AS Business Studies
OCR F292 Business Functions
Q&A
Rapid Revision Handbook
 Step by step guide to key concepts
 Question and Answer format
 Glossary
Richard Young
2010 Edition
AS Business Functions
Marketing.................................................................. 2
Accounting rate of return....................... 27
Marketing and marketing objectives ........ 2
Final accounts....................................................... 28
Customer and product orientation............ 3
Balance Sheet ................................................... 29
Market analysis.................................................. 2
Marketing and other functions.................... 3
Profit and loss account................................. 28
Balance sheet makeup............................. 30
Segmentation...................................................... 4
People in organisations .................................... 32
Marketing strategy ........................................... 6
Motivation ......................................................... 33
Market Share and Growth ............................. 5
Marketing mix ......................................................... 7
The four Ps........................................................... 7
Product.................................................................. 8
Product life cycle ............................................... 8
Labour turnover ............................................. 32
Motivation in theory ..................................... 33
Taylor ............................................................. 33
Mayo................................................................ 34
Maslow........................................................... 34
Product development...................................... 9
Motivation in practice .................................. 36
Product Mapping............................................ 11
Organisation structure................................. 40
Product portfolio analysis .......................... 10
Motivation and Leadership ........................ 38
Price..................................................................... 11
Operations.............................................................. 43
Elasticity of demand ..................................... 14
Efficiency............................................................ 43
Pricing methods.............................................. 12
Income Elasticity of Demand..................... 16
Promotion ......................................................... 17
Place: distribution.......................................... 18
Accounting and Finance................................... 20
Budgets............................................................... 20
Cash flow forecasting ................................... 21
Costing................................................................ 23
Contribution..................................................... 24
Break even analysis....................................... 25
Investment decisions.................................... 26
Payback ......................................................... 26
Operations management............................. 43
Scale of operation........................................... 44
Economies of scale......................................... 44
Capacity.............................................................. 45
Methods of production................................. 47
Quality................................................................. 48
Quality Standards........................................... 49
Supply Chain..................................................... 50
Stock Control.................................................... 50
Lean Production.............................................. 51
AS Business Studies Glossary.................... 53
1st Edition. First published 2010 © Richard Young. All rights reserved. The right of Richard
Young to be identified as the author of this Work has been asserted in accordance with the
Copyright, Designs and Patents Act 1988.
| Marketing and marketing objectives
1
Market Share and Growth
What is market size? Market size is the total sales of all the firms in a given market expressed
by value (ie in money terms eg £1bn) or by volume (ie number of units sold eg 200,000 units).
Define market growth. An increase in total market sales - by value volume
How is market growth calculated? Market growth can be calculated


Change in total market sales over a period eg if 2010 sales of £4m rise to £4.2m in 2011
then market growth is £200,000
Percentage change in sales over a period of time. Market growth % = new value – old
value/old value x 100 = 2.4-2.2/2.2 x 100 = 9.1%
Comment on the market growth figures in this table.
The market grew in terms of sales value in 2011 by £10m
and by £5m in 2012 but sales fell in 2013 by £3m.
Note the trend: the rate of growth slowed from 5% in 2011
to 2.38% in 2012 before becoming negative in 2013
Define market share? The proportion of total market sales held by a firm or one of its brands
How is market share calculated? Market share = one product’s sales/ total market sales. Sales
can be either sales revenue ie £s, or sales volume ie the number of units sold
Give an example of market share calculations. If one product in the market has sales of £20m
in a market where total sales are £80m, then its market share = £20m/£80m x 100 = 25%
Comment on the market share figures in this table.
There are firms in the market. In terms of sales value,
Firm B has the largest market share at 62.5% and so is
the market leader. Firm A has a 25% market share. This
means that both Firm A and Firm B are monopolies who
can exercise market power. Firm C has a small market
share and is unlikely to enjoy the same economies of
scale opportunities open to its larger rivals.
Why is market share an important indicator? Market share is a measure of relative business
performance. Increasing market share suggests the firm is


Performing improving over time
outperforming its rivals or the industry average
Define a market leader. Market leaders are firms with the largest market share
Why is being a market leader important? Market leaders are the dominant firm in an
industry and so have a competitive advantage over rivals. Market leaders can:


Set a price that best meets its objective. Smaller firms are price followers.
Enjoy larger economies of scale because their output is higher than competitors
How can organisations grow in size? There are two main ways organisations grow


