Transcript 1.1 Nature of business activityx

1.1Nature of business activity
Business and management
Introduction to business(Definitions)
• A business is an activity that generates output in the form
of goods or services or a combination of both.
• An organization or enterprising entity engaged in
commercial, industrial or professional activities. A business
can be a for-profit entity, such as a publicly-traded
corporation, or a non-profit organization engaged in
business activities, such as an agricultural cooperative.
• Businesses include everything from a small owner-operated
company such as a family restaurant, to a multinational
conglomerate such as General Electric.
THE NATURE OF BUSINESS ACTIVITY
• The nature of business activity inevitably
varies from country to country and reflects the
needs and resources of the local environment.
• However, organizations are increasingly being
operated in a way that considers the
international perspective, cultural diversity
and the need for international cooperation.
Opportunity cost
• It is defined as the best alternative that is forgone
when making a decision.
• If the workers on a farm can produce either one
million pounds of wheat or two million pounds of
barley, then the opportunity cost of producing
one pound of wheat is the two pounds of barley
forgone (assuming the production possibilities
frontier is linear). Firms would make rational
decisions by weighing the sacrifices involved.
http://www.bized.co.uk/sites/bized/files/audio/opp
ortunity.mp3
Case study: Business opening hours
In the mid 1990’s supermarkets in
the UK went against government
advice and began to trade on
Sundays. They had realized the
opportunity cost of being ‘closed’
on Sundays. They were fined for
this, as Sunday trading laws had
not been enacted, but the fines
were so insignificant compared to
the revenues being made that the
supermarkets continued opening
on Sundays. McDonald’s has
followed such practice by opening
24-hour stores around the world.
Some banks in Hong Kong are
open for business on Sundays.
• 1.Define the term ‘opportunity
cost’.[2 marks]
• 2.Examine the reasons why
opportunity cost is important in
business decision making.[6
marks].
FOUR FACTORS OF PRODUCTION
• A business uses a combination of inputs to make
the outputs or goods and services that it creates
and sells.
The inputs or `factors of production` are:
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Land
Labour
Capital
Enterprise or Entrepreneurship
Includes Money in
Business Studies
FACTORS OF PRODUCTION
Land
• Businesses will need space to operate from.
• Even an internet organization will need some
office space.
• In any additional to `land` referring to physical
premises, the word `land can be extended to
mean any natural resource in Economics.
• Eg: Fish in the `sea` can be classified as land.
FACTORS OF PRODUCTION
Labour
• All businesses use varying degrees of labour.
• A labour intensive business is one that has a
high proportion of labour inputs. This
category might include potato or pea farms,
restaurants and call centres.
FACTORS OF PRODUCTION
Capital
• Capital input covers both money and
machinery.
• A capital intensive business is one that has a
high proportion of its inputs as machinery.
• Examples might be automated car production
plants and bulk chemistry processing
FACTORS OF PRODUCTION
Enterprise or Entrepreneurship
• This final input is the key factor of production
as it is the entrepreneur or business person
who harnesses the other inputs effectively to
create added value for consumers and profit
for the owner.
FACTORS OF PRODUCTION
Enterprise or Entrepreneurship
• If the owner or manager of the business has
not got the drive, energy and determination
to succeed then it does not matter how good
the other inputs are, the business will
probably underperform.
BUSINESS OUTPUTS
• The outputs of a business are dependent on
the quantity and quality of the inputs and how
they are combined.
• Outputs can be finished goods ready for
movement to the wholesalers and shops or
they might be component parts that other
manufacturers will need to make a product.
BUSINESS OUTPUTS
Examples
Example
• A ball bearing manufacturer will find its
components are included in a diverse range of
finished goods. This could include washing
machines, conveyor belt systems in coal mines
and consoles for aircraft.
• An output can also be service related, for
example – a meal in a restaurant or the dry
cleaning of a suit.
“Specialization”
• A method of production where a business focuses
on the production of a limited range of products or
services for the sole objective of gaining greater
degrees of productive efficiency ,quality and cheap
products . This specialization is the basis of global
trade.
Examples of
Specialization
• Specialization occurs within the United States, as citrus goods
naturally occur in the warmer climate of the South America
and West America, many grain products come from the farms
of the Midwest and maple syrup comes from the maple trees
of Vermont and New Hampshire.
Specialization when referred to production, when in a
factory an assembly line is organized in a specialized manner
rather than producing the entire product at one production
station.
ADVANTAGES OF SPECIALIZATION
1.
2.
3.
4.
5.
6.
Workers become specialized in a particular field.
The production of goods is quicker.
The cost of production becomes cheaper.
There is quality and solidarity production.
Specialization can help in global trade.
Firms can earn a lot of money through the specialisation in a
specific field as quality can be insured and also supply would
never run short in contrast to demand.
Disadvantages of Specialization
1. The worker is only specialized in one work or field so he does
not develop new knowledge and skills.
2. The training for workers is higher as it has to be specific.
3. Workers would be eventually replaced by the machinery.
4. Unemployment will be caused if the firm specializes the
workers would lose their jobs very easily.
