competitor’s price refers to what your competitors what the competitors are
selling the same type of product for – the prevailing market prices that
competitors are charging.
✓ The position of the business in the market [market leader] can afford to
charge fairly high prices for their brands as they are established in the market.
✓ Demand is measured by how many people are both willing and able to
purchase the product. The demand for a product varies with how much is
charged for the product. Demand is also affected by the price being charged
for complementary goods (goods that are bought and consumed together) and
also by the price of substitutes (products that are bought and used in place of
the product). The supply of a product also varies with price. When the price
increases, a producer plans to sell more of their product to benefit from the
higher prices.
Pricing strategies
As you have learnt, the price is not only determined by demand and supply. The producer has
a lot of influence over the price that is charged. The producer may adopt pricing strategies for
different reasons, such as:
➢ To try to break into a new market
➢ To increase the market share
➢ To increase profits
➢ To ensure that all production and advertising costs are covered
➢ To ensure that a certain profit margin is earned.
The following are pricing strategies that a business can adopt.
➢ Penetration pricing is when the price is set lower than competitors' prices in order to
be able to enter a new market. This ensures that sales are made and that the new
product finds its way into the market.
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➢ Skimming is when an initial high price is charged to introduce a product in order to
recover research and development costs. This is usually done for a unique product or
when establishing 'status symbol' products. As the appeal for the product dies down
and many competitors come in to the market, the producer then lowers the price of the
product.
➢ Market pricing is when the business is a 'price taker' and sets the product price at or
near the Current market rate in order to avoid price wars. Discrimination pricing is
when different prices are set for the same product in different markets.
➢ Psychological pricing is when particular attention is paid to the effect that the price
will have upon consumer perceptions. An example of this is when a supplier makes
the price look cheaper by pricing it below the round figure, such as $19.95 rather than
$20.00.
➢ Cost-plus pricing is the cost of manufacturing a product, plus a profit mark-up that the
business wants to adopt. Here, the company works with two variables to determine
the price:
✓ The total cost of production
✓ The mark-up.
Promotion
Promotion refers to all activities that are designed to make customers aware of a company's
products in order to encourage them to buy. Companies promote their products for the
following reasons:
➢ To introduce new products onto the market
➢ To compete with competitors' products
➢ To create a brand image
➢ To increase the sales of the existing product
➢ To improve the company's image.
There are four main methods of promotion:
➢ Advertising
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➢ Personal selling
➢ Direct marketing
➢ Sales promotion
Advertising
Advertising is the process of spreading information and drawing the attention of the public to
the products and services of a particular manufacturer. It is telling people about product or
service in order to persuade them to buy it.
There are different types of advertising:
➢ Informative advertising
➢ Persuasive advertising
➢ Competitive advertising
➢ Collective/generic advertising.
Informative advertising
is where the emphasis of advertising or sales promotion is in giving full information about
the product. This method of advertising is usually used by the Government to inform the local
people about crucial information. Gives facts about the product and leaves the customers to
make rational decisions. Organisations will inform clients or potential customers of:
•
opening and closing times
•
changes in address
•
how to use a particular product
•
vacancies
Persuasive advertising
Is advertising or promotion that is trying to persuade the consumer that they really need the
product and should buy it. This will involve the use of attractive language that will entice the
customers. This type of advertising will involve thorough research and development of the
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product or service so as to stay at the helm of the market. Persuade or encourage people to
buy a certain product. Brand names are used on products to distinguish the products from
competitors. Persuasive is mainly used when introducing a new product and competitive used
on existing products. Persuasive used to lure customers to buy products
Persuasive advertising will involve:
•
lowering of prices
•
providing quality products
•
identifying niche markets
Competitive advertising
An advertising technique where an advertiser claims that their product is superior to the
products of their competitors. This can be by direct or indirect comparison of costs and
benefits within the advertisement itself. Rival companies will try to outdo others so that they
will have a large market share, market dominance
Collective, or generic, advertising
Is used by a number of producers in the same industry who come together to advertise a
product in general, without mention of a brand name. There is no competition among
producers. For example, milk producers may advertise milk collectively by placing an advert
that encourages drinking of milk and the benefits of milk to the body. An advertising medium
is the method used to communicate the message.
Takes place when a number of producers in one industry join together and advertise their
product in general e.g. tea, fruits, educational institutions. Collective advertising does not
involve the use of brand name and does not mention anything suggesting that there is
competition amongst the producers. Advertising is financed by trade associations
There are different types of advertising media:
Print-based media.
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➢ Periodicals and specialist magazines
➢ Leaflets or flyers outdoor media
➢ Broadcast media the internet.
Factors to be considered when choosing effective advertising media
➢ Nature of the goods
➢ Target markets
➢ Coverage
➢ Cost of advertising
➢ Effectiveness of the media
➢ Expected profit
➢ Urgency of the message
➢ Reliability of the media
➢ Availability of the media
Types of media
➢ Print media – magazines, newspapers, trade journals
➢ Broadcast media – radio, television, internet
➢ Outdoor – billboards, posters, electrical spectrum
➢ Transitional – adverts on buses, and cars
Print media
➢ Are hard copies written down and printed found in the newspaper, magazines etc.
➢ The message is typed and printed
Newspapers
Advantages
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➢ It is cheap to advertise using newspapers
➢ Provides a wide coverage if a national newspaper
➢ Adverts are likely to be believable
➢ Can be in colour for greater impact
➢ Information can be passed on for readership
➢ Adverts can be spread using different languages
Disadvantages
➢ Can only reach the literate
➢ They have a short life span
➢ There is no assurance that the message will have reached the intended market
➢ The colour is usually dull
Magazines
Advantages
➢ They have better quality
➢ Adverts last for long
➢ It is very cheap
➢ It’s a written record
➢ Allows selective coverage/advertising
Disadvantages
➢ Can only reach the literate
➢ They are usually expensive
➢ They have a short life span
➢ There is no assurance that the message will have reached the intended market
➢ The adverts are usually morally unacceptable
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BROADCAST MEDIA
➢ This is transmission of a radio or television receiver program aired to be received by
anyone with a receiver over a wide area
Television
Advantages
➢ It has a visual impact
➢ Reaches a large audience in a short period of time
➢ Adverts are usually colourful and interesting
➢ Can be repeated without changes
➢ Consistency
➢ Demonstrations and results can be shown
➢ Provide two sensory modes i.e. visual and sound impact
➢ Different languages can be used
➢ Cater for the literate and illiterate, the deaf and the blind
Disadvantages
➢ There is no coverage in some areas
➢ Some people cannot afford to buy a television set
➢ The adverts have a short life span
➢ It expensive compared to other mediums
➢ Interrupts interesting programs
➢ No room for questions
➢ Power cuts can affect adverts
Radio
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Advantages
➢ Cost of buying a radio is affordable
➢ Offers a wide coverage
➢ Repeating the advert is possible
➢ Caters for both literate and illiterate
➢ Relatively cheap to advertise
➢ Messages transmitted fast
➢ Adverts are interesting with jingles (background music)
➢ Adverts are timed
Disadvantages
➢ Repeating adverts maybe expensive
➢ Only uses on sensory organ
➢ Adverts are timed
➢ Waves can be affected by bad weather
➢ Results in costs as there is need to advertise on different channels
Outdoor
Posters
A printed paper designed to be attached on wall or a vertical wall
Advantages
➢ They give detailed information i.e. venue, date, and time
➢ Different languages can be used
➢ They are cheap to produce
➢ Can be replaced if affected by bad weather
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➢ Can capture people due to its attractiveness
➢ Convenient for local adverts
➢ Can be targeted to certain people – potential consumers
Disadvantages
➢ Are affected by bad weather
➢ Have a short life span
➢ Cannot capture the audience
➢ Caters for the illiterate only
➢ Not suitable for some adverts e.g. those that need voice messages
➢ They are prone to abuse
➢ They may be eyesore
➢ They can litter the environment
Billboards
Advertising usually done on billboards and signage
Advantages
➢ Helps create brand image
➢ Creates awareness for the people passing through
➢ Reinforces messages sent by other media
➢ Are huge and eye catching
➢ Targets a large and diverse market
➢ Cheap in the long run
➢ Can stand the test of any form of weather
Disadvantages
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➢ High cost of exposure
➢ Give limited information
Transitional advertising
➢ It is a type of advertising when the advert is glued on the sides of moving vehicles
e.eg. Taxis, buses etc.
➢ transit means moving
➢ a company can advertise on its own trucks e.g. baker’s inn, Lobels
Advantages
➢ Can provide a constant reminder to the customers
➢ It will ensure high geographical selectivity
➢ Build brand awareness
➢ It is a high impact medium
➢ Ensure wide coverage
➢ Cheap in the long run if using own transport
Disadvantages
➢ Expensive in the short run
➢ Limited accessibility due to reasons such as poor roads
Advertising agencies
Functions
market research
creation of advertisements
produce adverts
placing of the advert
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monitoring the advert
Advantages of engaging agents
they have an extensive bank of skills, resources, and experience
offer a variety of services to match the budget
saves firms time and employees resources
are able to specialise
Disadvantages of agents
commissions are costly as compared to promotional campaign
agencies may advertise for rival companies
agents may not be enthusiastic as the company on the product being advertised
can tarnish the image of the company if the advert has not been done properly
Dangers of advertising
increases the cost of the product
it may mislead buyers
may lead to impulse buying
adverts may be sometimes unethical
adverts by large firms hinders mall firm’s progression
Target Marketing
➢ It is when the firm decides to serve a set of buyers sharing common needs or
characteristics.
➢ Target marketing provides goods to a specific group of people, for example, women
in a city, kids in the area or working class men.
➢ Because buyers have unique needs and wants, a seller could patiently view each buyer
as a separate target market.
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➢ A target market is a group of consumers most likely to use a company’s product.
These consumers have similar interests or hobbies, beliefs and usage patterns.
Advantages of Target Marketing
➢ Marketers can better match marketing strategies with core customers.
➢ It takes a considerable amount of time to identify and target customers.
➢ It leads to identification of niche markets.
➢ It allows the organization to be highly competitive.
➢ The firm will be able to develop the products which meet the customers’
requirements.
Disadvantages of Target Marketing
➢ It is expensive; companies spend a lot of money through primary research.
➢ It is time-consuming; target marketing requires more time to identify a target
audience.
➢ It may result in omission of other customers.
➢ There are ethical considerations to consider with target marketing. It may be
exploitative to some degree, for example, a small beer company may target less
educated, poor people with large sized bottles.
Mass Marketing (Undifferentiated Marketing)
➢ This is a marketing coverage strategy in which a firm decides to ignore market
segments differences and go after the whole market with one offer.
➢ It can mean advertising or promotion of products to a large number of customers.
➢ It ignores the existence of segments and offers a single mix to the heterogeneous
market.
Advantages of Mass Marketing
➢ Maximizes income.
➢ Allows brands to be used to their full value.
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➢ It focuses on high sales and low costs.
➢ It is easier to organize and control rather than setting products to suit different
segments.
➢ It facilitates choice maximization.
➢ It eliminates shortages thereby customer loyalty.
➢ Reduces production cost per unit.
Disadvantages of Mass Marketing
➢ There is limited market orientation of goods to the market.
➢ High development costs of the product as it will be sold to different customers.
➢ High levels of competition.
➢ Failure might lead to wastages of resources and loss of sales.
Niche Marketing (Concentrated Marketing)
➢ A market coverage strategy in which a firm goes after a large share of one or a few
segments or niches.
➢ A particular segment is targeted.
Advantages of Niche Marketing
➢ Less competition as they are small and attract less competitors.
➢ Brand loyalty increases.
➢ It increases business income.
➢ It helps a firm achieve strong market position because of its greater knowledge of
customer needs.
➢ It can market effectively by fine tuning its products’ prices.
➢ It can also market efficiently, targeting its products, prices, channels and
communication programs towards consumers. It can serve best and profitability.
➢ Costs reduction strategies.
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Disadvantages of Niche Marketing
➢ If the segment turns sour, the firm suffers greatly.
➢ Large competitors may decide to enter the same segment with greater resources.
➢ The firm may fail to properly segment the market.
➢ Large prices which is complex and require exports.
Sales promotion
Sales promotion is used to support advertising and to encourage new or existing consumers to
buy the product. It is sometimes known as below-the- line advertising technique, Promotion
is used in the short term to give a boost to sales but IS not used over long periods of time, the
following are methods of soles promotion techniques:
Point-of-sale (POS), also known as merchandising, is a popular sales promotion technique
that promotes the product where it is sold and therefore encourages consumers to buy on
impulse.
After-sales-service, like POS promotion, is an increasingly important form of promotion.
This technique is used for particularly expensive or technologically advanced goods where
the manufacturer or distributor attaches a guarantee of service for a product after its purchase.
Sponsorship is sometimes used by businesses to promote their image and products. An
example is Banc ABC sponsoring Dynamos and Highlanders football clubs and supplying
them with soccer kits.
Trade exhibitions are used to promote the sales of both consumer and industrial goods and
to bring a large number of sellers and buyers together. An example is Zimbabwe International
Trade Fair (ZITF) and Sanganai- Hlanganani for tourism exhibitions. Free samples are
directly linked to the product. Samples of the product are given to the customers for free so
that they may use and try out the brand.
Price reduction is a way to promote a product. By reducing the price of the product by a
certain percentage, customers are encouraged to buy the product for a bargain.
Competitions encourage customers to buy the product with a chance to win cash or prizes.
Premium offers, where customers are offered free gifts, send-away gifts or low-priced
purchase of goods are a good way to promote a product.
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Advantages of sales promotion.
➢ Sales promotion leads to a low unit cost due to large-scale production and large-scale
selling.
➢ It is an effective way of supporting sales.
➢ It stimulates consumers to buy the product as it is a demand creator.
Disadvantages of sales promotion.
➢ It has a short-lived effect, about three to four months, as sales demand will fall after
that.
➢ It is expensive and leads to a rise in the price of products.
Some other methods of promotion include the following:
➢ Direct marketing
➢ Personal selling
➢ Public relations (PR)
➢ Celebrity endorsements.
Direct marketing
Direct marketing includes any activity that involves direct approaches to the customer. It
includes:
➢ Mail order catalogues, from which customers can select and place their orders
➢ Direct mail, such as leaflets asking for a customer response, for example, a tear-off
slip, and 'junk mail' sent directly through the post office
➢ E-mail, which includes targeted messages or offers sent to individuals via their
computers.