Internal growth though investment in extra plant buildings, equipment and hiring more
staff to increase the scale of operation offering potential economies of scale
External growth through merger or acquisition (takeover)
Distinguish between a takeover and a merger. A takeover or acquisition occurs when a
business gains control over another organisation by buying 50% or more of its share capital. A
merger is when two firms combine to create one new and larger business.
| Market Share and Growth
5
What is the role of market research in new product development? Market research
identifies market opportunities for new products; monitors and evaluates customer responses
to test marketing allowing improvements and predicts sales at different price points.
How is product development financed? The process of research and development (R&D) test
marketing, and promotion can be very expensive. Many new products fail. Innovative firms with
high profit margins can generate the internal finance needed for new product development
What are lead times? Lead time is the time taken to develop and test new products. Reducing
lead times is a source of competitive advantage: new products launch sooner than rivals
Do new products always succeed? It takes time and resources to get a product established.
Most products fail during launch, never reach the growth stage of the product life cycle because
Inaccurate initial market research overestimates demand and revenue.
Production delays means the product no longer meets evolving customer requirements
distribution problems mean consumers cannot buy the product
Costs are underestimated and the product cannot be sold at price that allows a profit
Design faults or manufacturing inadequacies means the item fails to fulfil function.
The product is a ‘me-too’ product no different form established market leaders
Rivals react by launching their own new product or enter into a price cutting war.







Product portfolio analysis
What is a product portfolio? A product portfolio is the set of products marketed by a firm.
Sometimes called the product mix ie the total range of products sold by an organisation
Explain product portfolio management. Product portfolio management involves

Assessing the current performance and position of each products and, if necessary,
adjusting its marketing mix
Ensuring a balanced range of products within the portfolio with new products developed
to replace mature and declining ones

Why do firms need a balanced product portfolio?
The product life cycle implies, mature, profitable products fund the development of new
products to replace those in decline and so enable the long-term survival of the firm.
Boston matrix analysis suggests firms need a balanced product mix eg cash cows that
generate profits to transform problem child. Too many cows and dogs indicate an ageing
portfolio. How can the business replace tired products and enable long term survival?


Why do firms undertake product portfolio analysis? Product portfolio analysis helps a firm
audit its current position and identify an appropriate product strategy to meet objectives. Eg
does the firm need to develop new or improved products or drop items from the portfolio?
Outline the Boston Matrix. The Boston
Matrix is a tool used to analyse the product
portfolio of a business against market share
and market growth. Each circle in the diagram
represents one product. The size of the circle
indicates size of turnover.
There are four categories of product in the
Boston Matrix. Stars are products with a high
market share in a high growth market. Cash
Cows are products with high market share in low growth markets. Problem Child items have a
low market share in high growth markets. Dogs are products with low market share in low
growth markets.
10
Product portfolio analysis |
Promotion
What is promotion? Promotion is the process of business communicating with customers
List the aims of promotion Potential promotion objectives include:



Inform: ie raise consumer awareness of a product, its functions and benefitsparticularly important for new products
Persuade: convince consumers and the trade that a product is superior to rivals
Branding to create product differentiation in the mind of the consumer
How can firms promote products? Businesses use a mix of advertising, direct response
mailing, sales promotion, public relations or direct selling to promote products
Why is promotion important? Excellent products with the right features, price and
distribution fail if customers are unaware of the good or service.
Distinguish between above the line and below the line promotion. Above the line promotion
is the use of non-targeted mass media advertising to reach a mass audience. The aim is to raise
product awareness and reinforce brand identity. Below the line promotion is the use of targeted
non-advertising methods to reach potential customers. The aim is to secure sales.
Above the line
Below the line
Definition
the use of non-targeted mass media
advertising to reach a mass audience
The use of targeted non-advertising
methods to reach potential customers.
Aim
Raise awareness
Secure sales
Audience
Mass
Targeted
Methods
television, newspaper, magazine, radio,
posters, internet and cinema advertising
Sales promotion, personal selling, public
relations, direct mail and sponsorship
What is the promotional mix? The promotional mix is the combination of promotion methods
used by a firm to communicate with stakeholders - a key element of overall marketing strategy.
List the elements in the promotional mix.
Advertising: purchased, non-personal communication
using mass media
Sales Promotion: short term schemes which encourage
customers to buy now rather than later eg time limited
2-for-1 offers
Personal selling is promotion through a sales force. Staff
work directly with a customer until a sale is made.
Specialist advice can be given. Customers receive
personal face-to-face attention and can ask questions
about complex product offerings.
Public Relations: a firm passes information to the press hoping for free favourable coverage in
newspapers, television etc – ‘free’ advertising
Direct marketing: when firms make contact with individuals eg junk mail, and email lists. Direct
mail may not be read.
Sponsorship a business pays for association with a celebrity or event
How does a firm decide on a given promotional mix? A business selects a combination of
promotional methods most likely to meet marketing objectives with a set budget.
| Promotion
17
Final accounts
Explain final accounts. At the end of an accounting period, usually one year, accountants draw
up the final accounts for a business which include:
profit and loss account a summary of revenue and costs from trading activities for a
previous trading period eg the last financial year
balance sheet a statement of the estimated value of the business at the end of the year
cash flow statement where cash came from and what it was spent on over the year



