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Higher Business Management

Business in Contemporary Society

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What is Business Activity?

Using “resources” to produce goods and services which people require in order to satisfy their “wants”.

Any kind of activity that results in the provision of goods and services which satisfy human “wants”.

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Goods and Services

Goods Food Clothing Houses Cars TVs Computers Furniture CD players

Services Hairdressers Insurance Gas and

Electricity Hotels Leisure Clubs Lawyers Banking Education

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Durable Goods

Things that will last a long time and will be used regularly. Cars TV Washing Machines Cookers Microwave Ovens Refrigerators

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Non-Durable Goods

Things that are “consumed” shortly after purchase. Food Drink Clothing Shoes Newspapers Magazines

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Inputs and Outputs

OutputsInputs

Resources

Raw materialsLabour

Machinery‘Organisation’

Goodsand

Services

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Business Activity

TheOrganisation

(Internal)

InputsLand

LabourCapital

Enterprise

OutputGoods

andServices

Marketing

People(HumanResources)

Finance

Production(Operations)

External Influenceseg Competition

External Influenceseg Government Policy

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Factors of Production

Land - raw materials, factory site Labour - people with required

skills Capital - finance to buy

equipment, machinery, computers, etc

Enterprise - organisation of the above factors, risk-taking, ideas

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Cycle of Business

WANTS

IDENTIFICATION

PRODUCTION

CONSUMPTION

WANTS

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Sectors of Industry(Business Activity)

PRIMARY(Extractive)

MiningFishingFarming

Oil

SECONDARY(Making goods)

ManufacturingConstruction

DurablesNon-durables

TERTIARY(Services)

BankingInsuranceTourism

Distribution

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Organisations

Types of Organisation

Private Sector

Profit-making Non-profit-making

Public Sector

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Private SectorOrganisations

Profit-making Sole Traders (1) Partnerships (2 - 20) Private Limited Companies (50) Public Limited Companies (no

limit) Franchises Co-operatives

Non Profit-making Charities and Clubs

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Sole Trader

Advantages Keep all profits Complete

Control Choose Hours

of Work Personal

Service Easy Set-up

Disadvantages Unlimited

Liability Finance

(restricted) No shared

ideas/problem solving

Illness/Holidays

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Partnerships

Advantages Different

Expertise Increased

Capital Shared

Workload Stronger

Position to raise Finance (

Disadvantages Unlimited

Liability Profits Shared

(not necessarily 50/50)

Disagreements Partnership

Agreement

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Limited Company (Ltd)

Advantages Shareholders –

Limited Liability Control

Retained (eg family)

Finance from new shareholders/lenders

Disadvantages Sharing of Profits Legal Procedures Can’t sell shares

to the public Companies Act Copy of Annual

Accounts to Companies House

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Public Limited Company

Advantages Large amount of

capital available Domination of

market Easy to borrow

money Shares can be

resold easily

Disadvantages Set-up Costs – eg

prospectuses and underwriting

Companies Act May become too

large (efficiency) No Control over

Shareholders Annual Accounts

published

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Multinationals

Large businesses with outlets or production facilities in a number of different countries

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Multinationals (Benefits)

Taxation or Grant incentives Lower wage rates Higher skilled workforce Legislation (relaxed) Rate of Corporation Tax Can operate competitively (locally) Increased Market Share Save on costs of transportation Avoiding Trade Barriers Selling Globally (without licenses)

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Multinationals (Costs)

Legislation may be too restrictive Local currency may be weak

(converting profits back) Lack of technical expertise Poor infrastructure Cultural difficulties Political Instability Exploitation (eg low wages) Forcing local businesses out Major functions remain at HQ

usually – close a subsidiary

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Franchise

A business run by one firm under the name of another

The franchisee’s licence permits them to use the franchiser’s name, publicity materials, décor and uniforms etc.