Advantages of direct marketing.
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➢ The method builds brand loyalty as customers enjoy receiving information on deals
and discounts.
➢ Direct selling campaigns are easier and less expensive to design and create brand
loyalty
Disadvantages of direct marketing.
➢ It is difficult to create a database of customers,
➢ It has limited reach, as it can only be accessible to a few people.
➢ Flyers and leaflets are wasteful practices as they promote loitering and consumption
of paper, which can be environmentally unfriendly.
Personal selling
➢ Advertising is impersonal- it is directed to a mass audience.
➢ The use of personal selling allows the company's messages to be personally directed
to the individual buyer.
➢ Sales staff will have the responsibility of liaising with the customer.
➢ They will deliver the product, give a demonstration and provide technical
information.
➢ They can also pass on sales promotion materials, such as free samples and gifts, as
well as handle non-selling matters.
➢ The sales staff need to be well trained for personal selling to be effective. Products
that can be sold using personal selling include cars and houses
Advantages of personal selling.
➢ The direct contact the company has with its customers. It is not a wasteful
communication as the sales person speaks directly to the customer.
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➢ It provides two-way communication, which conveys more information about a
product.
➢ It facilitates product demonstration and this encourages buyers who show an interest
when products are actually being used.
➢ Persuasion is very high, which can lead to increased sales.
Disadvantages of personal selling.
➢ It cannot reach out too many people at once.
➢ It is very costly as sales rep salaries, commission and travel time need to be paid for.
Public relations (PR)
➢ This is any activity designed to draw attention to a business or product.
➢ The company tries to create a good image by putting stories in the press or by
sponsoring various activities, such as events, projector people.
➢ This increases the attention given to the business
Celebrity endorsements
➢ Sometimes in advertising celebrities or famous people are paid to endorse a product.
➢ When the consumers see adverts of this person using the product for example, Boom
washing powder with Oliver Mtukudzi or chicken slice with jah Prayzah they
associate the name of a product or business with a well-known person or celebrity,
and this encourages them to sell the business.
➢ However, if the person receives negative publicity this can damage the product or
business.
Place
➢ This is the fourth 'P' in marketing refers to where the product is sold and the methods
that are used to get the product there. Two important decisions need to be made about
place.
✓ How do producers get their products to the consumer?
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✓ Where will the product be sold?
✓ How do producers distribute products to the consumer?
These are the four ways:
➢ Channel 1: Producer to consumer
➢ Channel 2: Producer to wholesaler to consumer
➢ Channel 3: Producer to wholesaler to retailer to consumer
➢ Channel 4: Producer to retailer to consumer
Channel 1: Producer to consumer
➢ It is the most direct channel. The producer sells the goods directly to the customer.
➢ This cuts out the need for both retailers and wholesalers.
➢ This has now become a popular channel due to the global nature of markets.
Examples are factory shops, mail order and internet selling, such as Avroy Swain and
Avon products.
Channel 2: Producer to wholesaler to consumer
➢ The producer sells products to the wholesaler who then sells the items to the
customer, culling out the retailer in the process.
➢ The wholesalers buy products in bulk at a discounted price.
➢ The wholesaler breaks bulk by reselling smaller quantities to the consumer.
➢ The wholesaler, rather than the producer, carries the risk of not selling the product.
Channel 3: Producer to wholesaler to retailer to consumer
This is the usual or traditional pattern.
➢ The wholesaler sells products to retailers, who then sell the products to consumers.
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➢ This route is favoured by small La medium businesses.
➢ The risk of not selling the product lies with the wholesaler and not the producer.
Channel 4: Producer to retailer to consumer
➢ Larger retailers can act as their own wholesalers.
➢ They buy goods from the producers and sell them directly to consumers.
➢ This method is faster for retailers as there is no wholesaler to deal with.
➢ Cheaper prices are given to retailers as discounts.
..
Factors to consider when choosing a channel of distribution
➢ The cost of transport and administration - transport and administrative costs can be
expensive and faster delivery costs more as well.
➢ The nature of the product – perishable and fragile goods need direct channels of
distribution. Specialist items might not need to be widely available so shorter
channels can be used.
➢ The market - is the market large or small? The product sold locally or international?
➢ The size of the business – large organisations might be able to cut out the wholesaler.
But smaller ones cannot.
E-commerce
Electronic commerce, or e-commerce is the buying and selling of goods via the internet. It is
becoming very important as a means for both large and small companies as it has quite a few
benefits.
➢ It is very convenient as there is 24 hours selling, which makes it convenient for
consumers who can shop at any time.
➢ There is a low setup cost and operational costs and overheads, such as rent, are low.
➢ Trade can take place in new markets, both national and international.
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➢ Communication is quite easy and often direct.
E.-commerce has resulted in more goods and services being bought and sold online. This has
some implications for the marketing mix because businesses have to think about issues such
as:
➢ How to attract customers' attention using websites, e-mail, text messages or
advertising on social network sites, such as Twitter or Facebook
➢ How to get products safely and securely anywhere in the world - what are the cost,
packaging, time and quality issues?
There are four marketing mix variables - product, price, promotion and place - have a huge
impact on the market and business. Let's see exactly how they impact the market:
Product
The product is important as it defines the existence of the business. Today, most companies
are market-oriented; therefore, before developing a product they spend a lot of money
researching on consumer buying habits and consumer preferences in order to design a
product that people want. In this way, businesses manage to produce brands that are preferred
by customers. Businesses also create brands as an assurance of quality and that make
consumers confident in buying it, so as to maintain brand loyalty
Price
This is the only P that brings in revenue to the business and therefore a business must choose
a pricing strategy that ensures it recovers research and development (R&D) costs, as well as
production costs. The objectives of the company also determine the price set for the product the price should help the business achieve its objectives, such as being a market leader.
Promotion
Promotion is important in that it gives the consumer information about the rest of the
marketing mix. Without it, consumers would not know about the product the business is
selling, the price it sells for or the place where the product is sold. Promotion is essential
when a brand image is being created for a product. The stage of the product in the life cycle
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also influences the amount of money spent on promotion. For example, there is heavy
spending on promotion in the introduction stage.
Place
Place will affect the other elements of the mix. The image of the product will be affected by
where it is sold. For example, luxury items are not sold on market stalls as this reduces their
market value.
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MARKETS AND MARKETING POSSIBLE QUESTIONS
explain the meaning of market, product, demand and supply
discuss the importance of marketing to business enterprises
explain the relationship that exists between demand and supply
identify types of markets
explain types of markets
describe the features of virtual and physical markets
discuss the advantages and disadvantages of physical and virtual markets
participate in various types of markets
evaluate benefits and challenges encountered in foreign markets
Implement solutions that reduce challenges faced in foreign markets
explain the importance of marketing research
identify different types of research data
identify sources of data
apply appropriate sampling methods to given situations
design data collection tools
Collect research data
Present data in formats such as graphs, tables and charts
interpret and analyse data
discuss factors to consider when segmenting a market
explain reasons for market segmentation
Segment a market
explain the importance of demand forecasting
identify methods of demand forecasting
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explain the concept of economic integration
describe aims of different economic blocs
explain the advantages and disadvantages of economic integration
identify marketing mix variables
explain marketing mix variables
evaluate the impact of marketing mix variables on marketing
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OPERATIONS MANAGEMENT F4 COMPLETE NOTES
Lesson objectives
➢ Define the terms warehousing, quality management and information communication technology
➢ Describe the role of warehousing
➢ Explain factors influencing when locating a warehouse
➢ State different types of warehouse
➢ Explain the functions of different types of warehouses
➢ Explain the concept of quality management
➢ Analyse the importance of producing quality products
➢ Explain ways of assuring quality
➢ Evaluate the impact of ICs in operations management
➢ Identify different types of ICTs used in operations management.
