This course is designed to develop an understanding of the principles and practices of business, from the very small one person firm to multi-national corporations.
Dr. Helal Afify
B120: An Introduction to Business Studies
B120 Course Structure
There are 5 Course Books:
Book 1: What is a Business?
Book 2: An Introduction to Human Resources Management in Business.
Book 3: An Introduction to Accounting & Finance in Business.
Book 4: An Introduction to Marketing in Business.
Book 5: Different Ways of Looking at Business.
Book 1: Sessions
1. What is a business?
2. The external environment.
3. Business structures.
4. Business cultures.
5. Business ethics.
6. An introduction to business functions.
7. Small business and entrepreneurship.
Session 1
What is a business?
• Often, people think about business in terms of very large multi-national corporations, for example, Microsoft, Toyota, GlaxoSmithKline (GSK), Gulf Bank (GB) and Saudi Aramco.
• However, most businesses in the world are very small, enterprises, such as that depicted on the front cover of Book 1. Many businesses are owned and managed by one person.
• Business is hard to define for the very reason that there is so much of it around us, in all sorts of different shapes and sizes, but businesses have three factors in common: people, objectives and structure.
Some common characteristics of businesses:
- They consist of a number of people.
- They will have some income and costs.
- They will need different types of resources to produce different types of goods and services.
- They are likely to need to co-ordinate a number of different activities undertaken by individuals.
Types of businesses:
1- The private sector: Private individuals and firms that are owned by private individuals (not controlled by the government). It include Sole Traders, Private Limited Companies (Ltd), Partnerships and Public Limited Companies (PLC).
2- The public sector: Made up of central government, local government, and businesses that are owned by government (controlled and operated by the government).
Public sectorLocal authorities, schools, governmental departments, armed forces / Not for profit
Voluntary organisations, clubs and societies, pressure groups, religious organisations
Private sector
Sole traders, partnerships, producer and consumer co-operatives / For profit
Railways, airlines, nationalised industries
Not For Profit Businesses:
• Many charity-based business organisations are run as ‘not for profit’ operations.
• They typically receive donations or funds from groups or government.
• Any financial surplus is ploughed back into the business.
• The organisation does not aim to generate profits.
The stereotyping of business sectors:
• Stereotypes - beliefs (positive or negative) about attributes that are thought to be characteristic of members of particular groups.
• People often have rather stereotyped perceptions of what different businesses are 'like', particularly if thy have never worked in one.
• The popular image of a business, often reinforced by business study textbooks, is that of a large enterprise, probably in the USA such as shell and ford.
• Small businesses typically make up about 90 % of business activity within any one country.
• Stereotypical views of businesses:
Type of businesses / Stereotypical viewsThe private sector / Efficient and solely profit-driven
The public sector / Slow to respond to developments in the external environment an unwilling to change
Charities and voluntary organisations / Amateurish or innovative
Large businesses / Bureaucratic
Small businesses / Unreliable
Co-operatives businesses / Worthy but difficult to mange
• Another view of different types of businesses, using the axes of size and goals, is shown in the following figure:
Similarities and differences between businesses (Morgan’s metaphors, 1986):
One of the famous academic theories, by Garith Morgan, uses metaphors to illuminate and extend our thinking regarding the question, “what is a business”. The metaphor has guided the attention towards issues of the organisation's survival, relations to the environment, and organisational effectiveness.
Why do we use Metaphors?
• Metaphor implies a way of thinking and a way of seeing that pervade how we understand our world generally;
• To help understand one element of experience in terms of another.
• The ‘images of organization’ offered by the following eight metaphors:
Metaphors / Description / ExamplesA machine / Businesses are often designed and operated as if they are machines, with highly visible structures and procedures. They offer continuity and security, but tend to fit people into jobs rather than allow much creativity. / - The hard HRM models
- Bureaucracy
- Division of labour
- Standardisation of tasks
- Centralisation of authority
An organism / Seeing the business as behaving in similar ways to our own biological mechanisms. The businesses structures and its procedures are less fixed. / - Living systems, environmental conditions, adaptation, life cycles, needs, evaluation, survival.
