Stakeholders in a Business and Economies of Scale

Topic 1: Introduction to Business Management

• Corporate social responsibility (CSR) considers ethical and environmental practices related to business activity, acting morally towards stakeholders and society.
• An ethical code of practice documents an organization's beliefs and philosophies, guiding acceptable behavior.
• Ethical objectives align with moral guidelines determined by the business and/or society, influencing decision-making.
• Ethics involves moral principles guiding decisions and strategy, considering societal views of right and wrong.
• A mission statement declares an organization's overall purpose and provides a foundation for setting objectives.
• Objectives specify the goals an organization aims to achieve, such as growth, profit, protecting shareholder value, and ethical pursuits.
• Strategic objectives are long-term business goals, including profit maximization, growth, market standing, and increased market share.
• Strategies are comprehensive plans of action that businesses use to achieve their targets.
• Tactical objectives are short-term goals affecting a unit of the organization, guiding the daily operations of specific departments.
• Tactics are the short-term plans of action implemented to achieve objectives.
• A vision statement describes an organization's long-term aspirations, indicating where the business wants to ultimately be.

Stakeholders

• Stakeholders are individuals, groups, or organizations with a direct interest or involvement in a business's operations and performance.
• Internal stakeholders are members of the business, including: employees, managers and directors, and shareholders (owners).
• External stakeholders are not part of the business but have a direct interest or involvement in the organization, such as: customers, suppliers, financiers, pressure groups, competitors, and the government.

Internal Stakeholders (AO2)

• Employees have a direct stake in the organization they work for.
• Employees aim to improve their: pay (including other financial benefits), working conditions (such as hours of work and the physical working environment), job security, and opportunities for career progression.
• Managers oversee daily business operations.
• Directors are senior executives, elected by shareholders, to manage business operations.
• Senior managers and directors aim to: maximize their own benefits, achieve profit maximization (pleasing shareholders and safeguarding executive jobs), and secure the long-term financial health of their organization.
• Shareholders are also known as stockholders and are a powerful stakeholder group with voting rights and a 'say' in how a company is run.
• Shareholders aim to: maximize dividends (a proportion of the company's profits distributed to shareholders) and achieve capital gain in the value of the company's shares (a rise in the value of the shares).

External Stakeholders (AO2)

• Customers seek value for money, such as competitive prices and good quality products.
• Suppliers strive for regular contracts with clients at competitive prices and request that customers pay any outstanding bills on time.
• Financiers are primarily concerned with the borrowing organization's ability to generate sufficient profits and to repay the debts as well as making regular interest payments.
• Pressure groups seek to place demands on organizations to act in a particular way or to influence a desired change in their behaviour.
• Actions taken by pressure groups can be: boycotting, lobbying, Public Relations (PR), and direct action.
• Competitors are the rival businesses of an organization and are interested in the activities of a business for several reasons.
• Competitors aim to to remain competitive and to benchmark performance.
• The government, as an external stakeholder, aims to ensure that: unfair business practices are avoided, the correct amount of corporate tax is paid, health and safety standards are met, there is compliance with employment legislation, and consumer protection laws are upheld.

Conflict Between Stakeholders (AO2)

• Stakeholder conflict refers to differences in the varying needs and priorities of the various stakeholder groups of a business.
• Managing conflicting stakeholder requires the consideration of: the type of business entity, goals and objectives, and their power or their level of influence.
• Stakeholder mapping assesses stakeholders' relative interest and influence on an organization, which helps in prioritizing actions.

Economies and Diseconomies of Scale (AO2)

• A major reason why businesses aim to grow is to benefit from economies of scale which refers to lower average cost of production as a firm operates on a larger scale due to an improvement in its productive efficiency.
• Average cost (AC) is the cost per unit of output calculated by dividing total costs (TC) by the quantity of output (Q).
• Average cost consists of two components: average fixed costs (AFC) and average variable costs (AVC)
• Operating on a larger scale experiences: iternal economies of scale, up to the optimal level of output (where average costs are minimised).
• Thereafter, any further increases in output bring about diseconomies of scale, i.e. higher average costs as output increases.
• Internal economies of scale occur inside the firm and are within its control.
• External economies of scale occur within the industry and are generally beyond an individual firm's.
• Example Internal Economies of Scale: technical, financial, managerial, specialization, marketing, purchasing, and risk-bearing economies.
• External economies of scale are cost-saving benefits of large-scale operations arising from outside the business due to its favourable location or general growth in the industry, like: tech progress and improved transportation networks.
• Internal diseconomies of scale usually occur due to problems of mismanagement: control and coordination, poorer working relationships, disadvantages of specialization, excessive bureaucracy, and complacency.

Internal and External Growth (AO2)

• Internal growth occurs when a business grows organically, using its own capabilities and resources to increase the scale of its operations and sales revenue.
• Internal growth can depend on pricing, increase promotion, improving product quality, creating a better distribution newtork, offering better credit or increasing investment.
• External growth (or inorganic growth) occurs through dealings with outside organizations rather than from an increase in the organization's own business operations.
• External growth usually comes in: mergers and acquisitions (M&As), takeovers, joint ventures, strategic alliances, or franchising.

M&As Types

• Horizontal integration is an amalgamation of firms operating in the same industry.
• Vertical integration takes place between businesses that are at different stages of production, forward and backward.
• Lateral integration refers to M&As between firms that have similar operations but do not directly compete with each other
• Conglomerate M&As are the amalgamation of businesses that operate in completely distinct or diversified markets.

Advantages of External Growth

• Quicker organic growth
• Synergies
• Reduced competition
• Economies of scale
• Spreading of risks

Disadvantages of External Growth

• High expense
• Greater risks
• Regulator barriers
• Potential diseconomies of scale
• Organizational culture clash

Multinational Companies

• A multinational company (MNC) is an organization that operates in two or more countries.
• MNCs may grow for: increasing a customer base and sales, cheaper production costs, economies of scale, brand development, to reduce effects of protectionism, and to spread financial risks.
• Positive impacts of MNCs on host countries include: job creation, higher national income, and knowledge and technology transfer.
• Negative impacts of MNCs on host countries include: domestic job losses, repatriation of profits, and MNC footloose actions.
• Protectionist policies are measures imposed by a country to reduce the competitiveness of imports, such as tariffs , quotas, and restrictive trade practices.

These questions cover stakeholders' roles, expectations, and potential conflicts, alongside economies of scale and reasons for ceasing production of the A380. It also touches on managerial specialisation and interest rates and the impact on small businesses.