1. Understanding Business Activity (Units 1.1‑1.5)
1.1 Why Do Businesses Exist?
- Needs and Wants – Provide goods and services that satisfy consumer demand.
- Economic Objectives
- Profit maximisation – generate the greatest possible surplus.
- Growth – increase turnover, market share or geographic reach.
- Survival – maintain cash flow and break‑even in difficult periods.
- Market‑share – become a leading player in a particular market.
- Social Objectives – Corporate social responsibility, ethical behaviour, community involvement, environmental sustainability.
1.2 Classification of Business Activity
| Sector | Primary Activities | Examples |
|---|
| Primary | Extraction of natural resources | Agriculture, mining, fishing |
| Secondary | Manufacturing and construction | Car factories, building firms |
| Tertiary | Services | Banking, retail, education |
1.3 Business Size & Ownership
- Size (based on employees & turnover)
- Micro – < 10 employees, turnover < £2 m
- Small – 10‑49 employees, turnover £2‑10 m
- Medium – 50‑249 employees, turnover £10‑50 m
- Large – 250+ employees, turnover > £50 m
Forms of Organisation
| Form | Key Features | Examples |
|---|
| Sole Trader | Owner has full control; unlimited liability. | Local bakery |
| Partnership | Two or more owners; shared liability and profit. | Law firm |
| Private Limited Company (Ltd) | Separate legal entity; limited liability; shares not publicly traded. | Dyson Ltd |
| Public Limited Company (PLC) | Shares traded on a stock exchange; limited liability. | Barclays PLC |
1.4 Business Objectives & Stakeholders
- Profit‑oriented objectives – maximise profit, return on investment.
- Growth‑oriented objectives – increase market share, expand internationally, develop new products.
- Survival‑oriented objectives – maintain cash flow, achieve break‑even.
- Stakeholder objectives
- Customers – quality, value for money, after‑sales service.
- Employees – job security, fair pay, training and career progression.
- Shareholders – regular dividends, capital growth.
- Suppliers – timely payment, long‑term contracts.
- Community & Government – ethical conduct, tax compliance, environmental stewardship.
1.5 The Business Environment (Micro vs. Macro)
| Micro‑environment (internal) | Macro‑environment (external – PESTLE) |
|---|
| Customers, suppliers, competitors, intermediaries, employees, owners, internal resources. |
Political – tax policy, trade restrictions, stability (e.g., Brexit).
Economic – inflation, interest rates, exchange rates, economic growth (e.g., recession).
Social – demographics, lifestyle trends, cultural attitudes (e.g., health‑conscious consumers).
Technological – automation, e‑commerce, R&D (e.g., AI in retail).
Legal – consumer protection, health & safety, employment law (e.g., GDPR).
Environmental – climate change, sustainability, waste regulations (e.g., carbon tax).
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2. People in Business (Units 2.1‑2.4)
2.1 Motivation Theories
| Theory | Key Idea | Typical Application |
|---|
| Maslow’s Hierarchy of Needs | Physiological → Safety → Social → Esteem → Self‑actualisation | Design reward packages that first meet basic needs, then progress to development opportunities. |
| Herzberg’s Two‑Factor Theory | Hygiene factors prevent dissatisfaction; motivators increase satisfaction. | Improve working conditions (hygiene) and provide achievement, recognition and responsibility (motivators). |
| McGregor’s Theory X & Theory Y | X = people dislike work; Y = people enjoy responsibility. | Adopt Theory Y management for creative or knowledge‑based firms. |
| Equity Theory | Employees compare their input‑output ratio with that of peers. | Ensure fair pay, transparent appraisal and clear communication of criteria. |
2.2 Management Functions & Leadership Styles
- Planning – set objectives, choose actions, allocate resources.
- Organising – design structure, assign tasks, coordinate activities.
- Leading – motivate, communicate, make decisions.
- Controlling – monitor performance, compare with standards, take corrective action.
Leadership Styles (Cambridge‑relevant)
| Style | Characteristics | When Most Effective |
|---|
| Autocratic | Decisions made by manager alone; clear direction. | Crisis situations, low‑skill workforce, tight deadlines. |
| Democratic (Participative) | Team involvement in decision‑making; open discussion. | Creative tasks, skilled employees, when morale is a priority. |
| Laissez‑façon | Minimal supervision; employees have high autonomy. | Highly experienced, self‑motivated staff. |
| Transactional | Focus on clear structures, rewards for meeting targets. | Routine operations, sales teams with clear KPIs. |
| Transformational | Inspires change through vision, empowerment and personal development. | Organisational change, innovation‑driven firms. |
2.3 Recruitment, Selection & Training
- Identify vacancy → conduct job analysis → produce job description & person specification.
- Recruitment methods
- Internal – promotion, transfer, employee referrals.
