Business u1 notes The role of the business Businesses identify the needs of consumers or other firms. They then purchase resources, which are the inputs of the business, or factors of production, in order to produce output. Businesses inputs & outputs Input: Physical resources Financial resources Human resources Output: Goods: Goods are physical products that are 'tangible'. Services: Services are intangible products that cannot be touched. The main function of business Human resources management: Determine if new or differently skilled workers will be required and how they can be recruited or trained. Operations: Determine whether and what cost change in production can be made. Marketing: Determine the change should made in a product. Finance and accounts: Determine how much finance will be required to change The economic sectors Primary sector The primary sector involves extracting raw material from the earth Secondary sector The secondary sector involves transforming raw materials into finished or semi-finished products. Tertiary sector The tertiary sector involves the delivery of services such as education, health care, travel and tourism, entertainment and home and car repair services. Quaternary sector The quaternary sector includes services related to the development and use of data and information. The impact of sectoral change on business activity Industrialization: Industrialization describes the growing importance of the secondary sector manufacturing industries in developing countries. Pros: • Total national output (gross domestic product) increases and this raises average standards of living. • Increasing output of goods can result in lower imports and higher exports of such products. • Expanding manufacturing businesses will result in more jobs being created. • Expanding and profitable firms will pay more tax to the government. • Value is added to the country’s output of raw materials rather than simply exporting these as basic, unprocessed products. Cons: • The chance of work in manufacturing can encourage a huge movement of people from the countryside to the towns, which leads to housing and social problems. It may also result in depopulation of rural areas and problems for farmers in recruiting enough workers. • The expansion of manufacturing industries may make it difficult for a business to recruit and retain sufficient staff. • Pollution from factories will add to the country’s environmental problems. Deindustrialization: There is a general decline in the importance of secondary sector activity and an increase in the tertiary sector. Reason: • As incomes increase, consumers spend more of their extra income on services rather than more goods. Big growth in tourism, hotels, restaurant services, financial services, but spend on goods rises more slowly. • Manufacturing businesses in developed countries face more competition and these rivals tend to be more efficient and use cheaper labor. Impacts: Employment patterns change – manufacturing workers may find it difficult to find employment in other sectors. This is called structural unemployment Entrepreneurship and intrapreneurship Entrepreneurs: Entrepreneurship is the process of setting up a new business. Entrepreneurs are the individuals with the talent, perseverance and appetite for risk that lead them to create new organizations. Characters: 1. risk taker 2. self-motivated 3. confident 4. innovate Intrapreneurs: Intrapreneurship is the activity of entrepreneurship when it takes place within an established organisation. Intrapreneurs are encouraged by their employers to take risks to develop new products, processes, and services while retaining their status as employees. Starting a business Reasons: Earning a living Prospect for financial reward Control Work-life balance New technology or business idea Unfilled market niche Steps: 1. Refine the idea 2. Prepare a business plan 3. Decide on a legal structure 4. Register the business and take care of administrative tasks 5. Find a locale 6. Hire employees if necessary 7. Finding needed financing Problems: 1. lack of fund 2. Strong competitors 3. Recruiting qualified personnel 4. Lack of management skills The elements of a business plan: *A business plan is usually a written document that describes all the aspects of a new enterprise in terms of the product or business idea, marketing, finance, operations, and human resources. Distinction between the private and public sectors The public sector includes all those organizations that are owned and operated by either the central government or local governments (municipalities), or their agencies, such as the National Health Service in the United Kingdom. Institutions in the public sector are usually dedicated to providing services to the public rather than earning a profit. The private sector includes all those organisations that are owned by individuals or groups of individuals. Organisations in the private sector are usually constrained by the necessity of earning profits in order to compensate their owners for the investment they have made in the organisation. Types of organisations For-profit organizations: Sole traders A sole trader is a for-profit business owned by a single individual. There is little legal distinction between the business and its owner and the owner is personally responsible for the debts of the business. Pros: 1. easy to set up 2. Owner has total control 3. owner keeps all profit 4. Financial performance remains confidential Cons: 1. Unlimited liability 2. No help with decision-making 3. Owner assumes all losses 4. Limited access to financing 5. Uncertainty should the owner die or become incapacitated Partnership A partnership is a for-profit business owned by two or more individuals who are each personally responsible for the debts of the business. Pros: 1. Financial performance remains confidential 2. Partners share management responsibility 3. Partners may have complementary expertise 4. Partners may each contribute financing Cons: 1. Unlimited liability 2. Partners share profits 3. Partners may disagree 4. Potential sources of additional financing remain limited compared to corporations corporations A corporation is a for-profit business owned by numerous shareholders who enjoy limited liability. Pros: 1. Limited liability 2. Independent legal identity 3. Can raise large amounts of funds by selling shares 4. Death or change in ownership does not have an impact on the corporation Cons: 1. Administratively difficult and expensive to create 2. Potential for conflicts of interest between owners and managers; management may not always act in shareholders' interests 3. Financial accounts must be published every quarter in the case of public limited companies 4. Selling shares dilutes the ownership of the corporation and control cannot be exerted over who buys the shares in the case of a public limited company Non-profit organisations: Non-governmental organisations (NGOs) Non-governmental organisations (NGOs) are non-profit organisations that usually state their purpose or mission as benefiting society or the environment. Charities Charities are non-profit organisations that exist to benefit the public. Charities enjoy tax advantages under UK law. Other organisations and partnerships: Cooperatives A cooperative is an organisation that is owned by its members who come together to work towards a common interest. Microfinance providers Microfinance providers make financial services available to individuals whose needs would otherwise not be met by traditional financial institutions like banks. Public-private partnerships Public-private partnerships (PPPs) are arrangements whereby the public sector enlists the help of a private sector organisation in order to meet its objectives more efficiently. PPPs often involve large infrastructure projects. Social enterprises Social enterprises are organisations that engage in business activity but that have also set themselves important goals in terms of improving society or protecting the environment. Vision and mission statements A vision statement is a written expression of an organisation’s long-term ambitions that it hopes to realise in the future. It is often an optimistic view of what the organisation hopes to accomplish. A mission statement is a written expression of an organisation’s purpose and reason for being. The mission may be seen as a means of accomplishing the organisation’s vision. Aims, objectives, strategies and tactics Aims are goals an organisation would like to accomplish. They may be somewhat broad, optimistic and imprecise. Objectives are concrete targets an organisation sets for itself. They may be formulated in order to accomplish wider aims, and can be developed using the acronym SMART. A strategy is a plan, approach, or scheme for achieving an aim or objective. Strategies are generally considered to involve important decisions that may be risky and are taken by senior management. A tactic is an approach or scheme for achieving an aim or objective. Compared to strategies, tactics usually involve fewer resources and may be less risky. They may therefore not involve senior management because they can be more easily reversed or modified compared to strategies. Ethical objectives and corporate social responsibility (CSR) Ethics: Ethics refers to the moral principles, values and beliefs that shape decision-making and behaviour. CSR: Corporate social responsibility refers to corporations’ obligations to society at large as well as the environment. *different aspects of CSR: Labor relations Environment Community Supplier relations *reasons for setting CSR policies: Developing a talented and productive work force Improving marketing Preparing for the future Avoid damaging publicity Triple bottom line: It refers to a corporation’s results in terms of profit, people, and planet that should be used together to evaluate corporate performance. Shared value: It refers to the potential advantages to both corporations and society of CSR policies The evolving role and nature of CSR: Some companies use the social audit or sustainability report to show that they are CSR. SWOT analysis Pros: Cons: Ansoff matrix Market penetration: Product development: Market development: Diversification: