aims and objectives
eco
nom
ic enviro
nm
ent
social e
nviro
nm
ent
legal environ
men
t
causes of change
leadersh
ipim
plem
enting and
man
aging ch
ange
strategic decisions
influencesenviro
nm
ent
missio
nplanning for change
change process
leadership
cultu
re
environm
ent
socialinterest rates
objectives
emerging m
arkets
infl
ation
exchange rates
dem
ograp
hic facto
rs
political d
ecisio
ns
unemploym
ent
environmental protection
health
and safe
ty
taxationsu
bsid
y
Managing change
Corpora
te a
ims
and o
bject
ives
social environment
planning for change
making strategic decisions
managing changeculture
mission, aims and objectives
environmentsocial environment
leadershipplanning for change
technologicaleconomic environment
change processlegal environment
strategic decisions
social environment
technologicallegal internal causesstrategic decisionsinfluencesleadership
fiscal policyinflationunemployment
subsidygovernment regulation
buying power
public relationsenvironmental issues
freedom of tradeinflation
Assessing change
freedom of trade
cons
umer
protectio
n
inflat
ion
econ
omic
grow
th
moneta
ry polic
yemerging m
arkets emerging m
arkets
corporate strategies
mission statem
ents
inflation
legislation
economic trends
the business cycle
European Union
fiscal policy
unemploym
ent
inflationlegislation
mergers
stak
eholder p
erspect
ives
unemployment
taxa
tion
subsid
y
interest rates
takeovers
law
trade
demograp
hic
public re
lation
s
healt
h
selling
power
monetary
policy
subsidy
taxation
AQA A2 Business Studies Unit 4
crossAcademe
Bare Bones ReviSion GUide
The Business Environment & Managing Change
1 About the exam 2 Notes: Corporate aims and
objectives Understanding mission, aims and objectives � � � � � � � � � � � � 2
3 Notes: Assessing changes in the business environment
The relationship between businesses and the economic environment � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 3
The relationship between businesses and the political and legal environment � � � � � � � � � � � � � � � � � � � � � � � 6
The relationship between businesses and the social environment � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 8
The relationship between businesses and the technological environment � � � � � � � � � � � � � � � � � � � � � � � � � � 9
The relationship between businesses and the competitive environment� � � � � � � � � � � � � � � � � � � � � � � � � � � � 9
10 Notes: Managing change Internal causes of change� � � � � � � � � � � � � � � � � � � � � � � � � � 10 Planning for change � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 12 Key influences on the change process: leadership � � � � � � 12 Key influences on the change process: culture � � � � � � � � � 13 Making strategic decisions � � � � � � � � � � � � � � � � � � � � � � � � � 14 Implementing and managing change � � � � � � � � � � � � � � � � � 14
15 Exam practice Section B essay questions � � � � � � � � � � � � � � � � � � � � � � � � � 15
This Bare Bones Revision Guide:
provides the essential content you need
to succeed in the AQA Unit 4 exam;
presents this information simply and
effectively;
illustrates the higher lever skills of
analysis and evaluation;
includes invaluable exam tips to help
maximise your performance;
concludes with a series of essay
questions for exam practice.
The superfluous bumpf that comes with
other guides has been stripped away in
order to leave you with the key to effective
revision and exam success – clear,
concise revision notes!
Time constraints make it impossible
for you to revisit all the material studied
during your course. Instead, you need
to consolidate your knowledge and
understanding by focusing on the central
terms and concepts provided here. Use
these as the framework for recalling
other content before going on to read the
exam-style essay questions on pages
15–21. You should tackle these under
timed conditions. The A-grade responses
are provided so that you can assess the
quality of your own answers, identifying
any weaknesses. You can then review
these topic areas.
The structure of the revision notes follows
the order of the AQA specification.
The A-Grade Analysis/Evaluation
Examples are designed to help you
develop these higher level skills, and the
essay questions will test not only these
skills but also the skill of application.
The Business Environment & Managing Change
Contents
© Cross Academe Ltd 2013
All rights reserved; no part
of this publication may
be reproduced, stored
in a retrieval system, or
transmitted, in any form or
by any means, electronic,
mechanical, photocopying,
recording or otherwise without either a licence from Cross Academe or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Limited, Saffron House, 6–10 Kirby Street, London EC1N 8TS.
ISBN 978-1-909592-18-6
Design by: Oxford Designers & Illustrators
Published by: Cross Academe Limited St John’s House 5 South Parade Oxford OX2 7JL
Bare Bones ReviSion GUide
AQA A2 Business Studies Unit 4
Phil Waterhouse
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
The Heathland School
The Unit 4 exam is synoptic in nature� This means that in your
responses you will be rewarded for displaying knowledge of
the content covered in the other units� Unit 4 also introduces
new material and this content is covered in these pages�
In the Unit 4 exam you must complete two 40-mark essays
in 1 hour 45 minutes, choosing one essay from Section A
and one from Section B� In Section A you have a choice of
two essays based on a pre-release task (announced in early
February) and in Section B you have a choice of three essays
based on a specific part of the Unit 4 specification� This
guide focuses on the key content required for the Section B
essays�
Unit 4 can appear daunting because you are required to write
two detailed essays� However, the skills required are the same
as those you have developed when studying earlier units�
The key to success is your ability to build chains of argument
(analysis) based on the context (application) so that you can
draw a conclusion (evaluation)�
Each essay has the same allocation of marks and is
marked according to the level of response� Each skill is
judged on whether you show Good, Reasonable or Limited
understanding, and to achieve an A-grade you will need
around 28+ marks per essay�
The process required in order to achieve this is the same for
each section� Four to five detailed paragraphs that show good
knowledge, using good examples for application and then a
line of argument developed, should get you into the top band
for Application and Analysis� Using examples from your own
research is vital for both sections of the paper�
For Evaluation you need to make a justified judgement, stating
what you think and then supporting this judgement� The
concept of PEE-ing throughout is a good one: each paragraph
should make a point, explain it and then back it up with
examples and analysis� It is also useful to make a judgement
at the end of each paragraph� You should then bring your
essay to an end with a concluding paragraph or two, stating
which are the most important factors and why� If you do this
– and provided you have answered the question set – you
should access the very highest grades�
On Section B you do not have to use the businesses
mentioned in the question� The way the question is worded is
vital� It will ask you to ‘Justify your answer with reference to
the business and/or organisations that you know’� Therefore,
do not be put off a particular question if you think it is about a
company/industry that you do not know much about� Similarly
do not choose a question because it gives an example that
you know lots about!
Sometimes the best questions are the ones that give you
an opportunity to make a clear judgement� The examiner
may also use key phrases such as ‘Ultimately doomed’ or
‘Guaranteed future success’ in relation to a business� These
are known as the ‘hooks’, and students that discuss this use
of language in their response to the question tend to perform
particularly well�
Exam tipMake sure that you answer the question set� Reread it after
every paragraph to make sure that you are not drifting off at
a tangent� The examiners want to reward you with marks, but
they cannot do this if you do not answer the question� You must
remain focused throughout�
The key notes that follow provide the building blocks for your
responses, but the most important feature of this guide is the
way it demonstrates how effective lines of argument (analysis)
can be constructed from this information and then how the
significance of the data can be evaluated�
Exam practiceIn addition to tackling the essay questions provided on pages
15-21, you should gain exam practice by working through
past papers� These are readily available on the AQA website
(www�aqa�org�uk) along with the associated mark schemes�
Try to tackle these under the same time constraints that you
will have in the exam itself� You have 1 hour and 45 minutes to
complete the exam, so practise!