Case study: The business of education
Education is a big business. Schools can earn revenue from
numerous sources, such as tuition fees(for fee paying
schools),grants from the government and fund-raising events. They
might also lease their facilities during weekends and school
holidays. Schools use the revenues to finance their expenditure,
such as staff salaries for teacher and non-teaching staff. Parents
might also have to pay for items such as uniforms,books,sports
equipment and food.
Questions:
1.Define the term ‘specialization’ and give an example of how this is
fond in schools.[3marks]
2.Examine how business functions operate in organizations such as
schools.[6marks]
BUSINESS FUNCTIONS
Business often have four major functional areas:
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Finance
Marketing (including sales)
HR Management
Operations Management (production)
All four departments are interrelated and a
successful business will always try to ensure there
is a good team spirit and communication between each
function.
BUSINESS FUNCTIONS
Finance
• This is the part of an organization that
monitors the movement of funds into and out
of the business, produces accounts, prepares
forecasts or budgets and ensures that
invoicing of customers happens and suppliers
are paid.
• It is a vital function in providing information
for other departments and decision makers.
BUSINESS FUNCTIONS
Marketing (including Sales)
• This area covers market research and
identifying what customers want though to
the designing and packing of the goods and
services offered.
• In addition it looks at deciding the product’s
price and the type of promotion used.
• It would also consider how it is to be
distributed and sold, for example, via
catalogues, websites, shops or even all three.
BUSINESS FUNCTIONS
HR Management
• This covers the recruitment, rewarding,
motivating and training of all staff throughout
the organization.
• It also includes the releasing or redeployment
of staff when necessary.
BUSINESS FUNCTIONS
Operations Management (production)
• This represents the engine room of the
business – its is the production of goods or the
delivery of a service.
• Those working in this area will be looking at
the quality and stock control, methods of
production and productive efficiency.
BUSINESS FUNCTIONS
• To be a good organization you need to have
the best, well motivated and effectively
managed people in all four areas of the
business.
• To be a successful business, the challenge is
making all areas work as one.
Business Sectors
• Business can be classified according to the stage
of production that they are engaged in. The three
main business sectors and occasionally a forth
classification is used:
• Primary Sector
• Secondary Sector
• Tertiary Sector
• Quaternary Sector
• Video link:
http://www.youtube.com/watch?v=s24tfWgNUP0
Source: http://www.regionales-wirtschaften.de/bilder/sectors_of_economy.jpg
Date Accessed: 12th August 2009
BUSINESS SECTORS
Primary Sector
• The sector of the economy that produces
unrefined raw materials (e.g. through mining)
• This covers the basic activity that is involved in
the extraction of raw materials (eg: coal or gold)
and also agriculture and fishing.
• Often such industries are closely monitored by
the government due to:
 The scarce nature of the materials.
 The scarce nature of food services
 The pollution effects of extraction methods.
BUSINESS SECTORS
Secondary Sectors
• The sector of the economy that takes raw materials
and turns them into finished or part-finished goods
(e.g. through manufacturing).
• This economic sector includes industries that create a
finished or useable product.
• These industries generally take the output of the
primary sector and then manufacture finished goods or
components for other industries.
• In recent decades, the secondary sector has declined in
importance for many developed economies because of
a loss of international competitiveness.
BUSINESS SECTOR
Tertiary Sector
• The sector of the economy where businesses provide
services, either to individuals, households or other
businesses.
• This area covers the provision of services to businesses
and individual consumers.
• Its includes the transportation and distribution of
goods, wholesale and retail services, and advisory and
consultancy type-businesses.
• In the developed world this sector has grown in
importance.
• The Netherlands, for example, is one country where
economic output is dominated by services.
BUSINESS SECTOR
Quaternary Sector
• A fourth sector may be identified which
includes organizations providing information
services through ICT.
• Some commentators believe this now applies
to all other sectors, particularly the tertiary
sector.
Chain of production
• The process that raw materials or other
primary inputs go through from the start of
production to the completion or delivery of a
final product or service.
• The three sectors are linked through the chain
of production.
ECONOMIC STRUCTURE
(Higher Level)
• Changes in Economic structure in a country can
have a significant implications for individual
businesses.
• If there is a move towards a service basedeconomy, those still manufacturing will no doubt
be increasingly reliant on importing component
parts.
• Their customers are also likely to be based
abroad and so the business will be vulnerable to
fluctuating exchange rates and also the economic
cycles in the other countries involved.
ECONOMIC STRUCTURE
(Higher Level)
A Declining Secondary Sector-Implications
• The quantity and quality of labour inputs in
this sector will be deteriorating.
• This is because school leavers will be
increasingly moving into the service sector as
this is a growth area.
• The remaining workforce will be aging and
their productivity may decrease.
ECONOMIC STRUCTURE
(Higher Level)
A Declining Primary Sector – Implications
• If there is a move away from primary to
secondary sectors in an economy, the impact on
individual businesses might include less available
labour inputs as the working population is
attracted towards higher-growth sectors.
• It’s possible that businesses will need to become
more capital intensive as a result and invest in
automation or the latest machinery.
Thank you