Ch 1.1 The Nature of Business Activity -- pg 2-5 Activity 1.1 pg 5
I. Introduction
a. What a business is and what businesses do??
II. What is a Business?
a. an organization that uses resources to meet the needs of customers by providing a product or service that they demand
III. What businesses do?
a. Identify needs of consumers and other firms
b. Purchase resources-- which are inputs of the business, or factors of productions in order to produce output
1. Land, Labor, Capital, Entrepreneurship
c. Outputs-- are the goods and services that satisfy customer wants
KEY TERMS:
Consumer goods- physical and tangible goods sold to the general public…
Durable goods --- cars, washing machines
Nondurable goods – food, drinks and sweets
Consumer services-- non-tangible products sold to public… hotel accommodation, insurance services, train journeys
Capital goods—physical goods that are used by industry to aid production of other goods and services, such as machines and commercial vehicles
IV. What are business inputs??
A. Factors of Production – resources needed by business to produce goods or services
1. Land- land itself--- also.. Renewable and non-renewable resources of nature; coal, crude oil and timber
2. Labor – manual and skilled labor make up the work force of the business
3. Capital - finance needed to set up a business and pay for its continuing operations as well as all of the man made resources used in production
a. includes – capital goods—computers, machines, factories, offices and vehicles
4. Enterprise-- driving force of business provided by risk-taking individuals—provides a managing, decision making and co-coordinating role.
V. Business Functions -- four main functional departments
1. Marketing –
a. responsible for market research and analyzing such results so consumer wants can be correctly identified
b. make important decisions concerning pricing, how and where to promote it and how to sell it and distribute it for sale
2. Finance --
a. monitor the flow of finance into an out of business, keeping and analyzing accounts
b. providing information to both senior management and other departments
3. Human Resource Management-
a. identifies the workforce needs of the business, recruits, selects and trains appropriate staff and provides motivational systems to help retain staff and encourage them to work productively
4. Operations Management
a. responsible for ensuring adequate resources are available for production, maintaining production and quality levels and achieving high levels of productive efficiency
Note : Good communication, co-operation and close interrelationships between functions are essential before major decisions are made.
Example: Decision by Peugeot Citroen in 2010 to launch world’s first hybrid diesel car required interaction between.
Marketing-- will consumers be prepared to buy this car and at what price?
Finance – do we have the capital needed to develop and produce it?
HR management -- do we need to recruit additional engineers before this project can be turned into a market ready car
Operations management -- can we produce this product at a cost which allows the marketing department to set a profitable price level?
VI. Sectors of Industry
1. Primary -- firms engaged in farming, fishing, oil extraction, and all other industries that extract natural resources so that they can be used and processed by other firms
2. Secondary -- firms that manufacture and process products from natural resources, including computers, brewing, baking, clothing, construction
3. Tertiary - firms that provide services to consumers and other businesses, such as retailing, transport, insurance, banking, hotels, tourism, and telecommunications.
4. Quarternary Sector???
a. focused on information technology IT – businesses and information service providers
Ch 1.2 Types of Organization pg 9-19
I. Introduction
1. The private and public sectors
2. Profit-based and non-profit based organizations
II. Public and private sector organizations
1. Private sector – comprises businesses owned and controlled by individuals or groups of individuals
2. Public sector- organizations accountable to and controlled by central or local gov’t
3. Mixed economy - economic resources are owned and controlled by both private and public sectors
4. Free- Market – economic resources are owned largely by the private sector with very little state intervention
5. Command Economy - economic resources are owned, planned and controlled by the state
A. Links between sectors
1. goods and services provided by state run organizations
a. health, education, defense, law, police force
b. often have objectives other than profit:
- Ensuring supplies of essential G&S-- health and Education
- Preventing private monopolies
- Maintaining employment
- Maintaining environmental standards
Key Terms
Privatization -- the sale of public sector organizations to the private sector
II. Starting a business -- role of the entrepreneur
Key Term
Entrepreneur – someone who takes the financial risk of starting and managing a new venue
Do you qualify as an Entrepreneur??
- Have an idea for a new business
- Willing to invest your own savings and capital
- Accept the responsibility of managing the business
- Accept the possible risks of failure
Personal Qualities and skills needed to make a success of a business venture
- Innovative – must be able to carve out a new niche in the market
- Commitment and self-motivation -- willingness to work hard, a keen ambition to succeed, energy and focus are all essential qualities
- Multi-skilled – be able to produce or provide product--- promote it--- sell it and count the money
- Leadership skills -- personality to encourage people in the business to follow and be motivated by them