Throughout this guide look out for the A-Grade Analysis/
Evaluation Examples in order to see how to turn your
responses into A-grade answers�
About the exam
AQA A2 Business Studies Unit 4
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
1111The Heathland School
Corporate aims and objectivesUnderstanding mission, aims and objectivesDefinition: A mission statement is a declaration of an
organisation’s purpose, principal aims, identity, policy and
values�
Definition: A corporate aim is a long-term target that enables
the business to fulfil its mission statement�
Definition: A corporate objective is a long-term goal
established to coordinate the business�
In order to be effective, objectives should be SMART:
Specific
Measurable
Agreed
Realistic
Time specific
Key corporate objectives can be remembered using the
acronym PIGSS:
Profit
Image
Growth
Survival
Service
Corporate strategiesDefinition: A corporate strategy is a long-term plan to
achieve the business’s corporate objectives�
A corporate strategy informs strategies across all of the
functional areas of the business and involves a significant
investment in terms of time and resources� This makes it
difficult to reverse�
Definition: Tactics are the decisions made by the business to
support its strategy – the means by which it is carried out�
Examples of corporate strategies
Global strategies
Generic strategies – Porter
Operational strategies – Ansoff
Features of global strategies
Worldwide in scope
Being competitive in all markets across the globe
Producing a standardised product to benefit from
economies of scale
Coordinating activities from the central location
Minimising costs and increased efficiency
Features of generic strategies (PORTER)
Cost leadership
Differentiation
Focus
Features of operational strategies (ANSOFF)
Market penetration
Market development
Product development
Diversification
eXAM TiP
The key point is that you are aware of the short-term, medium-
term and long-term plans of the business and that you have an
appreciation of where it is heading�
StakeholdersDefinition: A stakeholder is any individual or group that has
an interest in the way that a business is run�
Examples of stakeholders include:
Customers
Employees
Shareholders
Suppliers
Government
Local community
Competitors
noTeS
Bare Bones ReviSion GUide
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
22The Heathland School
Stakeholder perspectives
Stakeholder Nature of interest
Customers • Reliable supply of goods and services • Products produced to a high standard, reliable
and a decent price
Employees • Steady and reliable income • Healthy and safe working conditions • Job security • Possible promotions
Shareholders • Regular dividends and healthy profits • Rising share prices
Suppliers • Frequent and regular orders • Regular payment
Government • Employment • Profitability to create wealth and tax revenues
Local community
• Employment • Minimal pollution and noise• Provision of facilities for local community
Competitors • Understanding of the range of products offered• Financial performance
In recent years, businesses have shifted away from the
traditional shareholder approach to more of a stakeholder
approach�
Firms used to focus heavily on providing returns to
shareholders, but there is an increasing emphasis today on
making sure that the views of the various stakeholders in the
business are taken into account, since they are all crucial to its
long-term success�
eXAM TiP
You should think about the relative importance of stakeholder
groups� Too often students just list the impact of a business
on stakeholders and fail to come to a conclusion about which
stakeholder group is most affected� As Unit 4 focuses on large
PLCs, you should remember that it is the shareholders that are
invariably the most significant group and this should come out
in your evaluation�
Assessing changes in the business environmentThe relationship between businesses and the economic environment
Businesses need to adopt different strategies according to the
dynamic macroeconomic business environment�
The business cycleAll countries suffer fluctuations in the level of activity within
their economies�
The business cycle describes how this economic activity
passes through four different stages over a period of time�
The four stages of the business cycle are:
1 Boom A period of very fast economic growth, with
rising incomes and profits� Inflation will rise and there
will be shortages of key skilled workers, leading to high
wage increases� High inflation will make the country less
competitive, and business confidence will eventually fall
due to rising costs� Interest rates are increased to slow
down growth�
noTeS
Business cycle• Boom• Recession• Slump• Recovery
Inflation• Rate of price increase• Trends in price change• Rate compared to
other countries
Unemployment• Type (frictional)• Location
Interest rates• Relative levels• Trend: rising/
falling
Business strategy, e�g�• Growth• Market dominance• Rationalisation
• Diversification• Cost leadership• Globalisation
State of the labour market• Skill surpluses• Skill shortages
Exchange rates• Level and trends • Affect all firms, but
especially those trading overseas
AQA A2 Business Studies Unit 4
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
3The Heathland School
2 Recession/downturn Demand starts to fall as interest
rates rise� Real GDP starts to slow and will eventually fall�
Incomes and demand fall, as do profits� Some firms will be
forced out of business�
3 Slump/trough Real GDP falls substantially, which leads
to higher unemployment and further failure of businesses�
Confidence is low and interest rates are reduced to try and
stimulate new demand in the economy�
4 Recovery/upswing The low interest and inflation rates will
start to encourage new spending in the economy� Real GDP
will begin to increase and the country will start to employ
more workers and become competitive once more�
Definition: Gross domestic product (GDP) represents the
value of a country’s national income in one year� It is usually
adjusted for inflation (producing ‘real GDP’)�
An increase in real GDP means that the standard of living
within a country is increasing� It is therefore used as a way of
measuring a country’s economic growth�
eXAM TiP
You need to be able to recognise the current situation of
the economy and how this impacts on the performance of a
business and the different strategies that it can adopt�
Possible strategies during a recession (or economic
downturn) include the following:
Close down parts of the business and make redundancies
Develop new products that appeal to customers as
incomes fall
Lower prices to maintain sales
Look to expand, as prices will be much lower than during a
boom
Target growth markets overseas
Possible strategies during a recovery (upturn or growth
phase) include the following:
Expand production capacity
Develop new products that will be in greater demand as
incomes rise
Increase employment and open up new locations
A-GRAde AnALYSiS eXAMPLe
During the recent economic downturn, the major supermarkets
have adopted a range of strategies to combat the slowdown
in sales growth� Waitrose, for example, has developed its
‘Essentials’ range of products that are lower-priced versions
of its main stock� The company recognises that, with less
disposable income, customers are likely to be more sensitive to
price (price elastic) and will be more selective in their choice of
products� The supermarkets also compete more aggressively on
price� M&S’s ‘Dine in for £10’ promotion has helped it maintain
sales during these difficult economic times� Tesco has looked
to develop a much wider range of products and services� This
strategy is about making Tesco a one-stop shop, where all the
needs of the average household can be met� It has also tried
to develop a market development strategy (Ansoff), opening up
new Tesco operations internationally� Its strategic move into
China and Thailand has been particularly astute, given the rising
incomes and economic growth of these countries� This means
that while Tesco, like the other supermarkets, has faced difficult
trading conditions in the UK, the company has continued to
grow in value as a result of its new operations overseas�
eXAM TiP
The variables that affect the business cycle tend to be
interlinked and it is vital that you know how they also affect
individual businesses�
Interest ratesDefinition: The interest rate is the cost or price of borrowing
money�
Interest rates affect the level of spending within an economy�
When rates are high, consumers borrow less and save more�
When rates are low, consumers borrow more and save less�
Interest rate rise
1 UK becomes more attractive for foreign investors
2 Foreign investors purchase pounds to invest in UK financial
institutions
3 Demand for pounds increases, causing the exchange rate
to increase in value
Interest rate fall
1 UK becomes less attractive for foreign investors
2 Foreign investors sell pounds to purchase other currencies
that have a higher return
3 Demand for pounds falls, causing the exchange rate to fall
in value
Effects of an interest rate rise
Investment and expansion plans will become more
expensive and possibly delayed
Customers will spend less, especially on ‘big ticket’ items
such as cars
Exchange rates will rise, reducing export opportunities
Mortgage repayments will increase, causing disposable
incomes to fall
Effects of an interest rate fall
Greater incentive to expand and borrow money to finance
this
Bare Bones ReviSion GUide
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
44The Heathland School
Customers will spend more
Exchange rates will fall, increasing export opportunities
Mortgage repayments will fall, causing disposable incomes
to rise
Exchange ratesDefinition: The exchange rate is simply the price of one
currency expressed in terms of another�
A currency appreciates or becomes stronger when its value
rises against other currencies�
For example, the exchange rate for the pound may increase
from £1:$1�50 to £1:$1�60�
A currency depreciates or becomes weaker when its value
falls against other currencies�
For example, the exchange rate for the pound may decrease
from £1:$1�60 to £1:$1�50�
The impact of a currency appreciation or depreciation on trade
can be remembered using the following acronyms:
SPICED WPIDEC
Strong Weak
Pound Pound
Imports Imports
Cheaper Dearer
Exports Exports
Dearer Cheaper
A-GRAde AnALYSiS eXAMPLe
Firms such as Jaguar Land Rover are particularly affected by
changes in interest and exchange rates� As producers of luxury
items that sell for a high price, they are likely to see a fall in
demand for their products if interest rates rise� Even though their
products are likely to be comparatively price inelastic because
of their focus on the premium end of the market, the rise in
interest rates will encourage greater saving and a reduction in
borrowing, which will lead to a fall in spending and therefore a
fall in car sales� Higher interest rates will increase the demand
for pounds, which will strengthen its value� This means that cars
sold to overseas markets will become relatively more expensive
and so luxury car manufacturers are likely to suffer greatly�
Indeed, any business that sells expensive products is more
vulnerable to interest rate rises than a producer of essential
items� However, such businesses are likely to benefit greatly
when interest rates fall, as this will allow them to be more
competitive in overseas markets�
InflationDefinition: Inflation is a general rise in prices�
Inflation is measured using the Retail Price Index (RPI) as well
as the Consumer Price Index (CPI)� Each month the prices
of more than 650 goods and services are measured and the
percentage change in prices is calculated and recorded�
The CPI index is more commonly used and it differs from the
RPI, as it does not include the costs of housing (mortgage
interest and council tax, for example)�
Causes of inflation
Demand-pull inflation occurs when the demand for goods
and services is greater than the supply, causing prices to rise�
Cost-push inflation occurs when prices rise as a result of
wage or raw material cost increases�
Inflation and interest rates
If prices increase (inflation), then it is likely that interest rates
will be increased to control the amount of borrowing and
spending and to encourage saving in order to slow down the
economic growth of the economy�
During a boom, inflation and interest rates are likely to be
high
During a recession, inflation and interest rates are likely to
be low
A-GRAde AnALYSiS eXAMPLe
Rising inflation may be a sign of a booming economy, which
means that a business may more easily raise its prices to
increase its profit margins� However, this may lead to even