Warehousing
Def.: is the storage and distribution of raw materials, manufactured goods and personal goods
until they are wanted for use.
Def.: It is a building used to store goods before distribution or use. The use of warehousing
has enabled the production of goods ahead of demand.
Quality
Def: is the ability of a product to perform as expected
Def.: Quality means to produce a good or service which met consumer expectations.
Information communication technology [ICT]
Def.: It is the use of electronic gadgets to improve efficiency and effectiveness of the
production of goods and service delivery e.g. bar coding, Point of sale
Importance of warehousing
➢ For mass production - Manufactures keep their raw materials, consumables and finished goods in
warehouses, which facilitates mass production.
➢ Nature of commodities - Perishable goods are preserved for longer periods in refrigerated cold
rooms and flammable fuels are kept in tanks for safety.
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➢ Seasonal products - Crops, vegetables and fruits are kept in warehouses to extend the availability
of these products to when they are not in season.
➢ Proximity to production centres – Goods required for production are kept in warehouses near
production centres so that the production factories can get their supplies quickly.
➢ Minimising price fluctuations – A constant and regular supply of particular goods reduces a
shortage of those goods, keeping prices from fluctuating.
➢ Surplus goods - Instead of flooding the market with goods, the surplus is removed from the market
and kept in a warehouse for future supply.
➢ Security issues - Warehouses reduce the theft of goods from places that are open to workers.
➢ Display of goods - Some goods, such as electronic goods, are kept in warehouses and only
examples of the goods are displayed in the stores.
➢ International trade - Some imported goods are kept in warehouses before customs duty is paid on
them
➢ Buffer stocks - Warehouses are used to hold minimum stocks levels of certain items to protect
them from shortages that might occur.
➢ Preparation for sale - Traders can sort, pack and label goods before selling them to customers.
➢ Improving some goods - Some goods such as cheese, tobacco and wine are kept in warehouses
until their quality or taste improve.
➢ To keep perishable goods until they are distributed
➢ To keep raw materials, consumables and finished goods
➢ To store goods from a variety of manufacturers
➢ To blend, grade, package and brand good,
➢ To store goods that are in transit
Types of storage systems
➢ Cold storage, which is used to keep perishables such as meat, fish, vegetables and milk until they
are distributed
➢ Fuel tanks, which are used to keep petrol, diesel, paraffin and aviation fuels
➢ Grain silos or well-ventilated dry places, which are used to store grains such as maize, rice, wheat
and many other grains until they are wanted.
Types of warehouses
Warehouses can be classified according to ownership in the following ways;
➢ Private warehouses
➢ Public warehouses
Private warehouses
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➢ Prevail warehouses are owned by large-scale manufacturers, wholesalers and retailers who bear all
the risks of loss through wastage, spoilage, obsolescence, and pilferage. The following are
examples of private warehouses:
Manufacturers' warehouses
➢ These warehouses are located in Industrial areas. They are owned or rented by manufacturers for
the storage of:
➢ Raw materials
➢ Finished goods awaiting demand
➢ Partly finished goods
➢
Equipment and spares.
Manufacturers' warehouses functions:
➢ Used for keeping raw materials, consumables and finished goods.
➢ They enable goods to be branded and packed.
➢ They help to clear production lines. This helps the manufacturer to keep on producing goods when
there is less demand
Wholesalers’ warehouses
➢ These are warehouses that are owned and rented by the wholesalers and allows the storage of:
✓ Goods, sizes and quantities and the goods will be from manufacturers
✓ Goods in bulk
✓ Seasonal goods
✓ Goods awaiting demand
Functions of wholesalers’ warehouses
➢ They enable goods to be graded, packed, and blended and to be branded.
➢ They allow goods, such as wine, fruit, and tobacco to mature, which enables regular consumption
of these foods.
➢ A constant regular supply of goods prevents shortages of those goods.
Retailers' warehouses
➢ These, warehouses are owned by retailers, such as supermarkets and department stores, for the
storage of:
✓ a variety of goods from various wholesalers or manufacturers
✓ goods for distribution to branches
✓ Equipment and machinery.
✓ Retailers' warehouses have following functions:
✓ Goods in these warehouses are used to replenish stock in the shop. These goods are then
sold,
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✓ Goods can be packed, branded or blended while they are in the retailers’ warehouse.
Primary producer warehouses
➢ These are specialist warehouses for primary
➢ Products such as grains like maize, wheat and rice, tobacco, fruit and vegetables and wine.
Grain silos
➢ Grain silos are well-ventilated dry places that are used for storing grain. They are usually run by
➢ Grain. Marketing Board and have the following uses:
✓ they enable the grading and pre - packaging of grains
✓ Imported grain is stored in grain silos to prevent shortages.
✓ They help to stabilise the prices of grain.
Cold storage warehouses
➢ Cold storage warehouses- have refrigerated facilities and are used to store perishables, such as
vegetables, fruit, meat and dairy products.
Wine cellars
➢ These are large underground rooms located near Vineyards, which helps to reduce transport costs.
They have the following uses.
➢ They store wine in bulk
➢ The storage of wine gives it time to mature.
➢ The storage of wine steadies the prices for wine.
➢ It evens out the flow of wine.
Tobacco auction floors
➢ Tobacco is graded and stored on tobacco auction floors until sale. These are useful places for these
reasons:
➢ They allow the packing of tobacco into bales
➢ Storage steadies the prices of tobacco.
➢ They allow the tobacco to mature, which improves its quality.
Public warehouses
➢ These are run by parastatals and local government authorities. They store goods that are waiting to
be distributed e.g.
✓ Building materials
✓ Medical drugs
✓ Machine
✓ Spare parts
✓ Raw materials
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✓ Water
✓ Fuel
✓ Stationery
Bonded warehouses
➢ Are licensed by the government.
➢ They-ace located at ports border posts and in big cities.
➢ They are permitted to hold goods under bond until the duty is paid.
➢
Goods are released after duty bas been paid.
➢ A customs warranty is Issued when duty has been paid and provides permission for goods to be
released,
Advantages,
➢ Goods can be sold whilst in bond.
➢ Goods can be sold 10 Small quantities, 'which saves on working' capital.
➢ While in bond; goods can be graded, packed and tinned or bottled, but not manufactured.
➢ Goods are allowed to mature in these warehouses.
➢ Goods ate stored in bonded warehouses for entrepot trade.
Location of a warehouse
➢ The cost of building a warehouse
➢ The distance to and from suppliers e.g. manufacturers and wholesalers
➢
The proximity to customers.
