Nature of Business Business Purpose of Business Activity • A business is an organisation that uses resources to meet the needs of customers by providing a product or service that they demand. • Businesses identify the needs of customers. • They purchase necessary resources to allow production to take place. • Produce goods and services which satisfy customers’ needs with a profit. Factors of Production • • • • Land Labour Capital Enterprise The Concept of Adding Value • All businesses aim to create value by producing goods and services and selling them for a higher price than the cost of bought-in. • Jewellery • Sweet Manufacturer Activity • How to add value • Explain two ways in which the following businesses could add value to the goods they buy in: – Hotel – Car dealer – Clothing manufacturer – Fast-food restaurant Opportunity Cost • Purchase or obtain one item,we must give up other goods. • Exists for all economic decision-makers • What would you give up? Dynamic Business Environment • • • • New competitors Legal changes Economic changes Technological changes Why do some business succeed? • Good understanding of customer needs • Efficient management of operations • Flexible decision-making to adapt new situations • Appropriate and sufficient sources of finance Why do some business fail? • Poor record-keeping • Lack of cash • Poor management skills Local National International Businesses Multinational Businesses Strategic Decisions • Long-term • Difficult to reverse once made • Taken by directors and/or senior managers • Cross-functional Tactical Decisions • • • • Short to medium term Reversible Taken by less senior managers Impact on one department Multinational drinks company • Switch from cans to plastic bottles Supermarket business • Start selling non-food items, such as clothes Steel-making company •Recruit production supervisors internally, not externally Holiday tour operator •Increase prices of holidays to a popular destination Major computer manufacturer •Develop a range of advanced mobile phones with internet capability