- Belief in oneself -- ability to bounce back from setbacks
- Risk taker -- often involves investing their own savings in a new business
B. Why start a business?
1. Losing a job
2. Desire for independence
3. Business opportunity exists that can be taken advantage of
4. A wish to make more money than in the current job
C. Start-Up Businesses
1. Sectors of industry where there is a much greater likelihood of new entrepreneurs
a. primary -- fishing, market gardening ( sell to local markets)
b. secondary -- dress making, craft manufacturer, building trades
c. tertiary - hairdressing, car repairs, cafes, babysitting
2. Its unusual to find entrepreneurs establishing themselves in steel or car manufacturing
D. identifying market opportunities
- opportunity will generate sufficient demand for their product or service to enable the business to be profitable
E. Ideas for new businesses can come from several sources
- Own skills or hobbies
- Previous employment experience
- Franchising conferences and exhibitions
- Small budget market research
- Low cost research might indicate market gaps
F. Problems faced by Start-Ups
1. Competition
a. may have to offer better customer service to overcome the cost and pricing advantages of bigger businesses
2. Building a customer base
a. personal customer service
b. knowledgeable pre- and after sales services
c. providing for one-off customer requests that larger firms may be reluctant to offer
3. Lack of record keeping
4. Lack of working capital
a. lack of funding for day to day operations is the single most common reason for the failure of a new business to survive in the first year.
5. Poor management skiils
a. leadership skills
b. cash handling and cash management skills
c. planning and coordinating skills
d. decision making skills
e. communication skills
f. marketing, promotion and selling skills
G. Changes in the business environment
- New competitors
- Legal changes – outlawing product altogether
- Economic changes that leave customers with much less money to spend
- Technological changes making methods used by new business old fashioned
Activity 2.1 pg 10 & Activity 2.2 pg 12
III. Profit Based organizations
Key Term:
H. Sole Trader
Sole Trader -- a business in which one person provides the permanent finance and, in return, has full control of the business and is able to keep all of the profits.
1. most common form of business
2. unlimted liability
3. difficulty with finance expansion
4. common industries --- construction, retailing, hairdressing, car service, and catering
Disadvantages and Advantages – table 2.1 pg 13
Key Term
I. Partnership
Partnership -- a business formed by two or more people carry on a business together, with shared capital investment and , usually, shared responsibilities
- Disadvantages and Advantages -- table 2.2 pg 14
J. Limited Company
1. limited liability --- only liability – or potential loss – a shareholder has if the company fails is the amount invested in the company, not the total wealth of the shareholder
2. legal personality --- company is legally recognized as having an identity separate from its owners..—this means company itself can be prosecuted and not its owners
3. continuity -- death of owner does not lead to break up of company… ownership continues through the inheritance of the shares
Key Terms:
Private Limited Company – a small to medium-sized business that is owned by shareholders who are often members of the same family. This company cannot sell shares to the general public
Shareholder – a person or institution owning shares in a limited company
Share- a certificate confirming part ownership of a company and entitling the shareholder to dividends and certain shareholder rights.
Private Limited Company – disadvantages and advantages --- table 2.3 pg 15
K. Public Limited Companies
1. a limited company, often a large business, with the legal right to sell shares to the general public. It’s share price is quoted on the national stock exchange
--- disadvantages and adv --- table 2.4 pg 15
IV. Legal forms of business organization
Often happens because owners wish to protect their personal wealth and encourage new shareholder investors
V. Public Sector enterprises
EXAM TIP --- Public limited companies are in the private sector of industry but public corporations are not.
Public Sector / Public Corporations – a business enterprise owned and controlled by the state – also known as nationalized industry..
a. do not often have profit as a major objective
Public Sector Organization adv vs. disadv -- table 2.5 pg 16
Activity 2.3
VI. Non-proft and non-governmental organizations
Key Terms
1. Non – profit organization -- any organization that has aims other than making and distributing profit and which is usually governed by a voluntary board
2. Non- governmental organization (NGO) a legally constituted body with no participation or representation of any government
3. Pressure group -- an organization created by people with a common interest or objective who lobby businesses and governments to change policies so that the objective is reached..
Examples
Greenpeace
Fairtrade Foundation
Amnesty International
A. Pressure groups want changes in 3 important areas
- Governments to change their policies and to pass laws supporting the aims of the group
- Businesses to change policies so that, for example, less damage is caused to the environment
- Consumers to change their purchasing habits so that businesses that adopt “appropriate’ policies see an increase in sales, but those that continue to pollute or use unsuitable work practices see sales fall
B. Pressure groups try to achieve these goals in a number of ways
- Publicity through media coverage
- Influencing consumer behavior
- Lobbying of government
VII. Social Enterprise
1. they directly produce goods or provide services
2. they have social aims and use ethical ways of achieving them
3. they need to make a surplus or profit to survive as they cannot rely on donations as charities do.
A. Objectives of social enterprises
1. economic – to make a profit or surplus to reinvest back into the business and provide some return to owners
2. Social -- to provide jobs or support for local, often disadvantaged, communities
3. Environmental – to protect the environment and to manage the business in an environmentally sustainable way.
Key Terms:
Social Enterprise - a business with mainly social objectives that reinvests most of its profits into benefiting society rather than maximizing returns to owners
Triple Bottom line -- the three objectives of social enterprises: economic, social and environmental
Examples of Social Enterprise:
SELCO – in India provides sustainable energy solutions to low income households and small businesses.
KASHF -- foundation in Pakistan provides microfinance ( very small loans) and social support services.