➢ Government policies
➢ Transport and communication networks
➢ Security
Government influence and policies
➢ The government plays a big role in the decision of where a warehouse is to be located through its
influence and its policies.
➢ The fol1owing factors influence where a warehouse is situated:
✓ The availability of transport, e.g. road and rail
✓ the availability of communication links, such as telecommunication networks
✓ the availability of power and the water supply
✓ The availability, of land.
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➢ Management perspectives vary hence some prefer to locate the warehouse close to schools,
hospitals or other resort areas.
➢ A cost-benefit analysis is always wise to undertake as you call then weigh-up the advantages and
disadvantages of locating a warehouse in a certain area.
NB// - cost-benefit analysis – this is a process of assessing the costs incurred if a particular
decision is made and the pros and cons, this enables management to make the wisest
decisions
Quality control
➢ A traditional way to make sure that products went out of factories with no defects was to have
Quality Control departments whose job it was to take samples at regular intervals to check for
errors.
➢
If errors or faults were found then a whole batch of production might have to be scrapped or
reworked.
➢ The Quality Control department checks that quality is being maintained during the production of
goods, try to eliminate errors before they occur, and find any defective products before they go out
of the factory to customers.
➢
A business may also use a 'mystery customer' to test out the service to check if the quality is as
expected.
Advantages
➢ Tries to eliminate faults or errors before the customer receives the product or service
➢ Less training required for the workers.
Drawbacks:
➢ Expensive as employees need to be paid to check the product or service
➢ Identifies the fault but doesn't find why the fault has occurred and therefore is difficult to remove
the problem
➢ Increased costs if products have to be scrapped or reworked or service repeated.
Quality assurance
➢ This takes a slightly different approach to quality.
➢
The business will make sure quality standards are set and then it will apply these quality
standards throughout the business.
➢ The purpose of quality assurance is to make sure that the customer is satisfied, with the aim of
achieving greater sales, increased added value and increased profits.
➢ To implement a quality assurance system, several aspects of production must be included.
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➢ Attention must be paid to the design of the product, tile components and materials used, delivery
schedules, after-sales service and quality control procedures.
➢ The workforce must support the use of this system or it will not be effective.
Advantages
➢ Tries to eliminate faults or errors before the customer receives tile product or service
➢ Fewer customer complaints
➢ Reduced costs if products do not have to be scrapped or reworked or service repeated.
Drawbacks:
➢ Expensive to train employees to check tile product or service
➢ Relies on employees following instructions of standards set.
➢ Total Quality Management (TQM) is one approach to implementing a quality assurance system.
Total Quality Management (TQM)
➢ It is the influence of the Japanese that has changed the way quality is ensured in many businesses
today.
➢ It is the idea of Total Quality Management (TQM) that is at the heart of many practices.
➢ TQM is the continuous improvement of products and processes by focusing on quality at each
stage of production. It tries to get it right first time and not have any defects.
➢ There is an emphasis on ensuring that the customer is always satisfied, and the customer can be
other people/departments in tile same business that you are completing tasks tor, not just tile final
customer.
➢ This should mean that quality is maintained throughout the business and no faults should occur, as
all employees are concerned with ensuring that a quality good or service is delivered.
➢ TQM should mean that costs will fall. It is closely linked with Kaizen and tile use of quality
circles.
➢
Quality circles are where groups of workers meet regularly and discuss problems and possible
solutions.
➢ Workers are encouraged to suggest new ideas to reduce waste and ensure zero defects.
Advantages
➢ Quality is built into every part of the production of a product or service and becomes central to the
ethos of all employees
➢ Eliminates all faults or errors before the customer receives the product or service as it has a 'right
first time' approach
➢ No customer complaints and so brand image is improved -leading to higher sales
➢ Reduced costs as products do not have to be scrapped or reworked or service repeated
➢ Waste is removed and efficiency increases.
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Drawbacks:
➢ Expensive to train employees to check. the product or service
➢ Relies on employees following total quality management ideology.
Quality Circles
➢ It is based on staff involvement in improving quality using small groups of employees to discuss
quality issues using team working and participation can lead to motivation and quality
improvements.
➢
The aim is to investigate quality problems and present solutions to management.
➢
If the group is empowered, it can put improvements into effect itself.
Advantages of Quality Systems
➢ There is customer satisfaction and repeat purchases due to good experiences with quality of a
product. Satisfied customers will give word of mouth recommendations to friends
➢ Good publicity from consumer pressure groups and consumer-oriented articles in media
➢ Reputation for quality encourages retailers to stock the firm’s products, so this will increase the
distribution outlets for a products and lead to customer loyalty
➢ It is easier to establish new products in the market as consumers will associate the business’s good
reputation
➢ It also results in prolonged product life cycle
➢ It allows the brand to be built around a quality image and branding is an important form of nonprice differentiation for businesses
➢ It saves any cost associated with customer complaints
➢ It may allow pricing advantages that is charging higher prices than those of rivals in that market
segment.
➢ Quality can be used as a unique selling point and this gives the firm competitive advantage in the
market
➢ Goodwill will accrue to the firm
➢ There can be international competitiveness
Disadvantages of Quality systems
➢ Market research to establish expected customer requirements needs to be carried out
➢ Staff training costs to ensure that standards are understood and operations needed to check them
can be undertaken
➢ Material costs of the process like rejecting below standard materials and components before they
are used in the production process will lead to higher expectations from suppliers
➢ Equipment costs for checking standards at each stage like laser machine for accuracy of panel
fitting on a vehicle
➢ Inspection and checking costs
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➢ Reworking of faulty products or rejection wastage costs. The aim of quality assurance system is to
reduce this to absolute minimum
➢ Stopping production to trace and correct quality problems will disrupt output
Importance of producing quality goods
➢ Lowers business costs such as reworking costs and lawsuits
➢ Increases sale and profits of the business
➢ Builds brand loyalty
➢ Tool for fighting competition
➢ Increase market share of the business
➢ The products advertise themselves
➢ Products will have a longer product life cycle
➢ Establishes a brand image
➢
Will maintain a good reputation
➢
Attracts new customers.
➢ Creates goodwill of the business
Information and Communication Technology [ICT]
Trends in communication
Telecommunication
Def.: is the exchange of information using electronic means, through telecommunication
ordinary people and businesses are able to trade and share information on a daily basis, either
locally, regionally or internationally.
✓ landline telephone
✓ cellular telephone (cell phone)
✓ facsimile (fax)
✓ Internet
✓ radio paging
✓ electronic mail (e-mail)
✓ Teleconference (via the Internet) video conference.
Landline telephone
✓ A telephone is an instrument that allows dialogue between two people.
✓ Communication with a telephone is instant, and the users are able to exchange information as they
talk to each other.
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✓ Landlines need to be installed for landline telephones to work. The Telone organisation operates
telephone services and issues directories in Zimbabwe.
Advantages of a telephone
✓ It is a fast way to give and receive information.
✓ A reply is immediate.
✓ It allows discussion.
✓ Many people can connect via the telephone to discuss something. This is called a teleconference.
✓ There are many services offered via the telephone, such as:
➢ Time calls - You can dial 960 and be told the correct time.
➢ Reverse charge calls - This is where the person being called pays for the call. The person
who is being called is asked if they agree to pay the charges before the call is put through.
