Topic 2: The Concept of the Firm

26 The interdependence of business and government 27 Government 27 Regulation 28 Taxation 28 Public services 28 Government as customer 28 Managing the economy 29 The international dimension 29 Political debate 29 Left and right 29 Conservatism, Liberalism, Socialism 29 Political risk 30 Topic 5: Macro Environment - Economic Economic indicator 32 Gross Domestic Product (GDP) 32 Gross National Product (GNP) 33 Balance of Payments (BOP) 33 Employment rate 33 Inflation 33 Consumer Prices Index 34 Interest rate 34 Exchange rate 34 National debt

Topic 2: The concept of the Firm..............................................................1
Influencing factors......................................................................................1
Private and public sector organizations......................................................2
Types of firms..............................................................................................3
Sole trader..................................................................................................3
Partnerships................................................................................................4
Limited Liability Partnerships......................................................................5
Private Limited Companies.........................................................................6
Public Limited Companies...........................................................................6
Co-operatives..............................................................................................7
Charities and Social Enterprises..................................................................9
Social Enterprises........................................................................................9
Community Interest Companies.................................................................9
Joint Ventures...........................................................................................10
Multinational Corporations.......................................................................11
Profit Maximization...................................................................................11
Maximizing Sales.......................................................................................12
Maximizing Revenue.................................................................................12
Survival......................................................................................................12
Profit Satisficing........................................................................................12
Social and Ethical Responsibility...............................................................13
Topic 3: Inside the firm...........................................................................14
Management.............................................................................................14
The classical approach..............................................................................15
The human relations.................................................................................15
The systems approach..............................................................................16
The contingency approach........................................................................17
Organizational structures - Definition.......................................................17
Organizational structures - Size................................................................17
Organizational structures - Why...............................................................17
Organizational structures - Formal relationships......................................18
Line relationships......................................................................................18
Staff relationships.....................................................................................18
Functional relationships............................................................................18
Lateral or peer relationships.....................................................................18
Organizational structures - Type...............................................................19
Influencing factors....................................................................................19
Decisions made about the basis for the structure....................................19
Hierarchical structure...............................................................................19
Functional structures................................................................................20
Product based structures..........................................................................20
Area based structures...............................................................................21
Matrix structures......................................................................................21
Divisional structure...................................................................................22

Project team.............................................................................................22
Changing approaches to organizational structure....................................23
Virtual organiztion....................................................................................23
Structural change......................................................................................23
Aspect of functional management............................................................23
Human resource management (HRM)......................................................23
Marketing function...................................................................................24
Topic 4: Macro environment - Political
Politics.......................................................................................................26
What has politics got to do with business?...............................................26
The interdependence of business and government..................................27
Government..............................................................................................27
Regulation.................................................................................................28
Taxation..................................................................................................28
Public services.........................................................................................28
Government as customer........................................................................28
Managing the economy..........................................................................29
The international dimension...................................................................29
Political debate.......................................................................................29
Left and right...........................................................................................29
Conservatism, Liberalism, Socialism........................................................29
Political risk.............................................................................................30
Topic 5: Macro Environment - Economic
Economic indicator..................................................................................32
Gross Domestic Product (GDP)................................................................32
Gross National Product (GNP).................................................................33
Balance of Payments (BOP).....................................................................33
Employment rate....................................................................................33
Inflation...................................................................................................33
Consumer Prices Index............................................................................34
Interest rate............................................................................................34
Exchange rate..........................................................................................34
National debt..........................................................................................34
Debt ratio................................................................................................34
Business cycles........................................................................................34
The role of government..........................................................................35
Economic targets.....................................................................................35
Policy tools..............................................................................................35
Fiscal policy.............................................................................................35
Monetary policy......................................................................................36
Economic environemtn forces and business behaviour..........................37
Interest rate changes..............................................................................37
Exchange rate changes............................................................................37
Topic 6: Macro environment - Demographic, Social and cultural

The demographic environment of business............................................39
The size of the population.......................................................................39
The age and sex distribution of the population......................................39
Ethnicity and geographical distribution..................................................40
Population change - The birth rate.........................................................41
Population change - The death rate........................................................41
Population change - Net migration.........................................................41
Demographic change and business.........................................................41
Social class...............................................................................................43
Lifestyles.................................................................................................43
Other social influences............................................................................45
Culture....................................................................................................45
Culture - National cultures......................................................................46
Power distance........................................................................................46
Uncertainty avoidance............................................................................46
Individualism...........................................................................................46
Masculinity..............................................................................................46
Long-term orientation.............................................................................46
Culture - Sub-cultures.............................................................................47
Application: market segmentation..........................................................47
Topic 7: Macro environment - Technological
Technology..............................................................................................50
Technological environment.....................................................................50
Technology: interactions with other environmental forces....................51
Knowledge economy...............................................................................51
Immigration with entrepreneurial activity..............................................51
Technology change: creativity and entrepreneurship............................52
Invention...............................................................................................52
Innovation.............................................................................................52
Entrepreneurship..................................................................................52
Corporate Entrepreneurship.................................................................52
Technology adoption lifecycle model....................................................52
Technological diffusion..........................................................................52
Technology transfer..............................................................................52
The learning organization......................................................................53
Technology management......................................................................53
Supply chain..........................................................................................54
Value chain............................................................................................54
Value.....................................................................................................54
Added-Value..........................................................................................54
Value equation......................................................................................54
Digital organization...............................................................................55
E-Business (EB)............................................................................................55
E-Commerce...........................................................................................55

Employment and the nature of work...................................................55
Strategic use of technology: opportunity and threat...........................55
Organizational performance.................................................................56
Competitive advantage........................................................................56
Operational effectiveness.....................................................................56
Competitive strategy............................................................................57
Positioning............................................................................................57
Organization’s resources......................................................................57
Resource based view theory.................................................................57
Tangible/Intangible resource................................................................57
Protecting technology/ Intellectual property (IP).................................58
Topic 8: Monitoring change
The need to monitor change................................................................59
Environmental analysis.........................................................................59
Strategic management.........................................................................59
Environmental scanning.......................................................................60
PESTLE/ PEST analysis...........................................................................60
Five-forces model of competition.........................................................60
Current competition.............................................................................62
Potential competition (threat of new entry)........................................62
The power of buyers.............................................................................63
The power of suppliers.........................................................................63
SWOT/ TOWS analysis..........................................................................63