greater price inflation, which can make it harder for a firm to
maintain international competitiveness� The pressure of cost-
push inflation might further reduce the competitive advantage
of the business� In addition, the threat of rising inflation can
actually lead to lower sales� Although prices have increased, the
interest rate is also likely to have risen, encouraging consumers
to increase their savings� If businesses do not account for this,
they may be left with cash flow problems�
UnemploymentThere are three main types of unemployment:
Structural unemployment, which occurs due to
fundamental changes in the economy, e�g� the move from
manufacturing to service industries within the UK
Cyclical unemployment, which is caused by the operation
of the business cycle – unemployment will rise during
slumps and fall during booms
Frictional unemployment, which exists because people
may be temporarily out of work between leaving one job
and starting another
AQA A2 Business Studies Unit 4
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
5The Heathland School
A-GRAde AnALYSiS eXAMPLe
An increase in unemployment has a negative multiplier effect�
Demand for most goods falls as average incomes fall, and
average incomes fall when more people are out of work� This
can lead to further rationalisation and more redundancies,
affecting business confidence in the economy as a whole and
leading to social problems in particular areas, as unemployment
is often regionalised� On the other hand, businesses may
benefit because they will face less pressure for higher wages�
Workers are likely to be more reluctant to take industrial action
for fear of losing their jobs, since they would find it harder to
gain alternative employment�
Economic growthDefinition: Economic growth is an increase in the value of
goods and services produced by a nation’s economy�
Linked closely to the business cycle, economic growth is
measured by the increase in gross domestic product (GDP)�
Advantages
Consumers have higher living standards, increasing
demand for income-elastic products
Business investment in expansion projects is likely to be
more profitable
Higher sales and profits for businesses
Greater chance of success for new business start-ups
Government tax revenue increases, allowing further
spending in the economy and increasing future economic
growth
Disadvantages
Rapid growth can lead to shortages of labour
Rising incomes can lead to inflation
Can cause greater inequality
Interest rates likely to rise as prices and spending increase
Governments aim to maintain steady and sustained economic
growth over a period of time� This is difficult to achieve and
most economies tend to follow the business cycle�
GlobalisationGlobalisation is not a new process but it has accelerated in
recent years with the rapid growth of multinational companies,
fewer tariffs and quotas on imports, and the expansion of free
trade areas such as the EU�
Potential advantages of a globalised business
Increased sales, revenues and profits
Cheaper resources
Economies of scale
Development of different products for different markets
Spread of risk
Development of a worldwide reputation
Potential disadvantages of a globalised business
Reduced choice and fewer individual products
Downward pressure on prices
Exploitation of workers
Increased competition
Communication and coordination issues
Unpopular with certain pressure groups
Emerging marketsDefinition: An emerging market is a country with relatively
low income per head, but one that is enjoying high rates of
economic growth�
The BRIC countries are Brazil, Russia, India and China and
are seen as the major emerging markets�
Advantages of emerging markets
Huge population levels – in terms of potential customers
and workforce
Rapid growth rates
Access to natural resources and raw materials
Disadvantages of emerging markets
Poor transport infrastructures
Political uncertainty and instability
Environmental and ethical issues
Lack of appropriate technology and skills
Inflation levels – rapid economic growth leads to rising
prices
Less legal protection, i�e� patents and copyright laws
The relationship between businesses and the political and legal environment
Government interventionThe UK government has four main economic objectives:
Continuous and stable economic growth
Low inflation
Low unemployment
Balance of payments equilibrium – the value of imports
should equal the value of exports
Bare Bones ReviSion GUide
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
6The Heathland School
In order to achieve these objectives there are three main types
of policy:
Monetary policy
Fiscal policy
Supply-side policy
Monetary policy
The government (or the Bank of England acting on its behalf
via the Monetary Policy Committee) controls the amount of
money in the economy and the interest rates�
A-GRAde AnALYSiS eXAMPLe
New firms with debts will typically struggle in terms of cash
flow and, if the interest rate increases, this will increase the
amount of cash leaving the business each month and worsen
the current ratio of the firm� Businesses that sell income-elastic
products or that trade overseas will also tend to be affected
more substantially, as rising interest rates reduce customers’
disposable incomes and lead to an appreciation of the pound�
This will mean that the firm is less competitive in international
markets� The increase in interest rates will have a significant
impact too on firms that are already highly geared� The higher
cost of loans could mean that they struggle to pay back their
loans and that they find it harder to attract additional finance�
Fiscal policy
The government uses taxation and public spending to affect
the level of activity within the economy�
Supply-side policies
The government regularly launches new policies to try and
increase the amount of economic growth in the country�
Typical examples of such policies might be:
To encourage new business start-ups to create new
enterprise
To increase the number of university places to improve the
skills of the workforce
To encourage multinational investment into the UK
To invest in training schemes for unemployed workers
Political decisionsThe business world has been affected by the decisions made
by governments across the world�
The enlargement of the EU
The UK is part of the EU and there are substantial differences
in the way that the main political parties view its role in Europe�
From a business perspective, the recent EU enlargement
has created a massive market of over 475 million people,
presenting firms with both opportunities and threats�
Greater freedom of trade
The World Trade Organisation (WTO) was established in
1995 with the aim of protecting free trade between member
countries and reducing protectionism in certain markets�
Political decisions about trade areas have a significant impact
on businesses and have led to the increased globalisation
mentioned above�
eXAM TiP
It is very important that you have an understanding of recent
political developments� Do not be afraid to express your own
views on certain issues� This is likely to lead to good marks
for evaluation� Typically right-wing parties across the world
favour lower levels of government intervention, preferring to
leave markets alone, and lower taxes� Left-wing parties prefer
more intervention, looking to correct market failures where they
occur, and higher taxes� It is likely that you will have your own
views about EU membership, the political leaders and parties –
feel free to make a judgement about present situations�
LegislationThe specification clearly states that you are only expected to
have a broad understanding of the scope of legislation and the
impact that changes in legislation have on a business� Detailed
knowledge of individual sections of legislation is not required�
The following notes outline key pieces of legislation, but
remember that it is the way in which you use this information
that is important�
Employment law
The Equal Pay Act 1970
Both sexes should be treated equally in all matters relating to
employment
The Sex Discrimination Act 1974
Discrimination on the grounds of sex or marital status is illegal
The Race Relations Act 1976
Discrimination on the grounds of race or nationality is illegal
The Trade Union Reform Act 1993
Unions must give a minimum of 7 days’ notice before taking
industrial action; a secret ballot of employees must be
conducted before industrial action is lawful
The Disability Discrimination Act 1994
It is illegal for employers to treat a disabled person less
favourably than others
The Working Time Regulations 1998
Sets a limit of 48 working hours a week
AQA A2 Business Studies Unit 4
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
7The Heathland School
The National Minimum Wage Act 1998
Sets a minimum wage for all workers according to age
The Employment Relations Act 2000
If more than 50% of employees are union members, the union
can demand recognition and the right to collective bargaining
Consumer protection
The Sale of Goods Act 1979
All goods sold should be of merchantable quality, fit for
purpose and as described
The Trade Descriptions Act 1968
It is an offence to make misleading claims about a product
The Consumer Protection Act 1987
This law has banned a number of practices that have been
deemed to be unfair to the consumer, e�g� aggressive sales
methods
Environmental protection
The Environmental Protection Act 1991
This act requires businesses to minimise pollution as a whole
The Environment Act 1995
This act looks to coordinate and oversee environmental
protection
Health and safety laws
The Health and Safety at Work Act 1974
This legislation is designed to prevent accidents in the
workplace and imposes a legal obligation on employers to
ensure that they safeguard all their employees’ health, safety
and welfare at work
Impact of legislation
Can add to a firm’s costs
Greater rights for workers and may lead to increased
motivation
Greater protection and rights for consumers
Greater awareness of environmental issues
Encourages a stakeholder approach
A-GRAde evALUATion eXAMPLe
In my opinion, legislation provides a necessary framework for
business� While firms are likely to be frustrated by excessive
amounts of legislation and the inflexibility of certain aspects of
certain laws, such as the HASAW Act 1974, these guidelines are
put in place to benefit not just the workers but all stakeholders
in a business� While aspects of the legislation might add to the
costs of the firm, the employment laws are there to assist both
the firm and the employees� The National Minimum Wage Act
is likely to have affected firms negatively, as they are no longer
able to pay low wages� This will add to their employment costs
and this will affect their overall profitability� However, many firms
are able to pass these extra costs on to consumers in the form
of higher prices and therefore maintain their profit margins�
The development of trade union law means that firms actually
have greater power and are less likely to be hit with industrial
action because the law makes it harder for unions to strike�
Firms have more time to prepare for industrial action and draw
up contingency plans, such as when the BA staff took action�
These laws also allow firms to look for ways to avoid such action�
While excessive legislation might lead to the relocation of firms
overseas where there may be less stringent laws, the fact of the
matter is that some kind of legal framework is vital in order to
protect and balance the interests of all business stakeholders�
The relationship between businesses and the social environmentThe social environment is influenced by the demographics of
the population, societal behaviour and attitudes� It includes
the environmental and ethical concerns of consumers and
businesses�
Corporate social responsibility (CSR)Corporate social responsibility is a business philosophy that
focuses on how firms should behave as good citizens and
considers the effects of their actions on all stakeholders in the
business� Interest in this philosophy has grown in recent years�
In addition to producing financial reports, PLCs now frequently
produce social reports about the impact of their activities on
all stakeholder groups�
Definition: Greenwashing refers to the way in which some
companies overstate the responsible and ethical nature of
their actions�
While large firms are now expected to produce social reports,
the reality is that many firms choose to report their actions as
part of a public relations exercise�
DemographicsDemographics refer to the characteristics of the population
and the general underlying trends within a country� Is the
general population ageing? Is the country experiencing net
migration or net immigration? Is the birth rate increasing or
declining?