➢ • Alarm calls - You can book a call to come from an operator at a certain time, e.g. this
can be used as a wake-up alarm.
➢ • Messenger service calls - A named person, who cannot be reached directly by telephone
but living in an area where this service is provided, may be summoned by a messenger to
the nearest telephone for the purpose of taking a call.
➢ Transfer calls - You may request that incoming calls be redirected to another number.
This is useful when you are away from your office or home and not able to receive
incoming calls.
➢ Teleconferencing or three-way call – This allows the subscriber to make calls to two other
subscribers at the same time, thus allowing an audio conference to take place.
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➢ Attachments to telephones – Subscribers may install telephone recording and answering
machines, facsimile machines, cordless telephones and fire and burglar alarms that use
the same landline.
➢ Telephone directory - A telephone directory contains all the telephone numbers of all the
subscribers, In Zimbabwe there are two directories: one for all subscribers who are not in
Harare and the other for all of the subscribers in Harare. All the entries in the directories
are in alphabetic order.
Disadvantages of a telephone
✓ There is no written record of discussions.
✓ Information may be wrongly interpreted.
✓ There is no privacy.
✓ The receiver and sender cannot use body language to help them with their communication.
Cell phone,
✓
is a portable mobile telephone used for communication as well as having a variety of functions.
✓ Cell phones use wireless network links that cover a wide geographical area.
✓ There are various mobile phone operators who provide cellular telephone services in Zimbabwe,
such as Econet, Telecel and Netone.
✓ A cell phones for a variety of services, such voice calls, text messages, WhatsApp, Facebook,
Skype and teleconferencing services.
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Advantages of cell phones
✓ Cellular telephones link people anytime and anywhere.
✓ Cellular telephones can be used as an advertising medium.
✓ They allow dialogue and teleconferencing.
✓ Information can be sent and received quickly.
Disadvantages of cell phones
✓ Cellular telephone services can be affected by a poor network.
✓ The cellular telephones use a battery that holds a limited charge. They need to be recharged.
✓ Cellular phones are expensive to purchase.
✓ Cell phones need to have air-time credit to make calls and text messages
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Facsimile
✓ A facsimile machine (or fax machine) is a combination of a photocopier and a telephone circuit
and allows people to transmit exact images and copies of documents.
✓ Information on a document, plan, drawing, letter, picture, photograph or any graphical or printed
matter A4in size can be transmitted fast over the telephone network at any time of the day.
✓ An exact copy is reproduced for the receiver. Each subscriber has to have a landline.
✓ Fax machines are not used as much anymore as they have been replaced by newer technology.
Advantages of a facsimile machine
✓ It is a fast means of communication.
✓ Exact images and copied materials can be sent instantly to another person anywhere in the world.
✓ Several copies can be sent at any given time.
✓ Information can be sent at any time of the day.
✓ A written record is provided
✓ Message can be received even if the office is empty
✓ Fast in sending and receiving messages
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✓ Ideal for detailed information e.g. plans or diagrams
Disadvantages of a facsimile
✓ The transmission of the messages relies on the operation of the telephone system.
✓ Unauthorised people may have access to documents on the receiving end.
✓ Affected by frequent power cuts
✓ Affected by network problems
Internet/ Intranet
➢ The Internet is the worldwide web of communication links between computers and other
electronic devices
➢ More so, it is a global computer network that provides a variety of information and
communication facilities. The many interconnected networks that make up the internet use
standardised communication protocols.
➢ Marketing department – for promoting to a large market and taking orders online (e-commerce)
➢ Operations management – business to business (B2B) communication via the Internet is used to
search the market for the cheapest suppliers
➢ Human resource uses these programmes for communicating within the organization
➢ Intranets allow all staff to be internally connected via computers
➢ Millions of computers and smart cellular phones are connected to the internet. It is a library for
world-wide information because it gives access to the world wide web (www) (or documents,
photographs, Videos, music, games, e-books and newspapers and many other sources of
information.
➢ You can use some of the following software as browsers to navigate the Internet:
 Microsoft Explorer
 Mozilla Firefox
 Opera
 Safari
 Google Chrome
 UC Browser.
Advantages of the Internet
✓ • Information is available about almost anything via the Internet.
✓ Information can be accessed quickly.
✓ Most of the information available is free.
✓ Information can be retrieved anytime
✓ The Internet can be used to advertise businesses and access customers.
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✓ You can store or share your own information via the Internet using online storage facilities, such
as Microsoft OneDrive and One Cloud.
✓ You can hold conferences using the Internet, these can be recorded. Skype and Google
✓ Hangouts are examples of the facilities available for online teleconferencing.
✓ Buying and selling (e-commerce) is made easy through the use of the Internet.
✓ Cost savings from cheap internal and external communications
✓ Access to much larger potential market than could be gained through non-IT methods
✓ Web pages project a worldwide image of the business
✓ Online ordering cheaper than paper-based systems
✓ Business to Business communications can obtain supplies at lower costs
✓ Internal communication is quicker than traditional methods.
Disadvantages of the Internet
✓ The internet contains some obscene and abusive information.
✓ People spend a lot of time on the Internet and this can affect their productivity at work.
✓ People can post false information on the Internet,
✓ Sometimes people use the Internet to bully others. This is called cyber bullying.
✓ Not all the information on the internet is authentic
✓ Morality and values are eroded due to the internet
Radio paging
✓ Radio paging is used as an internal communication system by people in an organisation. It offers
one-way communication from the sender to the receiver.
✓ People wear a 'beeper', which is a small device that has a small screen on which the message is
displayed. It is commonly used by doctors in hospitals.
Advantages of radio paging
✓ Paging is a fast way of sending messages in an organisation.
✓ Messages may be displayed on the screen and all the employees can see it.
Disadvantages of radio paging
✓ Radio paging only offers one-way communication.
✓ Messages can have a limited number of characters, so the) must be brief.
✓ If used widely in an organisation, it can distract many people in order to attract the attention of a
few employees.
Electronic mail (e-mail)
✓ Electronic mail is the transfer of messages and documents between computers or smart phones.
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✓ Both the sender and receiver must have an e-mail address in order to have access to e-mail.
✓ The message received can be stored or saved in the computer memory or smart phone, it can be
printed or retrieved at a later date.
✓
Documents of other files, such as photographs can be 'attached' to an email.
✓ Electronic mail is now used more than traditional mail delivery services, which involve sorting the
mail, transportation by trains, buses, planes and ships, unpacking and resorting at the destinations
and delivering to the final physical addresses. [-mail goes directly to the recipient without passing
through any intermediaries.
Advantages of e-mail services
✓ Urgent messages can be sent fast and received without waiting several days for postal services.
✓ E-mail services are cheap.
✓ Messages can be stored and retrieved at any time of the day.
✓ E-mail is private because you have to have passwords to use it.
✓ Large documents videos, and pictures can be attached to an e-mail.
✓ The messages can be checked for errors before they are sent.
✓ Is accessible anywhere as long as there is the internet
✓ Information can be sent to several recipients
✓
Disadvantages of e-mail services
✓ It is expensive to purchase, install and maintain computers.
✓ Important messages can be put in a junk mail folder, which means they may be missed by the
receiver.
Teleconference/ skype
✓ The Internet allows teleconferencing locally, regionally and internationally. Skype is an example
of a teleconferencing service.