- External – newspaper ads, online job boards, recruitment agencies, university career fairs.
- Selection tools – application forms, structured interviews, psychometric tests, assessment centres, work samples.
- Induction & training
- On‑the‑job (shadowing, coaching)
- Off‑the‑job (classroom, e‑learning, workshops)
- Evaluation using the Kirkpatrick Model (reaction, learning, behaviour, results).
2.4 Employment Law, Trade Unions & Communication
- Key employment‑law concepts (internationally relevant)
- Employment contract – terms & conditions, notice periods.
- Unfair dismissal – statutory grounds, reasonable cause.
- Discrimination – protected characteristics (age, gender, disability, race, religion, sexual orientation).
- Health & Safety – duty of care, risk assessments.
- Minimum wage – national or regional statutory rates.
- Data protection – handling employee personal data (e.g., GDPR).
- Trade Unions
- Purpose – represent workers, negotiate collective agreements, protect rights.
- Impact – can lead to improved pay & conditions but may cause industrial action.
- Typical activities – collective bargaining, grievance handling, strikes.
- Communication
- Internal – memos, intranet, team meetings, newsletters.
- External – press releases, social media, annual reports, stakeholder briefings.
3. Marketing (Units 3.1‑3.4)
3.1 Role of Marketing
- Identify and satisfy customer wants and needs.
- Generate revenue and profit for the business.
- Build long‑term relationships and customer loyalty.
- Provide market information that guides product development and pricing.
3.2 Market Research & Segmentation
Primary vs. Secondary Research
- Primary – surveys, interviews, observation, focus groups – data collected specifically for the research question.
- Secondary – published statistics, industry reports, company records – data already exists.
Segmentation Variables
| Variable | Typical Examples |
|---|
| Demographic | Age, gender, income, occupation, family size. |
| Geographic | Country, region, urban/rural, climate. |
| Psychographic | Lifestyle, values, personality, social class. |
| Behavioural | Usage rate, brand loyalty, occasion, benefits sought. |
3.3 The Marketing Mix – 4 Ps (extended for IGCSE)
| Product | Price | Place | Promotion |
|---|
- Features, quality, branding, packaging, warranty.
- Product life‑cycle stages (introduction, growth, maturity, decline).
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- Pricing objectives – profit, market‑share, survival.
- Strategies – penetration, skimming, psychological, discounting.
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- Distribution channels – direct, retail, wholesale, franchising.
- Logistics – transport, warehousing, inventory management.
- Location decisions – online store, physical outlets, click‑and‑collect.
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- Advertising, sales promotion, public relations, personal selling.
- Digital marketing – SEO, social media, email campaigns, influencer marketing.
- Technology & e‑commerce – website sales, mobile apps, online payment systems.
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3.4 Marketing Strategies & Legal Controls
- Market penetration – increase share in existing market (e.g., price cuts, promotional offers).
- Market development – sell existing products in new markets (export, franchising).
- Product development – create new products for current markets (R&D, line extensions).
- Diversification – new products in new markets (concentric, conglomerate).
Legal constraints on marketing
- Misleading or deceptive advertising – e.g., false health claims for a food product.
- Product safety regulations – mandatory standards (e.g., CE marking, toy safety).
- Price‑fixing and anti‑competitive behaviour – illegal collusion between rivals.
- Intellectual property – trademarks, patents, copyright (protecting brand assets).
- Data protection – lawful use of customer data for direct marketing (GDPR compliance).
4. Operations Management (Units 4.1‑4.4)
4.1 Production Methods
- Job (one‑off) production – customised items, low volume (e.g., bespoke furniture).
- Batch production – groups of similar items, moderate volume (e.g., bakery breads, seasonal clothing).
- Flow (mass) production – continuous, high volume, assembly line (e.g., cars, smartphones).
- Cellular manufacturing – small groups of machines arranged to produce a family of products, reduces movement.
4.2 Productivity & Efficiency
Productivity = Output ÷ Input
- Increase output (more units, higher quality) or reduce input (labour hours, material waste, time).
- Tools and techniques: time‑and‑motion studies, lean production, Six Sigma, Total Quality Management (TQM).
4.3 Economies & Diseconomies of Scale
| Economies of Scale | Explanation & Example |
|---|
| Technical | Specialised, high‑capacity equipment spreads fixed cost (e.g., automated bottling line). |
| Managerial | Specialist managers improve planning and control (e.g., dedicated HR director). |
| Financial | Access to cheaper long‑term finance, lower interest rates for larger firms. |
| Marketing | Bulk buying of media space, larger advertising campaigns reduce per‑unit cost. |
| Purchasing | Volume discounts from suppliers (e.g., bulk raw‑material orders). |
Diseconomies of Scale – coordination problems, bureaucracy, slower decision‑making, employee alienation when a firm becomes too large.
4.4 Quality, Location & Break‑Even Analysis
5. Financial Information & Decisions (Units 5.1‑5.5)
5.1 Accounting Basics
- Accrual accounting – revenue and expenses recorded when earned or incurred, not when cash is received/paid.
- Cash accounting – transactions recorded only when cash changes hands.
- Double‑entry bookkeeping – every transaction affects at least two accounts; total debits = total credits.
5.2 Key Financial Statements
| Statement | Main Components | Purpose |
|---|
| Income Statement (Profit & Loss) | Revenue, cost of sales, gross profit, operating expenses, net profit. | Shows performance over a period (profitability). |
| Balance Sheet | Assets (current & non‑current), Liabilities (current & long‑term), Owner’s equity. | Shows financial position at a single point in time. |
| Cash Flow Statement | Operating, investing, financing cash flows. | Shows liquidity and cash generation. |
5.3 Ratio Analysis
| Ratio | Formula | Interpretation |
|---|
| Gross Profit Margin | Gross Profit ÷ Sales × 100 % | Efficiency of production & pricing. |
| Net Profit Margin | Net Profit ÷ Sales × 100 % | Overall profitability after all costs. |
| Current Ratio | Current Assets ÷ Current Liabilities | Short‑term liquidity – ability to meet debts due within a year. |
| Debt‑to‑Equity Ratio | Total Debt ÷ Owner’s Equity | Financial risk – proportion of financing that is borrowed. |
| Return on Capital Employed (ROCE) | Operating Profit ÷ (Total Assets – Current Liabilities) × 100 % | Efficiency of using capital to generate profit. |
5.4 Cash‑Flow Forecasting & Working Capital
- Cash‑flow forecast – projected inflows and outflows over a future period (usually monthly for 12 months). Helps avoid cash shortages and plan financing.
- Typical format: Opening cash balance, cash receipts (sales, loans, investment), cash payments (wages, rent, stock), closing cash balance.
- Working capital = Current Assets – Current Liabilities. Indicates short‑term financial health.
5.5 Sources of Finance (Short‑term & Long‑term)
| Type | Examples | Typical Use & Cost Considerations |
|---|
| Short‑term finance | Overdraft, trade credit, commercial paper, factoring. | Cover working‑capital gaps; usually higher interest, must be repaid within 12 months. |
| Long‑term finance | Bank loan (5‑10 years), leasing, hire‑purchase, debentures, equity (share issue), retained earnings, crowd‑funding. | Fund plant, expansion or R&D; lower cost than short‑term, may involve collateral or share dilution. |
Choosing a finance source – consider cost of capital, control (ownership dilution), repayment terms, risk, and impact on cash flow.
6. External Influences on Business (Units 6.1‑6.3)
6.1 Economic Environment
- Economic cycle – periods of expansion, peak, contraction and trough; influences consumer confidence and spending.
- Key macro‑economic indicators – GDP growth, inflation rate, unemployment, interest rates, exchange rates.
- Exchange‑rate impacts – affects export competitiveness and import costs; e.g., a weaker pound makes UK exports cheaper abroad but raises the price of imported raw materials.
6.2 Government Objectives & Policy Tools
- Typical government economic objectives
- Economic growth (increase in GDP).
- Price stability (control inflation).
- Full employment.
- Balance of payments equilibrium.
- Equitable distribution of income.
- Policy tools
- Fiscal policy – changes in taxation and government spending (e.g., tax cuts to stimulate demand).
- Monetary policy – interest rates and money supply controlled by the central bank (e.g., raising rates to curb inflation).
- Regulation – health & safety standards, environmental legislation, competition law.
6.3 Social, Environmental & Ethical Influences
- Social trends – changing demographics, health consciousness, ethical consumerism.
- Environmental externalities – pollution, climate change, resource depletion; businesses may face carbon taxes, waste‑disposal regulations, or pressure to adopt sustainable practices.
- Ethical issues – child labour, fair‑trade, animal welfare, data privacy. Companies may adopt corporate social responsibility (CSR) policies to address stakeholder expectations.
- Globalisation – increased competition from overseas firms, opportunities for export, off‑shoring of production, and exposure to foreign exchange risk.
6.4 Multinational Companies (MNCs) – Advantages to the Business
- Access to larger markets – increased sales potential and economies of scale.
- Diversification of risk – spread of market, political and currency risk across several countries.
- Cost advantages
- Lower labour costs in developing economies.
- Access to cheaper raw materials and components.
- Tax incentives and favourable regulatory regimes.
- Technology transfer & innovation – exposure to new ideas, research facilities and best practices.
- Enhanced brand reputation – perception of being a global leader can increase consumer confidence.
- Strategic flexibility – ability to relocate production, source inputs, or shift marketing focus in response to market changes.
- Learning and development – staff gain international experience, improving managerial skills and cultural awareness.