A brain / This means realising it has to be able to respond to change and also capable of rational thinking and intelligent change. / - The learning systems
- Supports a model of continual learning and expansion of ideas and capabilities
- Learning, parallel information processing, distributed control, mindsets, intelligence, feedback, knowledge, networks
A culture / The values, believes, norms, essentials and principles. / - The patterns of knowledge, ideology, values, laws, everyday rituals etc.
- How are decisions made, what are the relationship of people with information
- Society, values, beliefs, diversity, traditions, history, shared vision and mission
A political system / The social relations between individuals and groups in a business that involve authority and power. / - The relationships between departments in the business.
- Information control as a power resource
- Interest and rights, power, hidden agendas and back room deals, authority, alliances
Psychic prison / Some businesses may be constrained by themselves. It deals with unconscious matters, rationality, and powerlessness (where you end up with what you tried to avoid). Survival is a high priority in organizations. / - Supports a warden or therapist support system
- Any organization must develop self-knowledge
- May have prison-like qualities, for example "groupthink". Morgan mentions the CIA-planned invasion at the Bay of Pigs in Cuba 1961.
- Conscious and unconscious processes, and repression, ego.
As flux and transformation / The constant change shaping our lives. Promotes a deeper understanding of (nature of, interpretation of) emerging (or unfolding) situations, contexts surrounding organizations. Although similar to other metaphors, (for example, organic or culture) the focus is on the emergent dimension. / - Constant change, dynamic equilibrium, flow, self-organisation, systemic wisdom, attractors, complexity, emergent properties, paradox.
A vehicle for domination / Businesses can be dominant. Domination is the result of an asymmetrical distribution of power. / - Patterns of formal authority in which rulers see themselves as having the right to rule, and those subject to this rule see it as their duty to obey.
- Alienation, repression, imposing values, compliance, maintenance of power, force, exploitation, divide and rule, discrimination, corporate interest.
Session 2
The external environment
A business exists within an external environment consisting of the actions of other players who are outside the business. A Key Success Factor (KSF) for any type of business is an accurate understanding of the external environment can be defined and analysed using the STEEP model (STEEP is an acronym for Sociological, Technological, Economic, Environmental and Political factors). (general awareness of the industry or service area you operate in)
STEEP stands of five factors:
1- Sociological factors:
It include demographic changes in the age and structures of populations, patterns of work, gender roles, patterns of consumptions and ways in which culture of population or country changes and develops.
2- Technological factors:
It include information technology (IT) for business management and information and communications technology (ICT) which influence on:
• Lowering the barriers of time and place.
• Creates new industries.
• Depends of many individual jobs and internal service functions on ICT systems.
3- Economic factors:
It include economic growth, interest rates, inflation, energy prices, exchange rates and levels of employment.
4- Environmental factors:
The impact of businesses activities on the natural environment (sustainability, recycling, emissions and waste disposal). Businesses need to consider a number of environmental factors (such as: legislations, environmental management systems 'ISO 14000', information about environmental audit and performance reports, employees, shareholders, pressure groups, and customers).
5- Political factors:
It include legislations, trading relationships (such as: the World Trade Organization ‘WTO’ and the European Union ‘EU’), government, the level and nature of public services (e.g. health, education etc.), financial policy, levels of taxation and potential elections.
Stakeholders:
Stakeholders are groups of people who have an interest in a business. They can be seen as being either external (e.g. creditors, customers, suppliers, government, community), or internal (e.g. shareholders ‘owners’, managers, staff or employees).
A stakeholders for - profit business:
Stakeholders / ExpectationsPrimary / Secondary
Owners / Financial return / Capital growth
Employees / Pay / Work satisfaction, training, social integration
Customers / Supply of goods/services / Quality
Creditors / Credit worthiness / Security
Suppliers / Payment / Long-term relationships
Community / Safety and security / Contribution to the community
Government / Compliance / Improved competitiveness
Why the concept of stakeholder is important?