✓ It allows users to see each other on the computer or cell phone as they talk, the conferences can be
held with people in different continents
Advantages of video conferencing
✓ Business people do not need to travel for meetings.
✓ Decisions can be made quickly.
✓ Organisations save on travelling costs, such as transport, hotel accommodation and overnight
allowances.
✓ It enables face-to-face dialogue.
✓ The recipients can take advantage of being able to see body language.
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Disadvantages of video conferencing
✓ It can be expensive to install and maintain.
✓ It depends on the availability of network services.
✓ Equipment needs to be updated continuously to keep up with technological changes.
Technology in communication
Trends are modem technological developments that are taking place in communication. If
businesses do not move hand-in-hand with the technological changes in communication, they
will lag behind and use outdated technology, which will reduce the competitiveness of the
business. Modern t rends in communication includes:
➢ Facebook
➢ WhatsApp
➢ Blogs
➢ Skype / teleconferencing
➢ Twitter
➢ E-mail e.g. petervbhandawa@gmail.com
Twitter
➢ Twitter is an online social networking service where people can send and receive messages.
➢ The people who use it must have a Twitter account, e.g. petervbhandawa@twitter.com.
➢ People who are on Twitter can send and receive messages.
➢ Unregistered people can only read what is posted
➢ Rumours and gossip can be posted on Twitter.
➢ It is a cheap means of communication.
➢ Businesses can market their products on twitter, for example, Zimbabwe Broadcasting
Corporation (ZBC) news can be found on Twitter.
Blog (weblog)
➢ A weblog is an online journal or diary that is related to a brand or industry that is used to advertise
a particular product.
Advantages
➢ It helps to increase brand awareness.
➢ It also builds customer loyalty.
➢ It helps to keep customers on your website.
➢ It Increases the number of customers who visit the website.
➢ It helps to increase sales and enquiries about a product.
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Disadvantages.
➢ It is time-consuming.
➢ For it to be successful, you need to be consistent, have a good marketing strategy and a targeted
audience to blog to.
Facebook
➢ Facebook is an online social networking service on which users create personal profiles OT
Facebook accounts. Users invite and add other users as friends. Members exchange information
like text messages, photos and videos.
Advantages
➢ Facebook are that members:
➢ Can publicise events or products
➢ Invite others to personal events like birthday parties or graduation parties.
Disadvantages
➢ False information can be published
➢ Cybercrime is common on Face book.
➢ Erosion of culture can happen as foreign culture is adopted.
WhatsApp
➢ WhatsApp is an online social networking service, which uses Android and other smart phones for
internet communication.
➢
Users download and install the application.
Advantages
➢ Messages can either be audio or text messages.
➢ It shows that a message has been received and read by the receiver indicated by two blue ticks.
➢ It is cheap to send and receive messages through WhatsApp.
➢ Users can form social or business groups, messages can be seen by all members on the group.
➢ Members can be invited on WhatsApp through a link or can be added by an administrator
Disadvantages
➢ It creates social distances and disturbances in families
➢ Workers become unproductive as they spend more time on social the media
➢ Information spread through WhatsApp can be destructive to families and businesses
Information and Communication Technology [ICT]
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Technological development refers to the application of sophisticated tech and methods to
industrial and economic development in order to increase the efficiency and consumer and
workers’ needs. Tech in businesses bring good and harm.
Technology in Retailing
There are a number of developments that have taken place in the retail trade. The following
are some of the latest trends in retailing:
✓ branding and pre-packaging
✓
self-service and self-selection
✓
automatic vending machines
✓
do-it-yourself (DIY)products
✓
e-commerce and e-tailing
✓
shopping malls or centres
✓ electronic points of sale (EPOS)
✓ barcoding
✓
Franchising.
E-commerce or e-tailing
✓ It is a system of buying and selling goods and services electronically.
✓ The system operates through a computer connected to the internet or a television which has
satellite connections. The products sold should be:
✓ Coded
✓ fully described
✓ in picture form
✓ individually priced
✓ The customer does the shopping in the comfort of his or her home, selects goods using the product
codes and places the order electronically.
✓ When making payment the customer provides the following details electronically:
✓ customer’s name and address and account number or credit card number
✓ choice of delivery that is COD mail or personal
✓ Date of delivery
✓ terms of payment
✓ Total purchasing price is displayed on the screen for the customer.
✓ Payment can be done through credit cards, Cash on Delivery (COD) or direct debit. Delivery of
goods is by mail, courier services, or personal.
✓ The system does not require cash payments. It reduces paperwork for the retailer and travelling
expenses for customers. The electronic shop is open for 24 hours.
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Advantages of e-commerce
✓ There is a wider market for goods since the
✓ Internet covers the whole world.
✓ Consumers buy goods from the comfort of their own homes and, in doing so, they save time and
money they would have used when visiting shops.
✓ Goods are paid for using credit cards or electronic funds transfer, this is convenient for customers.
✓ Goods are delivered to the customer via the post office or a courier service.
✓ E-commerce does not require expensive investments in buildings.
✓ It provides more information about goods to consumers, thereby helping them to compare goods
and prices.
✓ There is direct interaction between the buyer and seller.
✓ It provides a 24-hoUI service to consumers.
✓ The costs of doing business are low.
Disadvantages of e-commerce
✓ Many customers are still suspicious of buying goods through the Internet.
✓ Some customers prefer to buy certain goods directly from shops.
✓ Only a few people own computers that are connected to the Internet.
✓ Most customers are computer illiterate.
✓ There are high costs of packing and postage, therefore goods become expensive.
✓ It is not suitable for the sale of some products, such as fresh fruit, and other perishable items.
✓ leads to impulse buying and overspending
✓ at times the pictures may not show the true quality of the items
✓ lacks personal touch
Shopping malls or centres
✓ Shopping malls or centres are found in large areas, where all road traffic has been excluded.
✓ They are made up of many retail outlets that sell a wide variety of goods.
✓ Usually each shop is owned by a different company.
✓ Besides retail outlets the shopping centres also provides ancillary services, such as banks.
Electronic points of sale (EPOS)
✓ Electronic points of sale are computerised checkout points.
✓ They are a combination of a computer, cash till, scanner, card reader and printer.
✓ They handle both cash and card transactions.
✓ The system uses the scanner to read the bar codes on the package of the item being bought, which
is used to find the price of the item.
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✓ The sale of the item is recorded on the computer.
✓
The system prints an itemised receipt of the transaction.
Advantages of EPOS
✓ • EPOS enable the speedy processing of sales at check-out points.
✓ EPOS reduce the risk of errors.
✓ EPOS provides a sales report.
Barcoding
✓ A bar code is a set of vertical parallel lines of varying widths and spacing found on most goods
and items for sale.
✓ The lines represent information relating to the product on which they are found, for example, the
type, name and price of the product.
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Advantages of barcoding
✓ The code can be electronically scanned at the EPOS to provide information about the price of the
product.
✓
The EPOS can also use the barcode information to record the sale for stock checking and
replenishing purposes.
✓ Barcodes help track items in an inventory.
✓ Barcodes help speed up the buying process.
✓ Barcodes may also be used to reduce shoplifting and prevent price-tag swapping.