Bare Bones ReviSion GUide
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
8The Heathland School
eXAM TiP
You need to be able to apply the general trends in population
changes to particular businesses� For example, the general rise
in the ageing population presents opportunities for firms that
cater specifically for this sector, such as Saga� In addition, firms
that provide products for children, such as Mothercare, will
be keen to have an understanding of the birth rates because this
will help them forecast sales and plan stock levels accordingly�
Environmental and ethical issuesEthical decisions are about doing what is morally right� They
are different from legal requirements� Businesses have to
decide on how big a role ethics will play in their decision
making� The overall trend is for ethical considerations to be
given greater weight by businesses� This is particularly evident
in relation to the environment and is a response to growing
public concern over ‘green’ issues�
The triple bottom line
Firms need to consider Profit, People and the Planet in their
decision making� It is no longer just about profit�
The implications of environmental and ethical issues
Production – reducing use of non-renewable resources
and increasing use of biodegradable packaging
Purchasing – sourcing from renewable and sustainable
suppliers, causing less damage to the environment
Marketing – making use of a firm’s ‘green credentials’ to
aid its marketing, e�g� The Body Shop and Lush cosmetics
Human resources – increasing employment opportunities
in environmental areas
Responses to changing social and ethical environments Adopting new techniques of production
Developing a new corporate image
Developing a new product range or entering new markets
The relationship between businesses and the technological environmentWe are living through an era of exponential technological
change� The development of new technology dramatically
affects the way we live our lives and therefore businesses have
to adapt�
Major technological developments in the last decade Widespread broadband usage, making online trading
quicker and more reliable
Growth of social media and networking sites,
e�g� Facebook and Twitter
Developments in CAD and CAM
Smartphones and Tablet computers
Self-service checkouts
Implications of changes in technologyIt is important that you consider the technological
developments as both opportunities and threats for a
business� The rate of change is also a major factor as is the
cost of R&D – developing new products that continue to be
required and up to date is a real challenge for a great many
businesses�
Technological developments and businesses Marketing New markets have emerged and the way
that businesses interact with customers has changed�
For example, advertising via sites such as Facebook,
Google and YouTube has seen a massive increase and
firms are switching away from traditional media
outlets�
Production New technology leads to quicker, faster and
more innovative methods of production�
Human resources New production processes generally
require fewer workers� However, there has been an increase
in the need for designers and computer programmers�
In addition, the use of technology has changed the way
businesses communicate with each other�
The relationship between businesses and the competitive environment
Porter’s five forcesMichael Porter’s ‘five forces of competitive position’ model
provides a simple framework with which to assess the
competitive strength of a business and it helps a firm identify a
suitable strategy for dealing with its current position�
A diagram of Porter’s five forces is shown overleaf�
AQA A2 Business Studies Unit 4
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
9The Heathland School
Competitive rivalry within an industry
Threat of new entrants
Bargaining power of customers
Bargaining power of suppliers
Threat of substitute products
Competitive rivalry – rivalry will be greater if a market is
easy to enter and the firms are of a similar size, selling similar
substitute products�
Power of suppliers – if there are relatively few suppliers to a
market, they will have more power�
Power of buyers – buyers or customers will have more
influence on a market where there are many products and
substitutes, as they can switch easily�
Threat of substitutes – if it is easy to switch to an alternative
product, then competition will be high�
Threat of new entrants – if entry barriers are low, greater
competition is more likely�
eXAM TiP
Porter’s model needs to be placed in context� The idea of the
model is to help you identify and analyse the likely factors
that are influencing the amount of competition within a
particular industry� The examiner will not want or expect you
to reproduce the notes above� Instead, you need to recognise
the determinants and extent of competitiveness in a particular
industry� More importantly, the examiner will expect you to
identify different strategic responses that firms can adopt�
Possible responses to a changing competitive environment Cost leadership
Differentiation
Focus
Market structureThe number of firms in an industry is often a key indicator of
the level of competitiveness�
A monopoly exists where one large firm dominates the
industry, e�g� Apple in the MP3 market
An oligopoly exists where 2-8 large firms dominate the
industry, e�g� supermarkets
A competitive market is where a large number of small
firms produce similar goods
Dominant firmsA dominant firm is able to have a substantial influence over
market prices because it is likely to have the largest market
share and will benefit the most from economies of scale� It
can use these to gain a cost advantage over other firms and
potential entrants to the industry� It can also look to merge or
take over rival firms, increasing its advantages further�
Managing changeInternal causes of changeChange in business is inevitable and a firm may face both
opportunities and threats�
eXAM TiP
This is a major aspect of the Unit 4 specification and it is highly
likely that you will face a question on this area�
Changes in organisational sizeThe majority of firms identify growth as a major corporate
objective�
Reasons for growth
Larger firms benefit from economies of scale
Larger firms have more power over their markets
Larger firms are safer from takeover threats
Larger firms have more status
noTeS
Bare Bones ReviSion GUide
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
10The Heathland School
Types of growth
Internal – expanding a business by means of opening
new branches, shops or factories (also known as organic
growth)
External – expanding a business by means of merging with
or taking over another business
Types of external growth
Horizontal – when a firm joins with another at the same
stage of the production process
Vertical – when a firm joins with another firm at a different
stage of the production process
Conglomerate – when a firm joins with another in a
completely different production process
Horizontal integration
Advantages
Eliminates competition and gives the firm greater market
share
Potential for further economies of scale
Increased power over suppliers
Potential for cost savings and rationalisation
Disadvantages
Harder to manage and control a larger firm
May lead to redundancies
Firm becomes too dominant and restricts choice for
consumers
Suppliers placed under greater pressure
Vertical backward integration (same industry but with a supplier of the business)
Advantages
Gives greater control over quality and price of supplies
Integrated R&D
Guaranteed supply of key materials
Disadvantages
Supplier may become complacent due to guaranteed
customer
Lack of experience in managing a supplier
Firm becomes too dominant and powerful
Vertical forward integration
(same industry but with a customer of the business)
Advantages
Obtains a secure outlet to sell own products
Direct contact with customers
Greater control over promotion and pricing of products
Disadvantages
Consumers have less choice
Prices might be higher
Lack of experience in running a retail company
Conglomerate integration
(different industry)
Advantages
Spreads risk
Allows the firm to have a wider product portfolio
Can move into fast-growing industries
Benefits of synergy
Disadvantages
Lack of direction and focus
Lack of management experience
Company spreads itself too thinly
Synergy is a term frequently used as an explanation for the
desire for growth� It is often explained as 2 + 2 = 5, which
means that the value of the total is greater than the sum of
the parts� When Morrison’s was successful in its takeover of
Safeway, the joined company was more profitable than the
two separate firms� Its takeover also allowed the firm to benefit
from the geographical locations of Safeway in the south of
England�
Retrenchment is the opposite of growth� In difficult economic
circumstances this strategy becomes more important� It is
the reduction of business costs in order to become more
financially stable, increase profits and move out of loss-
making areas of operation� M&S decided to shut down some
of its Simply Food stores due to their poor performance and to
concentrate on the stores that were making a profit�
Changes in ownership/leadershipIntegration is just one reason why the ownership and
leadership of a firm might change� Other possible reasons are:
Passing the business on to the next generation
Management buyouts (MBOs)
Flotation on the stock market
eXAM TiP
It is important to link the reasons for change to the objectives
and leadership styles of new owners and managers� You need
to assess why new owners make significant changes to a
business and how they aim to implement these changes�
AQA A2 Business Studies Unit 4
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
11The Heathland School
Poor business performanceIf a business performs poorly for a period of time, then
changes are likely to be introduced� Examples could include:
Replacing some staff
Restructuring the business
Implementing new systems and processes
Closing parts of the firm
Moving into a new market
Planning for change
Corporate plansDefinition: A corporate plan sets out what the business as a
whole is trying to achieve and how it intends to do this�
A typical corporate plan will include:
Overall objectives of the organisation
Strategies to be used to achieve the objectives
Tactics to be used to support the strategies
The corporate plan will often be derived from a SWOT
analysis of the firm’s operations:
Strengths
Weaknesses
Opportunities
Threats
Internal and external influences on corporate plans
Internal influences
Financial resources
Operational capacity
Managerial skills and experience
Human resources
Culture of the organisation
External influences
Macroeconomic conditions
Competitors’ actions
Technological change
Social aspects
Political intervention
eXAM TiP
It is always crucial to think of both the internal functional areas
of the business and the external aspects� PESTEL analysis
is a very useful way of remembering the external influences�
However, examiners will not want you to list all of the different
external factors – they will expect you to discuss two or three of
the most significant ones� Try to avoid lists and aim instead to
develop fewer points but in greater detail�
The value of a corporate planThe plan sets out the key targets and objectives of the firm�
It is of importance not just to the senior managers but also to
all stakeholders and potential stakeholders of the business�
It is essential that the plan is reviewed regularly to assess the
performance of the firm and that it is updated to take into
account changing market conditions�
Contingency planningBusinesses operate in uncertain and risky environments�
Contingency planning is a tool that is used in relation to
unexpected events� The aim is to minimise the potential
impact of a crisis and assess the likelihood of certain events
occurring� This planning should enable the firm to continue to
operate even if the worst-case scenario happens�
Advantages
Reassures staff and customers that plans are in place
Minimises negative impact on customers and suppliers in
the event of a major disaster
Ensures a swifter response because the firm has planned
for the event
Disadvantages
Costly and time consuming
Need constantly to update plans and train staff
Avoiding disasters is still better than planning for what to
do if they occur
Key influences on the change process: leadership A leader is someone that drives a business forward, whereas
a manager is someone that puts into action the vision of
the leader� Managers are the ones who plan, organise and
coordinate and control the business on a day-to-day basis�
Leadership stylesAutocratic leaders tell workers what to do and make
decisions without consulting others�
Democratic leaders engage in discussion with workers before
making decisions�
Paternalistic leaders treat the workforce as a family unit and
make decisions after consultation�
Bare Bones ReviSion GUide
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
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12The Heathland School
Laissez-faire leaders leave workers to get on with their work
with limited supervision and control�
Bureaucratic leaders rely on rigid rules and procedures when
making decisions�
eXAM TiP
It is highly likely that you will have studied different leadership
styles in depth� It is important to remember that examiners are
not specifically looking for advantages and disadvantages of
the different leadership styles� They expect you to be able to
apply the different styles to relevant examples from the business
world and make a judgement on the effectiveness of that style
in that particular situation�
Factors that influence leadership style
Internal
The skill levels and experience
The culture of the organisation
Time constraints
External
Economic environment
Nature and speed of change within the industry
Legal changes
Just as it is important to understand the difference between a
manager and a leader, so it is important that you distinguish
between managing change and leading change�
Managing change Setting new objectives that recognise the need for change
Ensuring that the firm has adequate resources
Putting in place plans to meet the new changes
Leading change Establishing a vision for the business
Motivating staff at all levels
Putting change at the centre of an organisation’s culture
The importance of leadershipSuccessful leadership is vital for a business during periods of
growth and also when the firm might be struggling� Successful
leaders will be expected to:
Have a clear vision and sense of direction
Make confident and effective decisions
Support and understand the needs of the business
Plan for the future
Communicate clearly the objectives of the firm
Key influences on the change process: cultureCulture can be explained by the phrase ‘the way we do things
around here’� Different organisations will have different cultures
and the values, attitudes and beliefs of the people who work
there will influence that culture and how the firm is perceived�
Types of organisational cultureCharles Handy has identified four types of organisational
culture:
Power Power is concentrated among just a few people�
This culture is associated with autocratic leadership and
centralised organisational structures�
Role Each member of the organisation has a well-defined
role� This culture is associated with bureaucratic leadership
and hierarchical organisations� The power and influence
comes from the individual’s position within the company�
Task Based on cooperation and teamwork, this culture
is associated with matrix organisational structures� Team
members are encouraged to be creative�
Person Individuals are given freedom to express their
views and be creative� This culture is associated with
laissez-faire leadership styles and a decentralised
organisation�
A fifth type of culture can be classified as:
Entrepreneurial Encourages staff to take risks and come
up with new business ideas and ventures�
The importance of organisational culture
A-GRAde evALUATion eXAMPLe
I believe it is often easier for newly appointed leaders to bring
about changes in culture because they will be looking to adopt
new ways of working and to bring new ideas into the business�
They are therefore at an advantage over internally appointed
managers who will be expected to leave the culture unchanged�
Desired changes in culture need to be communicated to staff
by setting out a vision and encouraging workers to embrace
change�
Reasons for changing organisational culture
The business needs to adapt to changing market
conditions
A merger or takeover has led to two different cultures
joining together
There has been a series of poor financial results and staff
are demotivated
AQA A2 Business Studies Unit 4
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
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13The Heathland School
A new management team has taken control
The business needs to be repositioned in a new market
Problems in changing organisational culture
There is resistance to change
It is difficult to communicate the idea effectively
It is hard to alter people’s attitudes without educating them
about the value of change
Change takes time
Making strategic decisionsThere are broadly two types of decision that a firm can
make:
Scientific – taking a rational and logical approach based on
the data presented
Hunch/intuition – certain entrepreneurs and businesses
will make decisions based on ‘gut feeling’ and because a
particular course of action just ‘feels right’
Strategic scientific analysis makes use of a range of
decision-making tools such as:
SWOT analysis
Market research data
Competitor analysis
Sales forecasts
Financial ratios
PESTEL analysis
Previous data and experience
Influences on decision making The nature of the industry and business
The risk involved
The corporate values, culture and objectives
The ethics of the decision
Available resources
The relative power of different stakeholders
Information managementStrategic management requires detailed information if it is to
be successful� Management information systems are often
computer systems that help managers plan, take decisions
and control the business operations� Components of an
information management system might include:
Data on different options
Simulated results and predictions on each option
Up-to-date information about the performance of all
aspects of the business
Implementing and managing changeChange management is about planning, implementing,
controlling and reviewing the movement of an organisation
from its current state to a new one�
Types of change Evolutionary or incremental – change occurs slowly
over time
Revolutionary or dynamic – sudden and unexpected
circumstances cause a business to bring in quickly a
new way of operating, which can be either external or
internal
Causes of change Technological advances
Macroeconomic conditions
Legislation
Competitors’ actions
Effecting changeThe best ways to bring about change have these main
components:
Concentrate on the positive aspects of the firm
Obtain the commitment of the key people within the
organisation
Communicate the new change effectively
Offer incentives
Provide training and encourage participation
Establish new objectives and a new mission statement that
reflect the new values and culture of the business
Where resistance occurs, it is possible to identify various
stages in the response of employees to the change process�
These stages can be remembered using the acronym
SARAH:
Shock
Anger
Rejection
Acceptance
Help
Reasons for resisting change Lack of trust and misunderstanding
A desire to return to the way things were before
Lack of belief in the change
Bare Bones ReviSion GUide
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
14The Heathland School
Exam practiceSection B essay questionsThe Section B essays are synoptic in nature� This means
you are encouraged to bring in material from other units� The
essay responses that follow should help you understand how
to draw on relevant examples, develop arguments and make
judgements on the specific questions set�
The relationship between businesses and the economic environmentWith reference to organisations or industries that you
know, to what extent do you think that recent changes in
the UK economy will inevitably have damaged the long-
term profits of businesses that operate in this country?
Candidate’s response (A grade)
The UK, along with other countries in the western world, has
been affected by a fairly severe slowdown in economic growth
as a consequence of the global credit crunch� A recession is
defined as two consecutive quarters of negative economic
growth as measured by GDP, and many of the world’s major
economies have fallen into a recession after years of economic
growth� This has had a significant effect on a number of
industries� However, while it has made the environment in
which businesses operate much more difficult, I do not believe
that all firms and industries will inevitably be damaged�
For some industries, the recession has actually provided
an opportunity for increased sales and profits� A number of
firms that sell essential items or inferior products in terms
of income elasticity have seen a period of high profitability�
While many restaurants have struggled, due to consumers
spending less as a result of lower disposable incomes and
reduced confidence, the takeaway segment of the market
has thrived� Firms such as Domino’s have actually increased
their number of outlets in response to demand, as consumers
look to stay at home more� There has been an increase too in
subscriptions for satellite TV companies, such as Sky� Firms
that adopt a cost-leadership approach are also likely to be
successful as individuals turn to cheaper, substitute products
in times of a recession� Clothing retailers such as Primark have
clearly benefited�
Firms that produce more income-elastic and luxury
products are likely to be harder hit and, indeed, a number of
major high-street chains have been forced to close down�
Companies such as Thorntons and La Senza have run into
trouble, partly due to the economic situation and partly due to
management difficulties� The package holiday market has also
seen sales decline as consumers look for cheaper alternatives
and opt to stay in the UK rather than travel abroad� The relative
weakness of the pound in relation to the euro has played a part
here� It has become relatively more expensive to travel to the
eurozone because the pound has depreciated� Firms operating
in this industry have seen profits decline as they reduce prices
to attract customers that have become even more price
sensitive� They have also seen a fall in their capacity utilisation,
with many holidays left unsold� This has a knock-on effect
in terms of their cash flow position� The firms have to secure
accommodation in advance and, by selling holidays at a
discounted price, they have reduced their profit margins�
For many firms, in many industries, the recession has
brought about a change in objectives, with the focus on
survival as much as profitability� However, I do not believe
that all firms will inevitably face lower long-term profits� It will
depend on the nature of a firm’s products and the industry
in which it operates� Businesses that have a global strategy
are likely to be less affected by the recent downturn because
they can look to other areas around the world for growth and
profit� This has been the case for companies such as Cadbury�
Its concentration on the Indian market has seen the group’s
profits increase despite a fall in UK sales and rising raw
material costs� This has been a bold strategic move and one
that shows that not all firms will inevitably be damaged�
This response addresses the ‘hook’ (‘inevitably damaged’)
and is structured around this� The clear definition at the
start is good technique, and the use of different industries
demonstrates good application� The answer intertwines
different aspects of the specification and builds arguments
effectively, especially in relation to exchange rates and the
objectives of the different firms� The candidate then reaches a
final judgement that addresses the question directly�
Application Analysis Evaluation OverallGood Good Good (just) 33/40 marks
AQA A2 Business Studies Unit 4
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
15The Heathland School
The relationship between businesses and the economic environmentDoes the increasingly global nature of business mean
that all organisations need to change their strategies
significantly to achieve higher profits? Justify your answer
with reference to businesses that you know.
Candidate’s response (A grade)
It would be false to say that all businesses need to take on a
global strategy� Many small businesses operate at a very local
scale and are unlikely to be affected by changes in the global
market place – for example, a small local bakery or a window
cleaning business� However, for other businesses it is more
significant� The changing nature of technology has meant that
firms are able to build a global presence via their websites,
despite operating in a small domestic market� Search engines
are powerful tools that can be used by organisations and
consumers to find the lowest priced products and suppliers�
Having said that, it is unlikely that this alone would prompt a
change in strategy for all businesses�
Firms need to consider the global market place – both in
terms of potential customers and also in relation to operations�
The sheer size of emerging markets, such as the BRIC
economies, presents a huge opportunity for many domestic
firms� China and India together account for over 40% of the
world’s population and, with both economies seeing major
economic growth and rising incomes, the potential for sales
in these countries is enormous in certain sectors� Businesses
that have expanded into these countries early, such as Tesco
and Walmart, enjoy first mover advantage, but their success
is likely to prompt rival supermarkets to review their strategies
and focus on expansion into these areas as well�
In today’s global market place it is important for companies
in the fashion industry to minimise costs in order to increase
profits� Most clothes sold in the UK are manufactured in the
Far East so that firms can price their products competitively
and still make a profit� More open markets now enable
production to locate abroad more easily than in the past
when there were barriers to inward investment� Western
firms can benefit from lower land costs, cheaper labour
and less regulation in areas such as health and safety� M&S
famously moved production abroad because of a fear of
being beaten on price by its competitors� In order for major
competitors to retain their market position, it is essential that
they minimise their costs, and the easiest way to do this is
to move production abroad� They can then use this to price
products more competitively� For M&S, huge competitors such
as Primark have forced them to cut costs in order to retain a
place in what is a price-elastic market�
Certain firms such as Dyson have not moved all of their
production overseas, and their research and development
department is still based in the UK because they understand
the importance of innovation in the success of their products�
Such innovation means that these goods are more price
inelastic� Dyson has retained its core strategy even though
it has shifted production abroad� The company thus draws
on the strengths of each country, i�e� cheaper production in
Malaysia but strong research, design and technical skills in
the UK� It is the innovative products that contribute to a strong
reputation for quality, which leads in the long term to higher
profits� Companies like Dyson have therefore only changed
part of their approach due to the global opportunities, which
shows that there are degrees of change�
Market development as a long-term strategy is particularly
important if domestic markets are saturated� With fewer tariffs
and quotas, more open markets and global communication,
businesses have the opportunity to gain customers in global
markets� The resulting increase in profit provides a higher
return for investors�
Overall, the global nature of business certainly puts a lot of
pressure on market leaders to change their strategy in order
to achieve higher profits� It creates production and marketing
opportunities and also means competition in any market is
likely to be greater� For the clothing industry it is almost a
necessity to offshore production and adopt a strategy of cost
minimisation in order to remain competitive in the mass market�
The growth rates of BRIC economies are so much faster
than the UK (e�g� 10% per annum compared to an average of
2-3%) that investor pressure for growth may only be met by
expansion there� This has been especially true in recent years,
since many western markets have been hit by recession�
It is certainly true that any business has to consider whether
to adapt its strategy in order to achieve higher profits and
that global pressures have increased due to more advanced
technology, better communications and freer trade� However, it
is vital that a firm retains its USP or it risks alienating its existing
customers� Even so, in order to be successful firms need to
develop new markets while minimising costs, keeping core
strengths at the heart of their strategies irrespective of whether
they compete domestically or overseas�
This is an excellent response� The candidate uses extensive
examples and the majority of these relate directly to the
impact of globalisation and why firms can benefit or suffer
from the growth of global operations� There is a very clear
focus on the question throughout�
Application Analysis Evaluation OverallGood Good Good 40/40 marks
Bare Bones ReviSion GUide
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
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ncash
16The Heathland School
The relationship between businesses and the social environment
To what extent is it now essential for firms to place greater
importance on environmental and ethical issues in their
operations?
