IB Business Unit 1 - Intro To Business Management

Factors of production

The four components required to effectively carry out business practices; they are remembered by the acronym CELL

CELL

Capital - The man-made resources that are required in the business (eg. machinery, finances, infrastructure)

Entrepreneurship - The knowledge and ability of an entrepreneur to take risks, manage the business, and make the most effective decisions

Land - Natural resources required

Labor - The workforce required to carry out the business processes

Added value

When a business creates a product that is worth more than its cost to produce (selling price - direct costs)

Business functions

HR, Finance and accounts, Marketing, Operations management

Sectors of the economy

Primary - Business activity surrounding the extraction of natural resources (mining, fishing, lumber work, farming)

Secondary - Processing raw materials into sellable goods (car factories, food/drink factories like Coca Cola and pre-packaged foods)

Tertiary - AKA the service sector, provides services to consumers (restaurants, teaching, tour guides, car services, spas, barbers)

Quaternary - Involved with the creation and sharing of information (technology development, NASA, software developers)

Business plan

A document consisting of the financial, marketing, operations etc. details of a business as well as its goals; helps determine the needs and direction, make informed and objective decisions, and to attract investors

Public sector

Businesses in this sector are managed by the government and usually aim to tackle social problems/benefit the public such as the provision of water and electricity, education, and emergency services

Private sector

Businesses in this sector are owned by individuals (or groups of individuals) and usually aim to make a profit, this sector includes sole traders, partnerships, MNCs, franchises and limited liability companies

Vision statement

WHat a business ultimately aspires to be in the future; contains its core values and acts as a guide for future strategies; tends to be more broad and abstract

Mission statement

A declaration of the organization’s purpose, identity, and focus; tends to be more narrowed and focused

Aims of a business

Long term goals that are not as specific; they can serve as a guide for strategic plans

Business objectives

Goals that are based off of the acronym SMART, they are more specific and can range from short to long term depending on the goal itself

STEEPLE

External factors that can affect the business - Social, Technological, Economic, Environmental, Political, Legal, Ethical

CSR

Corporate Social Responsibility - refers to the ethical ways in which the business operates in order to benefit or at least minimize the negative effect of their activities

Ansoff’s matrix

A planning tool that helps a business create effective market growth strategies

Market penetration

Putting an existing product into an existing market to increase the number of current using customers; not as risky as no new markets/products introduced and therefore not much loss incurred if not successful

Market development

Placing an existing product into a new market, such as tweaking the product slightly or re-branding in order to appeal to a different social group; slightly risky as operating in new market with competitors that likely have higher market shares = uncertainty

Product development

Creating a new product for an existing market; higher risk because high cost of RD can incur significant losses if not successful, helps the business increase or remain competitive to keep up with competitors and market

Diversification

Introducing a new product to a new market; highest risk as cost of market research and RD high + competitors in market already have higher market share so diff to obtain (loyal) customers

Economies of scale

Benefits that arise when a business becomes larger, they decrease the average cost per unit by spreading costs

Types of internal EOS

Financial (easier to source finances as banks view larger businesses as lower risk), marketing (spreads cost of marketing over more products), managerial and specialist (can afford to higher specialized workers = higher efficiency and productivity), technical (more machinery and special tools used can save costs in the long-term), purchasing (buying in bulk can lead to discounts), risk-bearing (diversification and new products are less risky as other income streams can make up for losses incurred)

Types of external EOS

Location (infrastructure in place to support the business such as transportation + availability of specialist labor in that industry), technology (development of new technology allowing for more efficient processes)

Diseconomies of scale

When a business experiences inefficiencies due to its larger size, resulting in higher average costs per unit

Types of internal DOS

Communication (large businesses tend to have long and narrow organizational structures making communication inefficient and slower and prone to miscommunication), bureaucratic (excessive administrative work can slow down business processes)

Types of external DOS

Transportation (traffic and overcrowding in business districts), real estate costs (increasing value of land due to high demand in growing business districts), labor costs (increased cost of labor due to demand and labor shortages)

Ways of measuring business size

Sales turnover, profit, number of employees, market share, market capitalization (value of the business)

Benefits of small organizations

Able to operate more flexibly/owners have more control over their business, more privacy as financial accounts are not required to be made public, can operate in niche profits with less competitors and high profit margins, can afford to be more familiar w customers = better personal relations

Internal growth

When a business expands using only its own efforts and resources such as retained profits

External growth

A method of growth that uses outside partner organization to help expand the business

Types of external growth

Mergers and acquisitions, strategic alliances, franchising, takeovers, joint verntures

Merger

Company A + Company B → Company AB, two businesses combine to become one entity, very high risk due to corporate culture clash and high observed failure rate

Acquisition

Company A purchases a little over 50% of the stocks of Company B so that B is a subsidiary of A, they are still separate legal entities but A is parent company of B

Takeover

Company A offers to purchase company B usually for higher than their stock market price

Joint venture

Company A + Company B → Company C, two companies create a new and separate legal entity which they both own; lower risk as capital is spread over two businesses

Strategic alliance

Two or more businesses contractually agree to work together for a common goal, no new legal entity is created

Franchising

Franchisors allow their franchisees to use their name and business model