Business
An organization that provides a good (tangible) or service (intangible) to a market.
Tangible
Something you can physically touch (good)
Intangible
Something you can’t physically touch (service)
The functional areas of a business:
1) Marketing
- Product - ensuring goods and services meet customers demand
- Place - distributing goods to the right market
- Price - Strategic prices to maximize profit
- Promotion - communicating with customers and sales promoters
2) Finance
- Monitoring cash flow
- Paying creditors back
- Investment appraisal
- Tax issues
- Budgeting
- Recording data
3) Human resources
- Recruitment of employees
- Terms and conditions of employment
- Workplace issues
- Health and safety
- Ensures employee treatment follows laws
- Training
4) Operations management
- Designing manufacturing process
- Stock management
- Quality control
- Distribution
- Planning time scale
- Research and development
The business sectors:
1) Primary - extracting raw materials
2) Secondary - Turning raw materials into semi-finished goods
3) Tertiary - Services such as education
4) Quaternary - Services that involve development and use of data information
Industrialization
Changing from the primary sector to the secondary one
Factors that determine the development of a country:
1) Human resources
2) Raw materials
3) Capital formation
4) Technological development
5) Social and political factors
Chain of production
The steps involved in producing finished goods
Integrated companies
Companies whose activities span over two or more sectors
Furniture maker and seller - involved in both primary and secondary sector
Entrepreneur
A person who sets up a business, taking on financial risks in the hopes for profit
Entrepreneurship
Is the process of setting up a new business
Characteristics of an entrepreneur
Risk takers
Self motivated
Confident
Innovative
Intrapreneurs
An individual encouraged by their employees to take risks to develop their new products, processes and services while maintaining their status as an employee
Intrapreneurship
The activity of entrepreneurship when it takes place within an organization
Advantages and disadvantages for Entrepreneurs and Intrapreneurs
Entrepreneurs
Advantages:
- Full control of project
- Business ownership
- 100% commitment
Disadvantages:
- Start from scratch
- High risk
- Stake everything on one card
Intrapreneurs
Advantages:
- Controlled risk
- Multiple career opportunities
- Job security
- Resource access due to large corporations
Disadvantages:
- 100% commitment
- no business ownership
- Dont have full control
- No freedom
Concepts of a business:
1) Globalisation - a concept businesses react to…
2) Ethics
3) Culture
4) Change
5) Innovation
6) strategy
Culture
- Refers to common beliefs, social norms and specific characteristics of a group of people.
OR.
Set of shared characteristics, attitudes, values and practices that dominate within an organization.
What are the two cultures:
1) Organizational culture:
- Individual values and behaviors that contribute to social and psychological environment of a business
Eg. Law firms wearing suits vs Google wearing anything they want
2) National culture
- How a business develops its management practice to fit with the national culture they operate in.
Eg. Maccas changing the 1dhs ice cream to green tea flavor in Japan
Innovation
- The process of creating something new or improving an existing idea/ product
How does it affect the business:
improves products / efficiency / profitability
Change
- When something becomes different or undergoes a certain transformation from its initial condition
Two types of change:
1) Organizational change
There are three levels: Individual, team, organizational
2) External change - outside factors that influence a businesses ability to achieve its goals
- Politics
- Ethics
- Social
- Technological
- Environmental
- Law
Ethics
Refer to moral values which determine the behavior of an individual or group
Good…Toms
Bad…Volkswagen
Globalisation
Is the process of increase integration of national economies.
OR
The process by which businesses or other organizations start operating on an internal scale.
Advantages and disadvantages of Globalisation:
Advantages:
- Cheap labour
- Access to a large market
- Cheaper resources
- More expertise
Disadvantages:
- Exploiting labour
- Bad brand image
- Breaking laws
- Increased transport costs
- International law/ tax
- Language barrier
Strategy
is a business’s long term plan to achieve its objective
The role of a business
- Businesses exist to create value
How do they do this?
- They do this by taking in inputs using them to create outputs that are worth more than the inputs employed
The resources used by a business:
1) Physical resources
- Raw materials
- semi finished goods
2) Financial resources
- Funds needed to invest in the business
3) Human resources
- people needed to run a business
or
- land
- labour
- Capital
- enterprise
Business outputs:
1) Goods: physical products, tangible
2) Services: Intangible products
Reasons for starting a business:
- Earning a living
- Financial reward
- Control
- Work life balance
- New technology
- Unfilled niche market
Problems a new business will face:
- Existing strong competition
- Recruiting qualified personal
- Lack of management
Business plan
Is usually written a written document hat describes the aspects of a new business idea,marketing,finance,operations and human resources.
What would be included in a business plan?
- Intro about the business
- Aims and legal objectives
- Legal status
- Raising finance
- the product
- The market
- Financial forecast
- operations
- Corporate social social responsibility
How would want to see a business plan?
- A bank
- Shareholders
Public sector
Includes all those organizations that are owned and operated by local or state government agencies.
Hospitals
Transport
Private sector
Organizations that are owned by individuals or groups of individuals
Free market economy
Is an economy that allows the market to decide the prices of goods and services by reflecting on supply and demand
Command economy
Controlled by the government and they decide what happens in the market
Mixed economy
An economic system that combines both private and state enterprise
Unlimited liability
The owner is responsible for all the debts of the business.
