BM Topic 1.1 (1/4): The Nature of Business

Topic 1.1 BM - What is Business? [Subtopic 1/4 : The nature of business]

Why do businesses exist?

Why do businesses exist?

To satisfy the needs and wants of their customers by selling goods and services, usually in return for profit by combining human, physical, and financial resources.

**There may be additional or alternative objectives, such as survival, increasing their market share, being the market leader, or being a socially responsible business.

Define ‘business’

a decision-making organization established to involved in the process of using inputs to produce goods and/or provide services

Define ‘goods’

tangible, physical products (e.g. smartphones, foods, clothes)

Define ‘services’

intangible products (e.g. haircuts, tourism, public transport, banking, education, healthcare, insurance).
- inseparable: service received is attached to the people who deliver the service & the processes used to deliver service
- perishable: services do not last but are usually consumed at the time of purchase
- variable: services are heterogeneous, i.e. each customer experience is unique

What are the ‘factors of production’?

1. Land - natural resources needed to produce goods/services e.g. water, timber, minerals, metal ores, animals. sometimes referred to as physical resources

2. Labour - human effort used to produce goods/services. sometimes referred to as human resources

3. Capital - non-natural (or manufactured) resources used in the production process e.g. tools, machinery, motor vehicles, physical premises, infrastructure. as these are funded by money, sometimes referred to as financial resources

4. Entrepreneurship - knowledge, skills & experiences of individuals who have the capability to manage the overall production process. entrepreneurs have the ability and willingness to take risks in order to produce goods and provide services to customers, profitably

What functions must a business carry out in order to provide to provide goods & services?

1. Human Resources

2. Finance & Accounts

3. Marketing

4. Operations Management

*entrepreneurs of smaller businesses such as sole traders are likely to have to carry out these functions by themselves

What is ‘human resources’ & what do they do?

1. the HR department is responsible for managing all aspects of business operations related to staff (personnel) /workforce within an organization.
   - e.g. recruitment, induction, training, development, appraisal, promotion, remunerating (rewarding) and dismissal of staff.
   - HR resource planning, organizational structures, management and leadership, motivation & demotivation, dealing with industrial/employee relations

2. The HR Department must also comply with legal aspects of the external business environment. It must observe different labour laws in all the countries it operates in
   - e.g. minimum wages, working hours, gender equality, equal opportunities, and anti-discrimination.

What is ‘finance & accounts’ & what do they do?

The finance and accounts function of an organization refers to the responsibility for ensuring that the business has sufficient funds in order to conduct its daily operations.

Essentially, the finance and accounts department is responsible for managing the organization’s money and maintaining accurate accounts (financial records) of the firm’s funds, ensuring compliance with legal requirements (e.g. filing corporate taxes) & informing those interested in the financial position of the business (e.g. shareholders & potential investors)

What is ‘marketing’ & what do they do?

Marketing is about identifying the needs and wants of customers so that the business can provide goods and services to meet these requirements and desires, usually in a profitable way. *in charge of ensuring the firm’s products sell

Marketing activities include:

• Market research to discover the products that customers want, in an ever-changing and dynamic business environment

• Determining appropriate pricing methods to sell the products

• Promotion to inform and persuade customers about buying the products (drive sales)

• Distributing the products to customers efficiently.

• Build strong customer relationships, brand image, PR

• Setting prices for the firm's products

What is ‘operations management (production)’ & what do they do?

functional area of business responsible for the process of converting raw materials & components into finished goods, ready for sale & delivery to customers (e.g. extraction of crude oil, car manufacturing, provision of travel & tourism services)

• It involves ensuring that goods and services meet production targets, deadlines and certain quality standards.

Why might a business produce new goods/services?

numerous reasons including new tastes and preferences of customers, changes in technology, and some goods and services becoming obsolete. To stay competitive businesses may also introduce new goods or services or adapt existing products to fill gaps in the market.

Define ‘customers’

the people or other businesses that purchase goods and services. They are willing to pay to buy certain goods and services because the production process adds value to the final products.

What is ‘adding value’?

the process of producing a good or service that is worth more than the cost of the resources used to produce it.

• enhancing a product or service's worth by improving its features, quality, or utility, thereby increasing its appeal to consumers. This can involve innovation, better customer service, or efficient production methods, ultimately leading to higher sales or customer satisfaction.

What are some ways businesses can add value?

1. Improving Product Features: Enhancing functionality or design (e.g. more features or colours)

2. Quality Enhancement: Using better materials or processes.

3. Innovation: Introducing new technologies or ideas.

4. Customer Service: Providing exceptional support and engagement.

5. Efficient Production: Streamlining operations to reduce costs and improve quality.

6. Customization: Offering personalized products or services.

7. Branding: Building a strong brand identity that resonates with consumers.

8. Convenience

9. Unique Selling Point

Inputs & Processes?

1. inputs are the resources that a business uses in the production process such as labour & raw materials

2. this process generates outputs (aka products)

Difference between customers & consumers

Customers - the people or organisations that purchase a product
Consumers - the people who actually use the product

** these may be the same or different entity (e.g. person who buys and consumes a meal is the same entity but a parent who buys a product for their child to use is 2 separate entities)

Define “consumer goods”

products sold to the general public rather than to other businesses

• can be further categorized into
  1. consumer durables: products that last a long time and can be used repeatedly e.g. phones, motor cars, furniture)
  2. non-durables: those that need to be consumed shortly after their purchase as they do not last or cannot be used (e.g. food, medicine, newspapers)

Define ‘capital goods’ (or ‘producer goods’)

physical products bought by businesses to produce other goods and/or services (e.g. computers, buildings (premises), specialist equipment, machinery