Candidate’s response (A grade)
Until recently, the main objective of most firms was to make
a profit and, while this is still a fundamental aspect of most
businesses, there is a clear trend towards companies placing
greater emphasis on the environment� Firms such as The Body
Shop have built their mission statements around the ‘Profits
with Principles’ message� The success of this particular firm
in the cosmetics industry has seen a number of imitation
firms keen to take advantage of the fact that customers now
expect companies to act in a way that is ethical and does
not harm the environment� Ben & Jerry’s is another example
of a business that has always placed corporate social
responsibility (CSR) at the heart of the organisation� This is not
a public relations exercise for such companies – ethical and
environmental concerns are very much a part of the identity of
the business� It is clear from their success that CSR can prove
extremely beneficial�
However, I would argue against the ‘essential’ aspect of the
question� Not all firms have the same culture and values and
it is interesting that the examples mentioned in the previous
paragraph are now in fact owned and run by two much larger
multinationals, L’Oréal and Unilever, that have not always been
as serious about CSR� For certain large multinationals the need
to take a CSR approach is often seen as a PR exercise and
the social reports that they produce can often be biased and
lead to ‘greenwashing’, where they overstate their activities in
relation to the environment and ethical considerations� While
the stakeholder approach has grown in importance, most
PLCs would consider their highest priority to be making a profit
and providing a decent return to shareholders via dividend
payments and increased share value� For certain organisations
the added cost of acting in a way that limits their impact on the
environment can appear prohibitively expensive� This issue is
particularly acute for firms that have adopted a cost leadership
strategy, such as Ryanair and other budget airlines, because
they are keen to minimise costs at every opportunity� The
fact that they operate in an industry that is highly polluting is
also relevant� It is harder for firms operating in such industries
to act in an ethical manner, no matter what they do� This
may go some way to explaining why budget airlines place
less emphasis on CSR and it is certainly the case that these
organisations do not see CSR as essential�
In conclusion, I believe that while certain firms see the
benefit of acting in a more responsible manner because it
will allow them to differentiate themselves from competitors
and give them a chance to have a USP, this is only likely to
be a significant factor when their customers are sensitive to
environmental and ethical issues� While this is a growing trend,
the majority of customers still consider the actual cost of the
product more important� For many firms this will therefore be
a decisive factor in the way they conduct their operations�
While acting ethically is seen as the morally right thing to do,
ultimately it often comes down to price� A move towards CSR
invariably results in price increases of products, which can
result in certain customers opting for cheaper and less ethical
alternatives� I believe that while CSR is a growing trend, it is
not essential� Given the current economic downturn, many
firms are preoccupied with making a profit and, in some cases,
with survival� Their usual response is, not surprisingly, to
reduce costs� This may be seen as a sad state of affairs, but
the reality is that the profit motive remains the key objective for
most businesses�
This solid answer makes good use of a range of examples�
However, while there are some elements of analysis, the
arguments are not always fully developed� The judgement
does make a clear decision about the importance of ethics,
which just moves it to level 3�
Application Analysis Evaluation OverallGood Reasonable Good 31/40 marks
The relationship between businesses and the technological environment
To what extent is the rate of technological development
more a threat than an opportunity for businesses?
Candidate’s response (A grade)
Technological change is a factor that all businesses need
to consider� The rate of development, the nature of the
business in question and the current use of technology are
all significant� Firms involved in fast-moving industries such
as computers, cameras and games consoles need to be at
the forefront of technology because they must develop new
products that make use of the latest advances� These firms
need to invest heavily in R&D� Given the high cost of R&D and
the relatively low success rate of new product development,
this can be problematic for a firm� The need to invest retained
profits in new and untried products can lead to wasted funds
and carries a high opportunity cost� However, failure to launch
new products is almost certain to lead to a loss of market
AQA A2 Business Studies Unit 4
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
17The Heathland School
share� The expectation is that firms such as Apple and Sony
will be at the forefront of new technology, and customers
will demand new and improved variations of successful
products� This places a huge burden on these firms� While
coming up with a ground-breaking product can be potentially
very profitable, it can also be seen as a major threat� If the
product is not what the customers are looking for, alternative
products are likely to be chosen� Even if the product is a major
success, much of the profit will need to be reinvested in the
development of a new and improved version� This is linked to
product life cycle theory� One of the issues with this concept is
that the length of the maturity stage of a product is undefined
and varies from product to product� The consequence of this
uncertainty and the remarkable speed of technological change
is that in many ways technology has to be seen as a threat –
even by companies that have enjoyed success in this area�
Firms with products that are less dependent on technology
may view the new developments more as an opportunity� The
widespread use of the Internet and broadband connections
around the globe has enabled many firms to market their
products and also to source cheaper supplies� Firms
operating at a smaller scale can make substantial cost
savings as a result� The use of price comparison sites, such
as gocompare�com and comparethemarket�com, can be seen
as an opportunity for those firms that offer the lowest-priced
products, but it is also a threat to firms that have enjoyed
market dominance and are not as competitively priced�
Ultimately, it is the consumer that is likely to benefit most
from new technology� While firms may benefit from new
production techniques and new marketing opportunities, there
are clearly threats to any business in adopting new technology�
That technology may become out of date quickly and the
cost of installing new technology is often very expensive�
The introduction of new technology may benefit firms, but
the risk is high� In addition to the initial cost, staff must be
trained in its use and customers need to be made aware of the
benefits it brings� However, technological change is a feature
of the business world, and the successful firm is the one that
embraces the opportunities rather than being daunted by the
threats�
There is excellent analysis in this response and the candidate
explains the importance of technological change� However, the
examples used are not as wide ranging as they could be and
the response is quite brief� The candidate has focused clearly
on the question set and the closing evaluation is solid, moving
the answer to the top of level 2 for evaluation�
Application Analysis Evaluation OverallReasonable Good Reasonable + 30/40 marks
The relationship between businesses and the competitive environmentThe UK supermarket industry has been dominated by
firms such as Tesco and Sainsbury’s for many years.
Asda/Walmart recently entered the UK market. What do
you think is the best strategy for existing businesses to
adopt in response to the entry of a new large competitor?
Justify your answer with reference to the UK supermarket
industry and/or other markets that you know.
Candidate’s response (A grade)
Firms that have dominated an industry for many years are
likely to have built up not only substantial retained profits
but also a considerable reputation and brand loyalty from
their customers� This is a barrier to entry for other firms�
It is probable that dominant firms will have been able to
exploit economies of scale too, giving them a significant cost
advantage over other smaller firms within the industry� This
cost advantage can lead these firms to lower their prices
below those of their rivals and potential entrants� While this
may reduce their overall profitability in the short term, it will
enable them to maintain their dominance of the industry� They
are also likely to have well-established supply chains that
mean new competitors find it difficult to compete�
However, the question refers to a ‘large’ new entrant and it
is probable that such a competitor would have the benefits of
substantial finances and brand awareness, allowing the firm
to compete on price and make losses initially in order to break
into the market� This was clearly the case when Microsoft
entered the games console market� The market used to be
dominated by Sony and Nintendo (with Sega before them)�
Microsoft was able to break into the market by using its vast
profits from the PC market to invest in technologically more-
advanced products such as the Xbox and then sell these as
loss makers� The reaction of Sony and Nintendo was initially
to try and protect their market by only making certain games
available on specific consoles� When Xbox sales started to
grow due to the rise in popularity of online gaming and the
success of the Halo game, gamers had a straight choice
between Sony and XBox� Nintendo was being squeezed out
of the market, so it chose a policy of innovation and focused
on a different market segment (females, children and families)
by launching the Wii console� This strategy proved highly
successful� Their sales outstripped the combined sales of
their new rival and Sony� However, the core market is still very
much the serious gamers� Sony and XBox now recognise
this, releasing games that can be played on both platforms�
This is an example of ‘If you can’t beat them, join them’� Both
firms now recognise that the market is so valuable that it can
Bare Bones ReviSion GUide
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
1818The Heathland School
actually support comfortably at least two and possibly three
firms� This does not mean that firms are keen to sit back, so
the development of the next generation of consoles is high on
all their agendas�
In the supermarket industry, the large firms have reacted to
the new arrival of Asda/Walmart in a number of ways� While
the major supermarkets still try to compete on price, it is Asda/
Walmart that tends to fair best on price comparison sites
because it has huge reserves arising from its dominance of the
US market� Tesco and Sainsbury’s have chosen to compete
using non-price methods, such as by introducing loyalty cards
and by diversifying their range of services� Tesco in particular
has looked to expand its business internationally� This has
presented an excellent opportunity for growth and, with the UK
economy in recession, has proved to be a sensible strategy�
In conclusion, it is hard to identify the best strategy for
firms facing new large rivals, as industries will differ and the
relative power of new rivals will vary� If the incumbent firms feel
that they can see off the new rival, then this is clearly a good
strategy to adopt� However, it is hard to think of examples
where a firm has been able to do this successfully� The best
approach may well be to accept that new and more intense
competition is inevitable and to come up with strategies that
will allow the firm to remain profitable and competitive in the
industry, as shown by both Sony and Nintendo� Firms, such
as Sega, that fail to take a new entrant seriously, are the ones
that are likely to perish�
This is a really strong response because it focuses on the
precise wording of the question in relation to dominant firms
and the threat of a new large rival� The examples that are used
are good and are well developed as the candidate explains the
different strategies that firms can adopt� Although the response
is not perfect and actually drifts slightly into story-telling mode
in the second paragraph, it is nevertheless an example of a
candidate trying to address the question throughout –
therefore application, analysis and evaluation are all strong�
Application Analysis Evaluation OverallGood Good Good 36/40 marks
Key influences on the change process: leadershipTo what extent can leaders make a significant difference
to the long-term success of an organisation?