EG. Sole traders
Limited liability
The investor can only lose their initial investment in the business.
Sole trader
A for profit business owned by a single individual.
Unlimited liability
Partnership
Is a for profit business owned by 2 or more individuals
Unlimited liability
Corporation / companies
Owned by numerous shareholders.
Limited liability
Private limited companies
- Owned by a relatively small group of shareholders: families
- More control
- No takeovers
- Harder to raise capital
- Shares cannot be sold on the stock exchange
Public limited companies
- Large amounts of shareholders
- Less control
- Take overs
- Easier to raise capital
- Shares can be sold on the stock exchange
Non governmental organizations (NGOs)
Non profit organizations that usually state their purpose as benefiting society or environment
Characteristics:
- No criminal activities
- Not a political party
- Controlled by the environment
- Non profit organization.
Charities (NGO)
Non profit organizations that exist to benefit the public. Enjoy tax advantages.
Water 4 Ethiopia
bottles sold for 50p and 25p goes towards supplying water in Ethiopia.
Cooperative
organization that is owned by its members who come together to work towards a common interest. Democratic.
Microfinance provider
Makes financial services available for individuals whose needs would otherwise not meet traditional financial institutions like banks.
Helps poor populations
Microcredit
Lending very small amounts of money
Public - private partnerships (ppps)
defined as a long-term contract between a private party and a government agency for providing a public asset or service, in which the private party bears significant risk and management responsibility
transport infrastructure such as highways, airports, railroads, bridges, and tunnels. Examples of municipal and environmental infrastructure include water and wastewater facilities.
Social enterprises
Organizations that engage in business activity but that also set themselves important goals in terms of improving society. Cn be profit or non profit organizations.
All 3 for profit organizations can be social enterprises (sole traders,partnerships and corporations)
Businesses become social enterprises for 3 reasons:
1) Business sells products / services that benefit both customer and society
2) sourced sustainability or profits are set aside to support something
3) staffed by employees that might have a hard time finding a job
Pressure groups
A group that tries to influence public policy in the interest of a particular cause.
Eg. Greenpeace
Privatization
Transfer of a business, industry or service from public to private ownership and control.
A mission statement
A written expression of an organizations purpose and reason for being.
who are we?
What do we do?
A visson statment
A written expression of an organizations long term ambitions that it hopes to realize in the future.
What would be like to become?
What would be like to accomplish?
Aims
Goals an organization would like to accomplish. Optimistic and broad.
Objectives
Concrete target an organization sets for itself.Acronym SMART.
Strategic objectives
Long term goals
Tactical objectives
Medium to short goals
Operational objectives
day to day goals
Strategy
Is a plan,approach or scheme for achieving an aim or objective. More important decisions that may be more risky.
Tactic
An approach for achieving objectives. Involve fewer resources and less risky.
Corporate social responsibility (CSR)
s a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.
CSR policies involve:
- Labour regulations
- Environment
- Community
- Supplier relations
also
- Develop talented and productive workforce
- Improving marketing
- Preparing for the future
- Avoid damaging publicity
= creates shared value
Stakeholder
A person with an interest or concern in a business.The business actions affect them.
SWOT analysis definition
Assesses the STRENGTHS, WEAKNESSES, OPPORTUNITIES and THREATS a business has.
- A brand cannot control the opportunities and threats as they are EXTERNAL
SWOT analysis breakdown
Strengths:
- unique selling point
- reputation
- brand
- customer loyalty
- skilled employees
- market share
- location
- good management
- modern facilities
- strong finances
Weakness:
- location
- demotivated staff
- high price compared to competitors
- high costs
- poor reputation
- seasonal products
- reliant on one customer
- poor management
- outdated facilities
Opportunities:
- boom in trade cycle
- increasing customer spending
- new/growing markets
- expansion
- mergers
- technological developments
- government subsidies
- low cost financing
- availability of skilled labour
Threats:
- competitors
- pressure groups
- natural disasters
- disease
- tax
- recessions
- government instability
- high cost inputs
- lack of availability of skilled labour
- changing consumer tastes
SWOT analysis advantages and disadvantages
Advantages:
- understand business
- capitalize on opportunities
- develop business goals
- take advantage of strengths
Disadvantage:
- doesn’t provide solutions or alternatives
- could be a waste of time if done wrong
- can generate too many ideas
STEEPLE analysis definition
what does it stand for?
used to evaluate a firms external environment (opportunities and threats)
Does not look at internal strengths and weaknesses
- Socioculture (the way people live and what they value)
- Technological
- Economic
- Environmental
- Political
- Legal
- Ethical
Gross domestic product (GDP) - economic
the total value of goods produced and services provided in a country during one year.
GDP per capita definition
Calculation
Used to measure the relative wealth or poverty of a nation.
