1.1 Introduction to Business Management
What is a business?
A business is an organisation that uses resources to produce goods and services for customers who want or need them. This is done in order to make a profit.
What does a business do?
Businesses convert resources into products that customers want. Businesses spend less on the resources then add value in order to obtain profits
Factors of Production
These are inputs that the business uses to produce goods
Capital
Land
Labour
Enterprise
Goods
Goods are tangible (can be seen or touched) objects that can be used or consumed. These include: vehicles, smartphones, and food
TYPES OF PRODUCTS
Consumer goods - products sold to the general public
Capital goods (producer goods) - physical products bought by businesses to produce other goods and/or services
Services
Services are intangible. These include: haircuts, nail salons, and teaching.
What are the main functions of a business?
Most businesses have four functional departments
These are staffed by specific personnel with the necessary skills
Small businesses usually outsource these to other businesses
Marketing
The commercial processes involved in creating and designing, promoting and selling and distributing a product or service. The management task that links the business to the customer by identifying and meeting the needs of customers profitably. It does this by getting the right product at the right price at the right place with the right promotion.Finance and Accounts
Finance and Accounts
Finance is the management of money and credit and banking and investments. The accounts and finance section also provides the business with an array of tools for keeping track of cash flows, judging the viability of an investment and being able to prepare and analyse a financial records to both report on and evaluate the health of a business.Operations
Human Resources
The process of determining human resource needs and then recruiting, selecting, developing, motivating, evaluating, compensating, and scheduling employees to achieve organisational objectives.
Operations
Sometimes referred to as production. Operations management is concerned with supervising, designing and controlling the procedures of the production process. It is the management of processes used to design, supply, produce, and deliver goods and services to customers.
Other optional departments for specific businesses include:
- Customer Service
- Procurement or Purchasing
- Research & Development
Business Sectors
Primary Sector
Extracts raw materials
Activities include: mining, fishing, farming, extracting oil
Secondary Sector
Manufactures goods for customers
Activities include: metalworking, automobile manufacturing, construction and shipbuilding
Tertiary Sector
The service industry. Provides services to the general population and businesses.
Activities include: restaurants, retail stores, education
Quaternary Sector
Provides information services
Known as the knowledge-based sector of the economy.
Sometimes included with the tertiary sector, as they are both service sectors.
Activities include: computing, ICT, and research and development (R&D)
Measurement and Growth
The 4 sectors can be measured in: GDP and Percentage Employed
Differences in LIC and HICs
LIC
Primary or Secondary are the major sectors in the economy
Tertiary is growing, but is still small
Quaternary is non-existent
HIC
Tertiary is the major sector in the economy
Primary and Secondary are sometimes non-existent, often 1-20% each
Quaternary is growing, but is small
Entrepreneurship
An individual who plans, organizes and manages a business, taking on financial risks in doing so.
Entrepreneurship in terms of risk-taking. The entrepreneur is willing to put his or her career and financial security on the line and take risks in the name of an idea, spending time as well as capital on an uncertain venture.
Intrapreneurship
The act of behaving like an entrepreneur while working within a large organisation
An intrapreneur is someone within a company that takes risks in an effort to solve a given problem.
Google uses the 80/20 theory. 80% to do work and 20% brainstorm ideas in order to develop products or services
Why would entrepreneurs set up businesses?
Growth
There is potential appreciation in value of property and land, which tend to increase over time
Earnings
Potential earnings can outweigh the cost of starting-up, therefore earning profits
Transference and Inheritance
Sense of security for their next of kin to inherit the business in the event that the kin does not have a job, etc.
Challenge
Drives and motivates people. Sense of personal satisfaction
Autonomy
Self-employed means there is independence, freedom of choice and flexibility whereas working for someone is the opposite
Security
More job security. A worker can be made redundant or fired.
Hobbies
Pursuing passion or turning their hobby into a business.
The common steps in the process of starting up a business
Choose a legal structure
Pick a business name and register it
Check domain name
Protect your idea (patents)
Write a business plan
Shareholders Agreement, Memorandum, and Articles of Association*
Deed of Partnership*
Register with relevant tax authority
Raise finance
Problems that a new business might face
Lack of finance
Cash flow problems
Unestablished customer base
People management problems
Legalities
Production Problems
Marketing Problems
High Production Costs
Poor location
External influences
Forward Vertical Integration/Backwards Vertical Integration:
Forward integration is a operational strategy implemented by a company that wants to increase control over its suppliers, manufacturers or distributors, so it can increase its market power.
A good example of forward integration is when a farmer sells his crops at a local grocery store rather than to a distribution center that controls grocery store placement.