Candidate’s response (A grade)
There are many arguments to support the idea that a leader
can make a significant difference to the long-term success of
an organisation� One such argument is that leaders become
the ‘face’ of their organisation, such as Anita Roddick who
founded The Body Shop and developed and maintained its
excellent corporate social responsibility procedures� While her
leadership was an asset to the company, it can also be argued
that customer loyalty since her departure has been tested�
Customers may expect standards to slip and may no longer
associate corporate responsibility with The Body Shop� This
could lead to a decline in sales because the value of the brand
is reduced, and the profits of the business could be affected�
The problem of finding a suitable replacement for Anita Roddick
is likely to have a long-term effect on business performance�
Howard Schultz is the leader of Starbucks and it became
apparent just how much Starbucks would suffer without
him when he actually left� During his eight-year absence,
Starbucks’s performance deteriorated significantly and it
was apparent that his departure had severely damaged the
business� Upon his return he swiftly identified the problem:
Starbucks had focused too much on rapid growth at the
expense of quality� Schultz gave an emotional speech to
all his employees and then proceeded to shut down stores
and replace executives� The immediate improvement in the
company’s performance shows that a successful leader can
make a real difference to the success of a business�
The leader of a firm makes the strategic decisions that
determine its long-term direction� If the wrong strategy
is adopted, perhaps because it does not build on the
company’s strengths or respond appropriately to the external
environment, then the firm may be threatened� The leader (i�e�
the person who is followed by others) can therefore make a
significant difference to the long-term success (or sometimes
decline) of a business�
However, there are examples of leaders who appear to
have less of an effect� Although these leaders have an impact,
this is often only short term� Bill Gates, for example, as the
CEO of Microsoft and one of the richest men in the world,
gains lots of publicity and one might assume that Microsoft
would not perform as well without him� However, since 2002
he has gradually reduced his role and influence at Microsoft,
yet the business continues to perform successfully and is still
a market leader� This is because an effective leader should
develop the skills and experience of others so that they are
in a position to take over when required� In an organisation
such as Microsoft there are many talented people in many
different areas� The leader might inspire and help pull the
business together, but he or she cannot possibly be personally
responsible for all its successes or failures� Leaders may
be held accountable, but they rely on others (especially in
a business as large as Microsoft and operating in as many
countries and product areas)�
AQA A2 Business Studies Unit 4
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
19The Heathland School
Steve Jobs, the former CEO of Apple, is also a good
example� He was widely recognised as the face of Apple and
intrinsically linked to the brand� However, the strength of the
brand stems from exceptional style, design, marketing and
operations strategy – the leader is only a part of the equation�
The loss of Jobs is unlikely to have a significant negative
impact on Apple’s performance in the long run�
Richard Branson, as the ‘face’ of Virgin, is another
successful and highly influential leader� However, again he
is unlikely to make a significant difference to the long-term
success of Virgin because it is so diversified, with many
talented employees who specialise in their respective areas�
Branson is likely to have a strong management team that
keeps all areas of Virgin going while he attends charity events
and promotions� Virgin is perhaps also less dependent on
its leader because it comprises numerous independent
businesses� There are many separate decision makers (e�g� in
the airline, finance and TV sectors) and not just one leader�
In conclusion, I believe that a leader will not usually make
a significant difference to the long-term success of a business
because organisations should have a strong management
team in place and, indeed, investors will require this� Although
the departure of a leader may affect business performance in
the short term, as employees and customers adjust to new
people, practices and services, in the long term the business
will not be significantly affected provided careful planning
has taken place� After all, many of the well-known names in
business, such as McDonald’s, Coca Cola, Cadbury and IBM,
have outlived their respective business leaders�
This candidate uses an excellent range of leadership
examples� Interestingly, the response does not focus on
leadership styles specifically� However, it clearly addresses the
question of whether the role of the leader affects the long-term
success of an organisation�
Application Analysis Evaluation OverallGood Good Good 39/40 marks
Key influences on the change process: cultureHow easy do you think it is for a new chief executive to
change the culture of an organisation quickly? Justify your
answer with reference to businesses that you know.
Candidate’s response (A grade)
The key issue here is to do with the timing� Any organisation
that wishes to change quickly is likely to face difficulties�
Culture can be defined as the ‘way things are done around
here’ and in many firms this culture can be deeply embedded�
The nature of the firm’s objectives is also a significant factor,
as is the type of industry in which the firm operates� Birds Eye
has been a major player in the frozen food industry for many
years and 90% of UK households have at least one Birds Eye
product in their freezer� The organisation has confronted many
challenges recently, such as having to adapt to changing
trends in buyer behaviour and the demand for sustainable
fishing, which has directly affected its supply chain� The
willingness of the firm to innovate through new product
development is an example of a business that has accepted
the changing needs of customers and reacted accordingly�
The appointment of a new chief executive is always a
significant event – whether it is a head teacher/principal of a
school or a leader of a major multinational� In many ways it
is easier when an external candidate is recruited� The danger
of an internally recruited CEO is that this individual is likely to
be entrenched in the old culture and arguably it will be harder
for this person to change that culture and embrace change�
An externally recruited CEO is likely to bring in new ideas
and experience from previous businesses and have greater
freedom of manoeuvre, not having had the time to forge
relationships and build up either friends or enemies in the firm�
However, this can lead to a lack of trust in the new CEO and
there may be resistance� The new Chelsea FC manager has
tried to change not only the way the team play but also how
the club makes use of younger players� This has led to mixed
results thus far because the more experienced players at the
club exert a large amount of influence and are reluctant to
embrace change� In contrast, Martin O’Neill has brought about
a change in attitude, performance and culture at Sunderland
after only a few months� The ability to bring about change is
affected by the clarity of the leader’s vision and how this is
communicated to the staff�
Stephen Elop, the new CEO at Nokia, has made a public
statement about how the business needs to change its culture
and to do this very quickly� The fact that Nokia is part of a
market where technological change is crucial is very important�
The constant need to innovate and invest huge amounts in
R&D means that such firms must reinvest in products that
have ever-shorter product life cycles� Nokia has grown to
such a size that it now faces diseconomies of scale� The latest
challenges have been not only difficulties in coordination and
communication but also a lack of clarity in terms of objectives�
Smaller, start-up businesses are more flexible and willing to
embrace and shape technological change to a greater extent
than larger firms such as Nokia� As a result, first Blackberry
and then Android phones have stolen market share away from
Nokia� The CEO has urged the firm to react quickly, but the
company has lost its dominant position and it will be difficult
Bare Bones ReviSion GUide
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
ards
Starting a business Financial planning
business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
pre
neur
legal structure
plan
cash flowforecasting
busin
ess id
eas
raising financem
ark
et re
searc
h
breakeven analysis
patenttradem
arkse
tting b
udgets
strengths and
weaknesses
cop
yright
sole trad
ersbud
gets
analysisrisk
srew
ards
opportunity costsetting budgets
risksrewards
trademark
pate
nt
budgets
riskcontribution
partnerships
cost
bud
gets
risk
cashcopyright
pla
ncash
2020The Heathland School
to implement rapid changes� One of the key points in favour of
Nokia’s ability to respond is the fact that since its inception as
a tree felling and toilet paper manufacturer, it has repeatedly
needed to react to the changing market place, gaining plenty
of experience of shifting its culture and objectives� However, it
could be argued that such a shift is much harder to engineer
now, since the firm has become a global manufacturer rather
than simply operating in Finland�
All firms need to respond to technological advances, and
the timing of any change is important� If a firm can drive the
change and become an early adopter of new technology,
this will lead to a dynamic corporate culture that accepts the
inevitability of change and adapts as necessary� However,
even these firms will find rapid change a challenge� I personally
believe that the appointment of a new CEO from outside the
firm is likely to bring about culture change more swiftly than an
internally promoted CEO� This will be important for firms that
are looking to reinvent themselves and embrace a new culture�
The candidate drifts away from the question at times,
concentrating too much on technological change because
of the example chosen� However, use of content to make
a judgement about the significance of how the CEO was
recruited demonstrates good synoptic knowledge� Use
of football examples suggests a sports fan, but as these
examples are used intelligently and help the candidate build
an argument for how businesses can change culture quickly,
they will be rewarded�
Application Analysis Evaluation OverallGood Reasonable+ Good (just) 33/40 marks
Key influences on the change process: cultureDo you think that resistance from employees is likely to be
the biggest problem for a business that wants to reinvent
itself? Justify your answer with reference to Nokia and/or
other organisations that you know.