Total GDP / population of the country
Recession
GDP decreases for two or more quarters
Depression
used to describe a prolonged or severe recession
Inflation
increase in prices calculated as annual rate increase
Deflation
decrease in prices
Interest rate
Cost of borrowing money
Unemployment rate
% of labour force that is out of work but actively seeking employment
Exchange rates
the value of one currency for the purpose of conversion to another.
shareholder
An owner of shares in the company
Franchise
The legal right to trade under the name of a registered business
Franchisor
A franchisor sells a franchise to a franchisee
Franchisee
Will pay an initial fee to use the brands name and logo and they also have to pay royalties which is an ongoing fee.Fixed % of sales revenue goes back to franchiser.
The Ansoff Matrix (AM)
A management tool used to make decisions on growth strategies.Shows various strategies businesses can take to access new markets or release new products.
- Market penetration
- Product development
- Market development
- Diversification
Market penetration (AM)
Strategy involves selling more of the same products and services to pretty much the same customers.
Can be done by:
- changing prices
- extending hours
- increasing promotion
- buy a competitor in the same market, making market saturated
Adv:
- changes can be made quickly
- low risk
- no investment needed
Dis:
- Limited growth available
- Customers cannot be induced to buying more product
- many competitors in market
Product development (AM)
selling new products in the organizations existing market.
Can be done by:
- investing in research and development
- acquiring a competitors product and merging resources to create a new product
- Strategic partnership that opens new distribution channels
Adv:
- customer loyalty
- brand image helps the release of new product
- business has prior knowledge of the market and competition
Dis:
- Medium risk
- cost associated with new products
- limited potential for growth
- involves investment
- investment in storage
Market development
involves selling existing products to new customers
ways that this can be done:
- new market
- opening new locations
- entering foreign market
Adv:
- large growth potential
- increased revenue
Dis:
- expenses due to contracts
- lots of advertising will be needed
- research and development
Diversification
Involves selling new products to a new market, riskiest growth strategy.
Advantages:
- lots of new customers
- unlimited growth
Disadvantages: - high costs - very risky - lots of advertising needed lots of research and development
Two types of diversification:
1) Related diversification - there are potential similarities to be realized between existing business and the new products / market
2) Unrelated diversification - There are no potential similarities between the existing business and new market/product.
A merger
A combination of two things, companies
A takeover / acquisition
is the purchase of one company by another
A strategic alliance
Is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organization.
Joint venture
Commercial enterprise undertaken jointly by two or more parties which otherwise retain their distinct identity.
Stakeholder
An individual or group that affects an organization or is affected by it.
List internal and external stakeholders
Internal stakeholder:
- employees
- owners/shareholders
- managers
External stakeholders: -pressure groups/unions -suppliers -government -bank -media -competition customers
Internal (organic) growth
Businesses use their own resources to expand
- retained profit
- borrowing
- selling shares
External (inorganic) growth
Businesses work with other organizations to expand usually through:
-merger
Types of takeovers and definitions:
1) Horizontal - Businesses at the same stage of production
2) Vertical - Businesses at different stage in production
3) Conglomerate - Business in a different market
Fixed costs
Costs that do not changed with output
- utilities
- production
- location
- employee salary
- advertising
- research and development
Variable costs
Output directly affects costs
- materials
- when it is payed my time or piece rate
Total costs calculation
Fixed + Variable costs
Average cost calculation
Total cost / output
Economies of scale
As output increases the average cost per unit decreases
Diseconomies of scale
As output increases the average cost per unit increases
Multinational corporations (MNC’s) / transactional corporations
A company which operates in two or more countries.
Trade barriers
Regulatory obstacles that limit trade between countries.Include tariffs and quotas.
Tariffs
Taxes that are placed on goods imported into the country
Quotas
Limits placed on the number or volume of goods imported into a country.
Trading blocs
Include a variety of agreements between countries with the aim to reduce barriers between trade members.
-Includes the EU, SADC
Causes of globalization
1) Trade liberalization
2) Technology
3) Communication
4) Transport
5) Language
6) Increased cultural awareness
Trade liberalization
The removal of trade barriers to encourage international trade
Fishbone model
- visual tool
A decision making framework based on identifying the root causes of a problem.
Force field analysis
- visual tool
Intended to study resistance and change.
Make sure to use the terms driving and restraining forces.
Number 5 = powerful
Number 1 = weak
Gantt chart
- visual tool
Used to facilitate and project management.
Decision tree / probability tree
used to help make decisions in the face of uncertainty.
square- decision is made
circle- outcome is uncertain
crossed out line- option is rejected
Inquiry
Increase in a companies sales and profits that is a result of buying other companies or of forming a business relationship of them.
A merger
In other words, a merger is the combination of two companies into a single legal entity.
A takeover
A takeover or acquisition is the purchase of one company by another
A strategic alliance / partnership
Agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organization.
A joint venture
business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.
Advantages or disadvantages of external growth:
Disadvantages:
- shortage of cash
- compromised quality
- loss of control
- increased capital requirements
- increased staff turnover
Advantages:
- faster speed on access to new product or market areas
- increased market share
- Access internal economies of scale
common steps taken when starting a business
- refine the idea
- prepare a business plan
- decide on the legal structure
- take care of administrative tasks
- find a location
- hire employees
- seek financing