Vending machines
✓ These are machines, which are installed in buys areas.
✓ An example is an ATM (Automated Teller Machine).
✓ The machines may be hired or leased. They operate for 24 hours and use the self-service method
of selling which saves on labour and time.
✓ May sell a variety of drinks and snacks.
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✓ Use of machines increases sales and profit.
Advantages of a vending machine
✓ • It provides self-service to customers.
✓ It provides a 24-hour service to customers.
✓ It provides a fast service to consumers.
✓ It can be installed anywhere inside or outside a building.
✓ It saves on human labour for the trader, since it is self-operating.
Disadvantages of a vending machine
✓ It requires regular restocking and replenishing.
✓ There is a possibility of breakdowns.
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✓ It can be vandalised.
✓ The service is impersonal and there is nobody to deal with customer complaints.
✓ It has a limited choice of goods.
Computer Aided Design (CAD)
➢ Most design and architectural firms use these programmes for making and displaying designs –
e.g. cars, house plans, furniture, garden etc.
➢ Designs can be shown on 3-D and ‘turned around’ to show effect from all angles
➢ It is used to design engineering and conceptual designs
Advantages
➢ Saves on expensive designer salaries as work is now much quicker
➢ Accuracy is increased since they are drawn to scale
➢ More flexibility of design as each customer’s special requirements can be easily added
➢ The designs are mad quickly and will be in 3D
➢ Can be linked to other programmes to obtain product costing and to prepare for ordering of
required supplies
Disadvantages
➢ Computers are prone to viruses hence data is lost
➢ Computerising the production process will mean more costs such as retraining costs
➢ This vital and confidential information can be hacked
➢ The computers can crash losing vital data again
Computer Aided Manufacturing (CAM)
➢ These programmes are used to operate robotic equipment that replaces many labor-intensive
production systems
➢ Used in operations management in manufacturing businesses
Advantages
➢ Labour costs are reduced as machines replace many workers
➢ Productivity is increased and variable cost per unit is lower than in non-computerized processes
➢ Accuracy is improved – less scope for human error
➢ Flexibility of production is increased – modern computer-controlled machinery can usually be
adapted to make a number of different variations of a standard product, and this helps to meet
customers’ needs for some individual features
➢ All these benefits can add to a firm’s competitive advantage
Disadvantages
➢ Computers are prone to viruses hence data is lost
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➢ Computerising the production process will mean more costs such as retraining costs
➢ This vital and confidential information can be hacked
➢ The computers can crash losing vital data again
Radio frequency identification [RFID]
➢ This is advanced barcoding system that uses radio frequency waves to read product tags
➢ This is being used in the developed countries attached to trolleys and is able to calculate total cost
of products in the trolley
➢ RDIF can read tags of products from a distance unlike barcodes that need to be in close range with
the products
➢ RDIF I being used in preference to barcodes since they detailed information that will be on the tag
of the product e.g. size, colour, price and stock in possession of the business.
Advantages
➢ RDIF can be used calculate totals of budgets
➢ Can also be used for inventory valuation
➢ The reader can read products from a distance
➢ More information can be obtained from RDIF as compared to barcodes
➢ Used for security reason since it can give the location of customers e.g. used also in libraries
➢
Tags can be read well as compared to barcodes
➢ Used also to monitor the health of patients in hospitals
Disadvantages
➢ RDIF range is limited to approximately 3 meters
➢ It is costly since the business needs to installation [programming], electricity and training staff
➢ Retrenchment since the system can do stock tacking
➢ RDIF can be easily bypassed/ hacked
Online billing/ e-ticketing
➢ E-ticketing is a paperless system of booking and buying tickets for events online, using computers
through the internet.
➢ The system is used to buy aeroplane, train or bus tickets and to make specific seat reservations.
➢ The booking and the ticket details are online.
➢ The customer will receive an e-mail confirming the purchase or booking. This system of eticketing is faster than manual ticketing since there is no queuing.
➢ The ticket details can be printed, which provides a record of the booking or purchase.
➢ E-tickets can easily be recovered if misplaced.
Advantages
➢ Low cost when using the system since it is online [less labour is employed]
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➢ Convenient as payments are made in the comfort of the customer’s home
➢ Eliminate the problem of queuing
➢ Feedback can be immediate since it is online
➢ Reduces risk of theft since the payment goes straight to the bank
Disadvantages
➢ Suffers from network breakdowns and congestion
➢ There is greater risk of scams [cybercriminal]
➢ Its costly since it needs installation and experts t run the system
➢ Upgrades to the system will disrupt the whole system
Positive impact of technological development
➢ Inventory management
➢ Record keeping and final accounts preparation
➢ Communication is faster
➢
Paper work is reduced.
➢ Technology usually helps as a safe and reliable means of communication.
➢ The emergence of social networks counter monotony at work such as jokes shared on WhatsApp
or Facebook.
➢ There is privacy in the receipt of messages unless someone knows the receiver's password.
➢ Users can obtain current news from any part of the world any time on the internet or free news on
the BiNu application via smart phones or computers.
➢ More accurate consumer demand results from the use of computers.
➢ Customers can access the internet at high speed while in the comfort of their homes through
Asymmetric Digital Subscriber Line (ADSL) broadband or Fibre To The Home (FTTH) provided
by Telone.
➢ Insurance contracts can be easily signed through e-insurance.
➢ Buying and selling is quick and easy through e-commerce.
➢ Advertising is quick and easy through e-advertising
➢ E-learning enables you to apply, register and learn through materials sourced via the internet.
➢ Staff costs are reduced as few people are employed to operate computers.
Negative impact of technological development
➢ New machines are expensive.
➢ Staff re-training is expensive,
➢ Workers and managers may fear change.
➢ Unemployment rises as machines and computers replace people in communication
➢ New technology is changing all the time and can often become outdated quite quickly and needs
to be replaced if the business is to remain competitive.
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➢ Hackers may access other people's accounts which results in a lack of privacy.
➢ Sometimes computers or smart phones can be corrupted or destroyed by viruses and vital
information may be lost.
➢ Costs in the business will increase:
 Capital costs can be substantial
 Labour training costs will be necessary
 Training costs might recur regularly with further technological development
 Redundancy costs will be incurred if existing staff are being replaced by technology
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OPERATIONS MANAGEMENT POSSIBLE QUESTIONS
identify the means of production
identify stages of production
explain the production function
illustrate the production function
identify factors influencing the location of a business unit
discuss factors that lead to relocation of a business
explain value addition
explain ways of adding value to a product
explain the importance of adding value to products
create a product using locally available inputs
explain the importance of transport
identify different modes of transport
describe strengths and weaknesses of different modes of transport
explain factors influencing choice of mode of transport
Explain importance of the purchasing function
identify the five (5) ‘rights’ of purchasing
explain stages of the purchasing cycle
explain the role of e-purchasing
describe inventory management
explain the advantages and disadvantages of holding inventory
describe role of warehousing
explain factors to consider when locating a warehouse
State different types of warehouses
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explain functions of different types of warehouses
explain the concept of quality management
analyse the importance of producing quality products
explain ways of assuring quality
evaluate the impact of ICTs in operations management
recommend appropriate ICT tools for given circumstances as;
- Bar codes
- Radio frequency identification (RFID)
- Computer aided design
- Online billing
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