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Franchise

Advantages Entering new

markets quickly Keep a % of profits Protection from

competition Established

reputation Brand name and

back-up services Ideas shared and

all benefit

Disadvantages Reliant on

franchiser to maintain image

Profits shared Strict rules Reputation

depends on the franchiser and other franchisees

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Public SectorOrganisations

Public CorporationsBBC and Royal Mail

Bank of England Local Authority Services

Education, Housing, Police, Social Services

Central Government DepartmentsTreasury, Defence, Health, Employment, Social Services, Environment, Transport, etc

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Voluntary Organisations

To be recognised as a charity must have one of the following as an aim: To relieve poverty Advance education Advance religion Activities beneficial to community

Charities are exempt from paying certain taxes eg VAT

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Business Objectives

Survival Maximising profits Growth Good reputation Maximising sales Satisficing Providing a service Managerial objectives

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Enterprise and the Entrepreneur

Having and developing a business idea

Acquiring the necessary resources Raising the finance to acquire

resources Risking losing the money invested

Anita Roddick, Richard Branson, James Dyson, Martha Lane Fox

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Stakeholders

Individuals or groups of people who have an interest in, and stand to be affected by, the success or failure of an organisation

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Stakeholders

Internal Shareholders/

Owners Managers Employees

External Suppliers Customers Banks/lenders Society/Local

Community National

Government Local Government Taxpayers Donors (Charities)

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Stakeholders’ Interests

Shareholders - dividends, capital growth Managers - job security, fringe benefits Employees - job security, pay and

conditions Suppliers - regular orders, prompt payment Customers - low prices, high quality, good

service Banks - ability to make payments for loans Government - payment of taxes,

compliance with laws Community - corporate responsibility

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Stakeholders’ Influence

Shareholders - voting rights at AGM Managers - day-to-day decisions Employees - possible industrial action Suppliers - period of credit, level of discounts Customers - taking their business elsewhere Banks - granting of loans and rate of interest Government - legislation, equal pay, minimum

wage, etc Community - protest movements, direct action

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Functions of Managers

Planning – action plan

Organising – arranging resources

Commanding – delegation of tasks

Co-ordinating – staff and resources organised to meet plans

Controlling – keeping plans on track

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Skills of Managers

Interpersonal – relationship with others

Informational – gathering, processing and communicating information

Decisional – solving problems and allocating resources

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Sources of Finance

Long-term Capital Share Issue Mortgages Debentures Sale and

Leaseback Venture

Medium-term Bank Loans Hire

Purchase

Short-term Overdrafts Factoring Trade Credit Grant

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Government Help for Businesses

Local Enterprise Companies Education/Business Partnerships Business Start-up Scheme Loan Guarantee Scheme Reduced rate of Corporation Tax Zero Rating (VAT) on Exports Dept of Trade and Industry - advice,

Trade Fairs Export Credit Guarantee Department EU - Regional Development Funds

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Other Sources of Help

The Prince’s Youth Trust - help for young people to set up in business

Local Authorities - ‘small business advisers’

Trade Associations - ‘Association of Small Businesses’, ‘Scottish Motor Trade Association’, ‘ABTA’, etc

Local Chambers of Commerce

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Methods of Growth

Integration - 2 firms combining to become bigger

Merger - integration on equal terms

Take-over - one firm’s identity is lost in the take-over. Can be ‘friendly or hostile’

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Integration

Horizontal - firms at the same stage of production

Vertical - forwards towards the customer and backwards towards the raw materials

Lateral - firms with related goods not in competition with each other

Conglomerate/Diversifying - firms operating in completely different markets

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Reasons for Growth

Eliminate competition/increase market share

Achieving greater economies of scale Security from hostile take-over - more

assets Cutting out “middlemen” Securing sources of raw materials Controlling distribution of products Spreading risks - ‘not having all eggs in

one basket’ Smoothing seasonal fluctuations in sales

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De-integration

De-integration - conglomerate selling off firms to concentrate on “core” business

De-merger - subsidiary companies splitting away from the parent company and operating on their own

Divestment - selling off companies Contracting out/out-sourcing - getting

other companies to do work on your behalf Management buy-out/buy-in - usually a

struggling company sold to a management team

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Business as a “System”

Inputs - raw materials and other resources Processes - transformation into goods Outputs - the finished product/service to

be marketed Feedback - the reaction of the market

A system is made up of 4 inter-dependent parts:-

Any system is affected by the environment in which it operates

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Internal Pressures to Change

New personnel or management

New technology (the internet) Change in financial position

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External Pressures to Change(the ‘PEST’ analysis)

Political/legal (legislation, planning, devolved Parliament, etc)

Economic (interest rates, foreign exchange rates, the Euro, etc)

Social (ageing population, role of women, greater general prosperity)

Technological (e-mail, internet) Environmental Competitive