Activity 2.4 pg 18
Ch 1.3 Organizational Objectives pg 23-35
I. Introduction
a. importance of business objectives
b. the different forms that these can take
c. including ethical and social targets
II. Importance of objectives
S – specific -- should focus on what the business does and should apply directly to that business
M – measurable – should have a quantitative value which will likely prove to be more effective targets
A- achievable -- enough said
R- realistic and relevant -- should be realistic when compared with the resources of the company
T - time –specific -- a time limit should be set when an objective is established.
III. Aims, objectives, plans and strategies
1. Aim --- long term goals
2. Mission
3. Corporate Objective
4. Divisional Objective
5. Departmental Objectives
6. Individual targets
Activity 3.1 pg 25
IV. Mission statements and vision statements
KEY Terms
Mission statement -- a statement of the business’s core aims, phrased in a way to motivate employees and to stimulate interest by outside groups
Vision statement—a statement of what the organization would like to achieve or accomplish in the long term
Pg 24 Simpson – examples of mission statements
A. An effective mission statement should answer 3 questions
- What do we do?
- For whom do we do it?
- What is the benefit?
B. Organization -- vision statement --- mission statementtable 3.1 pg 24 samples
C. Evaluation of These statements
support
- they quickly inform groups outside the business what the central aim and vision are
- they help to motivate employees, especially where an organization is looked upon, as a caring and environmentally friendly body.. Employees will then be associated with these qualities
- where they guide ethical statements, they can help to guide and direct individual employee behavior at work
- they help to establish in the eyes of other groups what the business is about
criticisms
- too vague and general so that they end up saying little which is specific about the business or its future plans
- based on a public relations exercise to make stakeholder groups ‘feel good’ about the organization
- virtually impossible to analyze or disagree
- rather woolly and lacking in specific detail
pg 26 Activity 3.2
V. Corporate objectives
1. based upon the business’s central aim or mission, but they are expressed in terms that provide a much clearer guide for management action or strategy
KEY TERMS:
Corporate or strategic objectives – important, broadly defined targets that a business mush reach to achieve its overall aim
A. Common Objectives
- Profit maximizations -- produce greater total revenue that total costs
B. Limitations to profit maximizations??
- High short term profits may lead competitors to enter the market
- Business needs to make an appropriate target rate of profit from their sales
- Small business owners may be more concerned with independence and control, which may be of higher importance than making a profit
- Rate of return on each dollar invested in the business rather than on total profit
- Growing concern over job security and environmental issues may force profitability business decisions to be modified
- In practice , it is very difficult to assess whether a profit max point has been reached or not
C. Profit Satisficing – aiming to achieve enough profit to keep owners happy but not aiming to work flat out to make as much profit as possible.. (satisfactory level of profit)
D. Growth -- Benefits
- Larger firms are less likely to be taken over and should benefit from economies of scale
- Managers may gain higher salaries and fringe benefits
- Businesses that do not continue to grow may cease to be competitive and eventually lose their appeal to new investors
E. Growth --- Limitations
- Over-rapid expansion can lead to cash-flow problems
- Sales growth might be achieved at the expense of power profit margins
- Larger businesses can experience diseconomies of scale
- Using profits to finance growth – retained profits – can lead to lower short term returns on shareholders
- Growth into new business areas and activities – can result in a loss of focus and direction for the whole organization
F. Increasing Market share
1. Benefits resulting from being the brand leader with highest market share
- Retailers will be keen to stock and promote best selling item
- Profit margins offered to retailers may be lower than competing brands as the shops are so keen to stock it.. more profit for the producer
- Effective promotional campaigns are often based on buy our product with confidence.. it is the brnad leader
G. Survival
1. to survive the first two years of business is an important aim for entrepreneurs
H. Corporate Social Responsibility
KEY TERM:
Corporate Social Responsibility - this concept applies to those businesses that consider the interests of society by taking responsibility for the impact of their decisions and activities on customers, employees, communities and the environment
I. Issues relating to corporate objectives
1. must be based on corporate aim and should link in with it
2. they should be achievable and measurable
3. they need to be communicated to employees and investors in the business
4. they form the framework for more specific departmental or strategic objectives
5. indicate a time scale --- remember SMART
J.. Conflicts between corporate objectives
- Growth versus profit
- Short term vs. long term – lower profits and cash flow may need to be accepted in the short term if managers decide to invest heavily in new technology
- Stakeholder conflicts
Pg 28 Activity 3.3 & Activity 3.4
K. Factors determining corporate objectives
1. Corporate culture --- who leads and how they lead matters
2. Size and legal form of the business
3. Public sector or Private sector
4. Well-established businesses
VI. Interrelated objectives, strategies and tactics
KEY TERM:
Tactical or operational objectives – short or medium term goals or targets which must be achieved for an organization to attain its corporate objectives
Senior managers ensure:
- Coordination between all divisions
- Consistency with strategic corporate objectives
- Adequate resources are provided to allow for the successful achievement of the objectives
The Hierarchy of Objectives === figure 3.3 pg 30
Differences between strategic and tactical objectives -- table 3.2 pg 30
1.4 Stakeholders pg 40-42
I. Introduction