Profit and loss account
What is a profit and loss account? A profit and loss account is a summary of a firm’s revenue
and costs from trading over a previous trading period eg last financial year
RR Ltd Profit and Loss Account
Year ending 2010
Revenue (Turnover)
Cost of sales
Gross proft
Expenses
Net profit
Tax
Dividends
Retained profit
minus
gives
minus
gives
less
less
gives
£
£
£
£
£
£
£
£
50,000
30,000
20,000
8,000
12,000
2,000
4,000
6,000
Turnover: the total value of sales in the last
trading period
Cost of sales: the direct costs of making or
acquiring products for sale
Gross profit: turnover minus cost of sales
Expenses: indirect costs ie overheads eg rent
marketing and depreciation
Tax: corporation tax on profits paid to the
government
Dividends: profit distributed to shareholders.
Retained profit: profits kept back by the
company for future use
How is cost of sales found Cost of sales = opening stock + purchases - closing stock where



Opening stock = value of raw material components etc owned by the firm at the start
of the accounting period
Purchases refers to the money spent on new stock
Closing stock = value of raw material components etc owned by the firm at the end of
the accounting period
What are the three sections of a Profit and Loss Account? There are three sections:



Trading Account shows gross profit made on trading (buying and selling) activities
Profit and Loss Account shows overall net profit
Appropriation Account shows how profits are used: to pay tax, dividends or retain
How are profit and loss accounts used? Stakeholders use profit and loss accounts to assess
business performance over a period of time eg one year. Accounts are used to assess:







Business decisions eg is there sufficient net profit to fund growth
Business performance over time and in comparison with other firms in the industry
Gross profit shows mark-up and how well the business is managing its direct costs
Net profit shows how well the firm manages all its costs especially overheads
Staff can use profit information in wage negotiations.
Shareholder assess profitability and how profits are used eg distributed or retained
Creditors and customers can assess the risk of trading with the business
Must organisations maintain accounts? By law UK companies act must file their financial
accounts annually with Companies House allowing stakeholders access to financial data.
28
Profit and loss account |
What are the main insights of Maslow? For Maslow there are five types or hierarchy of needs.
Working satisfies those needs in stages. Managers can motivate workers by offering an
opportunity to move up and meet a higher order need once lower level ones are met. Eg





Physiological: improve pay
Safety: offer long term employment contract
Social: arrange social and team building events
Self-esteem: use appraisal for positive feedback and offer promotion opportunities
Self actualisation: use annual appraisals to negotiate and agree set new challenging
stimulating tasks
Self
actualisation
Esteem
Social
What are the implications of Maslow? Managers need to
identify the specific needs of each worker – what is their
current level of need? Motivation involves offering
workers the chance to move to the next level of need. Used
as part of an annual review of performance and target
setting
What are the limitations of Maslow? The Maslow model
suggest workers move up through five stages satisfying
wants consecutively, one after the other. Critics argue that
Physiological
needs exist concurrently ie workers seek good pay and job
security and esteem at the same time. Some workers
attach a low priority to work and do not want to move up levels.
Safety
What are the key features of Herzberg? Herzberg suggests two factors influence motivation.


Hygiene factors are work issues that can cause dissatisfaction working conditions, staff
and relationships, the style of management and supervision and job security
Motivators are factors that cause satisfaction hence motivation and include personal
growth, recognition, responsibility, promotion prospects and the work itself
Do hygiene factors motivate? Hygiene factors do not in themselves lead to higher levels of
motivation but help avoid dissatisfaction. Eg a pay increase does not necessarily motivate but
poor pay can demotivate.
What are the implications of Herzberg? The factors causing dissatisfaction are quite different
from those generating satisfaction. The manager's role is to remove dissatisfiers eg poor
working relationships and use motivators eg job enrichment.
What are the key features of Peters? In summary: leaders motivate staff by communicating
the wow factor and by setting up the structures that empower enable staff to develop their
talent. Staff share and celebrate the values and cultures of a high achieving organisation.
What are the implications of Peters? According to Tom Peters:





Inter related factors affect excellence. Motivation is not a stand-alone factor, but an
aspect of management, closely linked to other issue such a strategy and structure.
“There’s no use inventing a great new strategy if you don’t have the skills or the staff to
implement it.” Handy.
It is important that all staff understand and share the values and culture of the
organisation
a tall, organisation, with many levels of hierarchy, and in particular, middle managers
hinder an organisation in achieving its objectives.
in fast moving times, successful organisations “empowers talent”. The office slave is
dead and the age of the Free Agent is now.
Leaders motivate staff by communicating the wow factor. “Discover passion,
persistence, and imagination to get results.”
| Motivation in theory
35
Why do some organisations opt for decentralisation? Decentralisation sees authority
delegated down the hierarchy which empowers and so motivates subordinates. Junior
managers are often closer to customers or suppliers and can adjust to specific conditions and
differences rather than follow a one-size-fits all centrally issued directive. There is less
communication and bureaucracy – the organisation becomes more flexible and responsive
Why opt for centralisation? Decisions are taken by experienced and well qualified senior staff.
A corporate image is retained as all areas of the business act similarly. There is the potential for
administrative economies of scale eg duplication of administrative tasks are eliminated
Distinguish between formal and informal organisation. Formal organisations maintain tight
control over roles and responsibilities; subordinates report to line managers. Formal groups can
be slow to respond to change. Informal organisations give staff broad roles but allow employees
and work groups to work out what is to be done when and by whom. Informal groupings can be
source of dynamism or subversive ie in conflict with the objectives of the organisation
List the types of organisational structure. There are three main types:
Hierarchical: the traditional way of organising firms eg by function or area
Entrepreneurial: the individual founder/owner is at the centre of decision making
Matrix: team based where staff from different departments work together



