DIP 14/02 – Introduction to Small
Business Management
Lim Sei Kee @ cK
Discussion Qs [In a group of 5]
• 1. What is a business?
• 2. What are the differences between goods and
services?
• 3. Provide at least five examples of goods & services.
• 4. Define ‘stock’.
• 5. Who is a supplier?
What is a business?
• A business can be defined as an organization that
provides goods and services to others who want
or need them.
So, what are goods and services?
• Goods are tangible things that are produced,
bought or sold, then finally consumed.
• Examples:
• A. HOME: microwave, flat-screen television,
Nintendo Wii console.
• B. SCHOOL: projector, desktop, white board.
Services
• Services are activities that other people or
businesses do for you.
• When you book a holiday, visit the hairdresser or
eat in a restaurant you are consuming one or more
services.
• Services are sometimes referred to as intangible, in
the sense that you cannot touch or handle them.
• Q: Think about the money that you have spent
recently. Did you buy a good or pay for a service?
• There are some important differences in the skills
required to run a business making goods
compared with services.
GOODS
• Requires a production location – factory
• The output from production is stock – which
can be transported and/or stored for future
sale
• Production costs will include the costs or raw
materials and other inputs into the production
process
GOODS
• Requires close liaison with suppliers
• Quality can built-in to the product through good
design and production processes designed to
ensure the right quality is achieved
• Quite costly to set up. The production process
needs to be in place and working before goods
can be produced.
SERVICES
• The location is where the service is provided – either
physically (e.g. a builder) or virtually (e.g. telesales
or via a website)
• Service is delivered at a point in time – it cannot be
stored! A shop has to be open to sell. A hairdresser
has to be there to cut hair
• The main cost of a service business is the people
involved
SERVICES
• Require high levels of customer satisfaction
• Quality is measured by the quality of
customer service. Harder to manage
Production Process
• Businesses provide goods and services.
• To be able to do this, they need to be able to
turn inputs into outputs.
• This is known as the production process.
Production & operations:
The transformation process
• A good way to think of a business is to imagine
inputs entering an imaginary black box.
• What come out of the box are outputs.
• The black box is the business – what is does
how it does it and so on.
• A business needs resources in order to trade.
• The activities of a new business should be
designed to turn those resources into products
and services that customers are willing to pay for.
• This process is known as the “transformation
process”.
Inputs into the production process include:
• Labour
• Land
• Capital
• Equipment
• Raw materials
• Enterprise
• Suppliers
Labour
: employees providing their time, effort and skills
Land
: the natural resources that are used by the business –
e.g. actual land, energy, and other natural resources
Capital
: capital includes physical assets such as machinery and
computers.
Capital can also include finance – the investment that is
required in order for the business activities to take
place.
Equipment
: machinery, buildings, computers and all the other
Raw materials
: Physical substances used as inputs (e.g. steel, energy,
ingredients)
Enterprise
: The creative energy and force that gets a business
started and drives it forward.
The entrepreneur takes the decisions about how much
capital, what kind of labour and how & when they are
needed in the business.
• Many of the inputs into the production process are
provided by suppliers.
• Suppliers provide the goods and services that a
business needs in order for it operate.
What about outputs, then?
• The outputs of business activities are reflected in the
products and services sold to customers.
• Traditionally, the outputs from the transformation
process will fall into these three groups:
• Primary
• Secondary
• Tertiary
• Primary
• Extraction of natural resources (e.g. oil, gas) and farming
activities
• Secondary
• Production of finished goods and components (e.g. flatscreen TVs, computer memory chips, games consoles,
industrial equipment, motor vehicles.
• The secondary sector is also often referred to as the
“manufacturing sector”.
• Tertiary
• Providing a service of some kind. E.g. health, travel, legal,
finance, building, security.
• Think of this as any business activity that involves people
doing things for you!
• It is possible for a single business to be operating in
more than one sector.
• For example, many farms in Britain (farming =
primary sector) also offer holiday accommodation
(tertiary sector) and produce processed foods such
as cheese and ice-cream from farm supplies
(secondary sector).
Outputs from production process
• The outputs from the production process are the
finished goods and services.
• Outputs are bought by customers – the people who
pay. Customers are often, but not always the same as
consumers.
• Consumers are the actual users of the goods or
service. For example, a parent might buy a
PlayStation 3 console game for a child. The parent is
the customer; the child is the likely consumer.
DIP 14/02 Exercise
• 21 MCQ
• Complete it individually.