The concept of stakeholder is important for two rezones:
1- It emphasises that stakeholders groups have different interests, and hence lead to the conflict of interests.
2- It illustrates the relationships between businesses and their external environments (as explained through the STEEP model).
Example of stated business objectives that incorporate the stakeholders' concept (British Telecom):
Stakeholders statementWe aim to be at the heart of the information society - a communications-rich world in which everyone, irrespective of nationality, culture, class, creed or education, has access to the benefits of information and communications technology (ICT).
In practical terms, that means we are committed to doing business in a way that:
- Maximise's the benefits of ICT for individuals.
- Contributes to the communities in which we operate.
- Minimises any adverse impact that we might have on the environment.
- It means doing business in a way that will persuade customers to buy from us, investors to back us, the best people to work for us and communities to have us around.
If we had to say what we believe in a single sentence, it would be this: better communications help create a better world.
Conflict between stakeholders:
Management, employees and shareholders:
Employees seeking higher wages might conflict with the desire by management to cut costs to boost profit and thus satisfy their own ambitions and meet the needs of the shareholders.
Shareholders and customers:
Customers want high quality and low prices, while shareholders are interested in minimising costs and maximising profits.
Managers and shareholders:
Mangers will argue that without their leadership and managerial ability, the corporation would not have been as profitable. The shareholders will argue that without their money, the corporation would not have been able to invest in its growth.
Analysing stakeholders:
The relative power and interest of the stakeholders (four categories in the matrix), shown in the following figure:
For example:
Category D (cell D) refer to stakeholders with high power and high interest are key players in the organisation and are often involved in managing the organisation and its future.
Level of interestLow / High
Power / Low / Category A
Minimal effort
(e.g. customers, suppliers or competitors) / Category B Keep informed (e.g. associate members, employees)
High / Category C
Keep satisfied
(e.g. institutional stakeholders) / Category D
Key player
(e.g. directors)
Business and society:
• The relationships between the business and the community depend on the type of business and its relationships with the community.
• The field of corporate social responsibility has grown considerably over the last decade. Many businesses are becoming more active in contributing to society now than used to be the case. Corporate social responsibility (CSR) issues are now being integrated into all aspects of business operations and explicit commitment to CSR is made in the visions, missions and value statements of an increasing number of companies all over the world. CSR reports issued usually go beyond profit maximisation to include the company’s responsibilities to a broad range of stakeholders including employees, customers, community and the environment (see for example: the social responsibility of Gulf Bank in Kuwait 'www.e-gulfbank.com/eng/aboutUs/index.jsp').
SWOT Analysis:
Another important tool is the SWOT analysis as this helps managers to look at both the external circumstances, the possible Opportunities (O) and Threats (T) that the firm faces and the internal factors, Strengths (S) that the firm can build upon and Weaknesses (W), which the firm need to understand.
A SWOT analysis generates information that is helpful in matching an organisation or group’s goals, programs, and capacities to the social environment in which it operates. It is an instrument within strategic planning, since developing a full awareness of your situation can help with both strategic planning and decision - making. SWOT (specific analysis of your own business)
Strengths:
- Positive tangible and intangible attributes, internal to an organization. They are within the organisation’s control.
- A resource or capacity of the organisation or team that can be used effectively to achieve objectives now or in the future.
Weaknesses:
- A weakness is defined as lacking a competence, resource or attribute that an organisation needs to perform better than its competitors in the external environment.
- Factors that are within an organisation’s control that detract from its ability to attain the core goal. Which areas might the organisation improve?
- A limitation, fault or defect of the organisation or team that will hinder achievement of objectives now or in the future
Opportunities:
- Opportunities are openings or chances in the external environment or marketplace that an organization may pursue to obtain benefits.