CEO
Marketing
Director
Finance
Director
Operations
Director
Describe a hierarchical organisational structure. The
organisation is arranged by departments based on
specialist functions eg marketing. In large firms, this can
result in a tall structure with associated difficulties in
terms of bureaucracy, delayed decision making and poor
communication which can cause diseconomies of scale.
Describe an entrepreneurial organisational structure. The organisation is arranged around
the entrepreneur. Span of control is wide and the
organisation structure is also flat and informal.
Entrepreneurial structures work in small organisations
employing up to, say, 70 staff. Thereafter the entrepreneur
finds it almost impossible to maintain communication with
all staff
Entrepreneurial structures avoid hierarchies and formal structures. Decisions are taken in the
centre by a few key workers or the owner. Best suited to highly competitive fast moving
industries where rapid decision making is essential.
finance
member
Describe a matrix organisational structure. Matrix
marketing
operations
structures are a way of organising a business that is task
member
member
orientated and used by firms which manage a large
number of projects eg advertising agency. Teams of
Team
specialists from various departments, led by a project
leader
manager, are brought together to carry out one task eg
develop a new product, open a new factory. Project
teams make firms task orientated, flexible and motivate and motivate employees by providing
varied challenging tasks.
However, roles and responsibilities become blurred and there may be tension between project
and department managers. Senior managers may resent receiving advice from junior staff on
highly specialist activities – they feel their status is threatened. Workers contributing to too
many projects may experience role conflict. Which project should I prioritise?
42
Organisation structure |
AS 292 Glossary
4Ps: the traditional elements of the
marketing mix: product, price, promotion
and place
Above the line: the use of non-targeted
mass media advertising to reach a mass
audience. The aim is to raise product
awareness and reinforce brand identity.
Absenteeism: staff missing work without
good reason
Accountability: the process of holding
individuals or institutions answerable for
their responsibilities, actions and
decisions.
Accounting rate of return (ARR): an
investment appraisal method that
estimates annual profit from a project as a
percentage of the initial investment
Acquisition: one business buys ownership
and control of another firm. A takeover
Advertising: paid for non-personal
communication using mass media that
aims to persuade and inform
AGM: an annual General meeting where
shareholders received reports and elect
directors
Ansoff's matrix: a framework for
identifying four strategic options for
growth in terms of markets and products
Appraisal: an evaluation of staff
performance over a given period of time
usually against stated objectives
Assets: items of value owned by a
business eg cash, equipment and stock
Autocratic leadership: a leadership style
with the leader retains control and makes
major decisions were minimum
consultation
Automation: a production technique that
uses machines to replace or enhance
human labour
Average cost: the cost of making one item
ie unit cost
Balance sheet: a statement showing the
assets and liabilities of an organisation on
a particular date
Batch production: a production process
where groups of products (batches) move
through every stage of production
together eg bread
Below the line: the use of targeted nonadvertising methods to reach potential
customers. The aim is to secure sales.
Benchmarking: assessing the
performance of a business against those
achieved by rivals eg comparing
productivity levels or labour turnover
Book value: the value of total assets less
the value of total liabilities on the date
given in the balance sheet.
Boston matrix: a tool used to analyse the
product portfolio of a business against
market share and market growth
Bottleneck: any factor that causes normal
business activity to be delayed or stopped
Brand: a named product customers
distinguish from other products eg
McDonalds
Branding: the process of creating a
distinctive image for a product that sets is
apart from its rivals
Break even: the minimum level of units
sold for revenue to cover all costs - the
business is making neither a profit or loss
Budget: an agreed plan forecasting future
income and expenditures or other
quantifiable targets
Budget holder: the individual responsible
for a particular budget and accountable for
explaining adverse and favourable
variance to their line manager
Budgetary control: The process of
monitoring actual and forecasted
performance over time to identify variance
Buffer stock: the minimum amount of
stock a firm opts holds at any given
moment in time
Bureaucracy: the use of established rules
and regulations as a way of running an
organisation,
Business activity: the process of turning
inputs such as raw materials into outputs
ie goods and services
Business cycle: fluctuations in the level of
economic activity over time causing booms
and slumps. Also called the economic
cycle.
Business organisation: the way in which
staff roles and responsibilities are
arranged within a firm
Business process re-engineering: BRP is
a fundamental redesign of business
procedures usually requiring substantial
investment in new capital
Business to business (B2B): describes
activities between businesses, eg
manufacturer to wholesaler; wholesaler to
retailer.
Fringe benefits: non monetary payments
such as a company car or free medical
insurance
Functional management: when a
business organises itself into departments
eg marketing and operations
Gap in the market: no business is yet
providing a product with a combination of
features customers may need eg medium
quality low priced fashion clothing
Gross profit: sales revenue less cost of
sales (direct costs or variable costs)
Gross profit margin: the proportion of a
product's selling price that is gross profit.
Overheads are ignored.
Growth: an increase in production levels.
Expansion
Hawthorne effect: staff performance
improves when managers or teams take an
interest in their work
Hierarchy of needs: Maslow's theory that
staff are motivated by moving up a series
of needs starting with survival and
culminating in self actualisation
Historical budgeting: setting the current
budget on the basis of the previous budget
Human resources: staff who work for an
organisation, both employees and
managers.
Hygiene factors: issues that can cause
staff dissatisfaction with working
conditions eg management style and job
security
Induction: training given to new staff on
working practices in the business to help
them perform their role
Internal finance: finance from within the
business
Internal growth: an increase in the size of
a firm from increasing its scale of
operation and sales
Investment: purchase of fixed assets by a
business
Investment appraisal: techniques used to
assess the financial implications of
potential projects eg the purchase of new
buildings or equipment
Job description: a document setting tasks
and responsibilities for a given post
Job enlargement: redesigning a job to
give staff additional tasks of similar
complexity
56
AS 292 Glossary |
Job enrichment: redesigning a job to give
staff more challenging and complex tasks
and responsibility
Job rotation: moving workers from one
task to another requiring a similar skill
levels
Just in case: a method of stock control
where an organisation stores components
or completed items to fulfil unexpected
orders
Just in time: a method of stock control
where materials components and products
are delivered only when required. No
stocks are held
Kaizen: a philosophy that aims for
continuous improvements in all areas of
business operations resulting in higher
productivity
Kanban: a reorder card system signals the
need for more components. Used to pull
components into the production process
as needed
Labour turnover: the proportion of staff
leaving an organisation each year
Laissez faire leadership: a ‘hands off’
leadership style that typically allows
subordinates to organise their own work
Lead time: the interval between placing
an order and its arrival
Leadership: the process of influencing
and inspiring others to achieve corporate
objectives
Lean production: a set of techniques that
aim to reduce waste, hence unit costs, at
all stages of production. Can lead to
improved quality.
Leasing: hiring fixed assets for a set
period of time. Leasing gives firms access
to equipment without using up capital.
Liquidity: (1) the ability of a business to
pay its short term debts (2) the ease with
which assets can be turned into cash
Loan capital: business funds borrowed
from external sources eg loans and
debentures
Long term liabilities: business debts the
firm expects to repay in more than 12
months time
Loss leader: products sold at a price that
does not cover unit cost to encourage the
purchase of other profitable items eg
printers and printer ink