Candidate’s response (A grade)
Nokia is likely to experience employee resistance because
the level of change required to reinvent itself is significant and
will cause many problems� First, employees may feel their job
security threatened� This is demotivating, which creates the
problem of a fall in short-term productivity� This may increase
Nokia’s costs and lower profitability, which is likely to create
further difficulty as it tries to obtain funding for the reinvention�
Profitability and hence the availability of future funding can be
influenced by employees’ resistance to change� For example,
employee resistance may result in a dispute and in industrial
action that could be costly for Nokia� The firm could choose to
replace its workforce, but this would certainly create adverse
publicity, especially at a time when unemployment is higher
than usual in the UK due to global recession� Besides, it would
be very costly to recruit and train new employees, not to
mention the payments required for workers made redundant�
These costs, in addition to those associated with redesigning
Nokia’s image, would be extremely high�
Nokia must clearly emphasise and fully explain the need
for ‘beginning anew’, so as to reduce resistance� The costs
of offering additional training in the short term, to retain
employees, may appear great, but this is unlikely to be as
costly as industrial action and the need for a new workforce�
Besides, Nokia employee resistance may be less of a problem
than might be expected in other organisations because its
staff are likely to be used to change� After all, they operate in
a fast-moving market where there is constantly changing and
advancing technology that impacts on how they produce, sell
and advise customers� This experience highlights the need
for Nokia to implement strategies that will help retain such
valuable employees�
Nokia’s decision to reinvent itself must also take into
account the competitive environment, as well as the
resources, other than labour, that it has at its disposal to
facilitate change� In terms of this industry, technology is a fast-
moving market and so the need to gain first-mover advantage
through reinvention may be a ‘make or break’ factor when
establishing market share� In order to reduce this risk, Nokia
could consider integration with a competitor, such as LG,
which would provide greater economies of scale� However,
this may increase the risk of staff resistance, especially if
redundancies are required because of the need to close
duplicate departments�
Overall, the costs of redeveloping the business are likely
to be great and the likely resistance from employees is only a
part, albeit a significant part, of a much bigger problem� Nokia
needs to minimise the risk of employee resistance and should
consider a course of action to promote change in a positive
light� This may even require a new and more effective leader or
a campaign to encourage support�
The response focuses solely on Nokia� While the candidate
shows a great insight into this business, the answer would
have been improved if reference had been made to a range
of companies� The analysis in relation to the question and the
firm is good, but the overall evaluation is fairly standard and
therefore reasonable at best�
Application Analysis Evaluation OverallReasonable Good Reasonable 28/40 marks
AQA A2 Business Studies Unit 4
market research
employing people
understanding markets
cash flow forecast
setting budgets
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
consultants and advisers
public limited com
panies
researchbusiness plans
enterpriseentrepreneur
business ideas
adding value
private limited
companies
costs, revenues and profits
understanding markets
cash flow forecast
setting budgets
legal structurefinancesm
arket segmentation
fixed variable and total cost
startupstradem
arkadding valuem
arket size
market grow
th
sole traders
opportunity cost
price, total revenue and profit
consultants and advisers
patentrew
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business ideas
cash flow forecast
costs, revenues and profits
business ideas
enterprise
strengths and weaknesses
entrepreneur
breakeven analysis
business plans
understanding markets
market research
employing people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market grow
th
public
limited com
panies
private limited com
panies
strengths and weaknesses
costsrevenues
startups
riskstradem
ark
conribution
adding value
understanding markets
cash flow forecast
setting budgets
legal structure
strengths and weaknesses
market share
risks
business ideas
Starting
a businessentre
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partnerships
cost
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risk
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21The Heathland School
market research
employing people
understan
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arkets
cash flow forecast
setting budgets
sources of finance
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transforming resources
consu
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public limited com
panies
researchb
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enterp
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addin
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costs, revenues and profits
understan
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cash flow forecast
setting budgets
legal structure
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market segm
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fixed variable and total cost
startups
tradem
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adding value
marke
t size
market grow
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sole
traders
opportunity cost
price, total revenue and profit
consu
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patentrew
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Starti
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ess F
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business ideas
cash flow forecast
costs, revenues and profits
business ideasenterprise
strengths and weaknesses
entrepreneurbreakeven analysis
business plans
understanding markets
market researchemploying people
sources of finance
breakeven analysis
cash flow forecasting
transforming resources
market growthpublic limited companies
private limited companies
strengths and weaknessescostsrevenuesstartupsriskstrademark
conributionadding value
understanding markets
cash flow forecast
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lega
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strengths and weaknesses
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plan
cash
AQA AS Business Studies Unit 1
Bare Bones ReviSion GUide
Planning & Financing a Business
crossAcademe
AQA AS Business Studies Unit 2
crossAcademe
Bare Bones ReviSion GUide
Managing a Business
decision making
increasin
g profi
t
impro
ving cash
flow
measu
ring p
rofi
t
motivation theory
prod
uct life cycle
pro
duct p
ortfo
lio an
alysis
operations managem
ent
workin
g with
suppliers
degree of competition
trainingem
pow
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selectionniche m
arketing
team w
orking
workforce roles
team
workin
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technologyoperational decisions
operatio
ns m
anag
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mass m
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customer service
pricing tactics
pricin
gdegree of com
petition
return on capital
tech
nolo
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competitiveness
pricin
g tactics
mass m
arketing
workforce roles
organisational structure
internal and external recruitment
operatio
ns m
anag
em
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selectionpricin
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Marketin
g Competi
tiven
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peratio
ns m
anag
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t Finan
ce
workforce roles
distribution channels
unique selling points
using budgetsrecruitment
operations management
adverse variances
recruitment process
marketing mix
recruitment process
workforce rolescustomer service
product life cycle
market conditions
measuring performance
unique selling points
marketing mixprofit pricing strategies
workforce effectiveness
unique selling pointsplacedistributors
job designplacedistributors
empowerment
working with suppliers
motivation theory
team working
promotional mix
measuring performanceusing budgetsprofit
People in business
team w
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asing pro
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profi
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job
desig
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empow
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mass m
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motivating em
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training
selection
measuring profit
operations managem
ent
recruitment
pricing tactics
finance
selectionplace
training
incr
easin
g pro
fit
using budgets
profit
selec
tion
technology
quality
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using budgets
recr
uitm
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team
cash
job design
cash
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effective employer
employee relation
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usin
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and strategies
finan
cial strategies
using financial data
assess perform
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operational objectives
innovationin
vestm
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workforce plans
analysing markets
workforce roles
com
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structuresw
orkforce plans
published accounts
investment
decision
sbalance sheets
liquid
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average rate of return
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Finan
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lean production
understanding marketing
making investment decisions
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selecting financial strategies
understandingfinancial objectives
resource mixmarket penetration
interpretingpublished accounts
working capitalanalysing markets
financial datadeveloping and implementing
marketing plansdata investment decisions
selecting marketingstrategieslocationdiversificationgearingoff-shoring
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working capitalscale of productiontrade unionsliquidity
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profit utilisation
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AQA A2 Business Studies Unit 3
crossAcademe
Bare Bones ReviSion GUide
Strategies for Success
aims and objectives
economic environment
social environment
legal environment
causes of change
leadershipimplementing and
managing change
strategic decisions
influencesenvironment
missionplanning for change
change process
leadership
culture environment
socialinterest rates
objectivesemerging markets
inflationexchange rates
demographic factors
political decisions
unemployment
environmental protection
health and safety
taxationsubsidy
Managing change Corporate aims and objectives social environment
planning for change
making strategic decisions
managing changeculturemission, aims and objectives
environmentsocial environment
leadershipplanning for change
technologicaleconomic environment
change processlegal environment
strategic decisionssocial environment
technologicallegal internal causesstrategic decisionsinfluencesleadershipfiscal policyinflationunemployment
subsidygovernment regulation
buying powerpublic relations
environmental issuesfreedom of tradeinflation
Assessing changefreedom of trade
consumer protection
inflation
economic growth
monetary policyemerging markets emerging markets
corporate strategies
mission statements
inflationlegislation
economic trends
the business cycle
European Union
fiscal policyunemployment
inflationlegislation
mergers
stakeholder perspectives
unemployment
taxation
subsidy
interest rates
takeovers
law trade
demographic
public relations
health
sellingpower
monetary
policy
subsidy
taxation
AQA A2 Business Studies Unit 4
crossAcademe
Bare Bones ReviSion GUide
The Business Environment & Managing Change
aims and objectives
eco
nom
ic enviro
nm
ent
social e
nviro
nm
ent
legal environ
men
t
causes of change
leadersh
ipim
plem
enting and
man
aging ch
ange
strategic decisions
influencesenviro
nm
ent
missio
nplanning for change
change process
leadership
cultu
re
environm
ent
socialinterest rates
objectives
emerging m
arkets
infl
ation
exchange rates
dem
ograp
hic facto
rs
political d
ecisio
ns
unemploym
ent
environmental protection
health
and safe
ty
taxationsu
bsid
y
Managing change
Corpora
te a
ims
and o
bject
ives
social environment
planning for change
making strategic decisions
managing changeculture
mission, aims and objectives
environmentsocial environment
leadershipplanning for change
technologicaleconomic environment
change processlegal environment
strategic decisions
social environment
technologicallegal internal causesstrategic decisionsinfluencesleadership
fiscal policyinflationunemployment
subsidygovernment regulation
buying power
public relationsenvironmental issues
freedom of tradeinflation
Assessing change
freedom of trade
cons
umer
protectio
n
inflat
ion
econ
omic
grow
th
moneta
ry polic
yemerging m
arkets emerging m
arkets
corporate strategies
mission statem
ents
inflation
legislation
economic trends
the business cycle
European Union
fiscal policy
unemploym
ent
inflationlegislation
mergers
stak
eholder p
erspect
ives
unemployment
taxa
tion
subsid
y
interest rates
takeovers
law
trade
demograp
hic
public re
lation
s
healt
h
selling
power
monetary
policy
subsidy
taxation
AQA A2 Business Studies Unit 4
crossAcademe
Bare Bones ReviSion GUide
The Business Environment & Managing Change
Bare Bones Revision Guides distil the essential content of the AQA units of study as clearly and succinctly as possible.
Written by an experienced examiner, each 24-page guide opens with a section about the exam, the mark allocation, the skills required and the importance of exam practice.
The subsequent content notes are highly focused, carefully structured and colourfully presented, making them perfect for revision. They include important Exam Tips, providing you with invaluable guidance on what the examiner is looking for and how to gain those vital extra marks. Regular A-Grade Analysis/Evaluation Examples throughout these notes emphasise the importance of the higher-level skills, and there are even Number Crunching activities to check your calculation ability.
An exam practice section at the end of the guides comprises integrated case studies followed by exam-style questions (units 1, 2 and 3) or exam-style essay questions (unit 4). Once you have assimilated the content notes, you should tackle the questions under timed conditions. Specimen A-grade responses, with accompanying examiner commentaries, are provided so that you can assess the quality of your own answers, identifying any weaknesses. You can then review those topic areas that require further attention.
The Bare Bones Revision Guides provide a unique combination of features:
Highly focused revision Written by an examiner Colour magazine format Exceptional value
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Revision Guides