Ib business topic 1 (1.1-1.6) + swot, steeple, ansoff

4 Business inputs

Land

Labor

Capital

Enterprise

4 Business functions

Human resource management

Finance and Accounts

Marketing

Operations

4 Sectors

Primary

Secondary

Tertiary

Quarternary

Steps to start a business

-Source capital

-Determining a location

-Building a customer base

Common issues of start-ups

-Lack of record-keeping

-Lack of finance and working capital

-Poor management skills

-Changes in business environment

Business plan

Written document that describes a business, its objectives and the market it is in, as well as the financials.

Public Sector

controlled by regional/national governments, and provides essential goods/services

Private Sector

Owned and run by private individuals and organizations that typically strive for a profit

Sole traders

Business owned by a single person

Advantages of sole trader

Quick to create

Retains full control of the company

Decision-making is quick

Disadvantages of sole trader

-Bears all risks and have unlimited liability

-Finance is limited

-Inability to exploit economies of scale

-Lack of continuity

Partnership

Commercial business owned by two or more people

Advantages of partnerships

-Improved continuity

-Partners are able to benefit from having more ideas -and share workloads/responsibilities

Disadvantages of partnerships

-Might be disagreements and conflicts

-Profits must be shared

-Unlimited liability is shared

Private limited company

A company in which shares of it can only be sold or distributed privately, among families or close friends.

Public limited company

A company in which shares of it can be bought by and sold to any member of the public or institution.

Advantages of private limited company

-Control of the company is sustained

-Owners have limited liability

-Continuity

Disadvantages of a private limited company

-Restriction in source of finance, as cannot exploit selling of shares

-Company is vulnerable to takeover

-Lack of privacy

Advantages of a public limited company

-Easier to obtain finance for growth and evolution

-Easier to secure external sources of finance

-Economies of scale

-Limited liability and continuity

Disadvantages of a public limited company

-Lack of control

-Diseconomies of scale

-Alienation of the workforce

Social enterprise

An organization that uses commercial business practices to improve communities, the environment and human well-being rather than profits.

Cooperatives

Social enterprises owned and run by their members, strive to provide a service and to create value for their members, rather than a financial return for their member-owners.

Advantages of cooperatives

-Democratic style of business

-Limited liability

-Members own and control business rather than being governed by external investors

Disadvantages of cooperatives

-Difficult to attract shareholders/members as cooperatives main goal isn't to generate a financial return on investment.

-Limited resources

Microfinance providers

Type of banking service provided to start-ups/low-income earners.

non-profit social enterprises

Organization that acts in a business-like way but does not distribute its profits to owners or shareholders, but uses it to pursue its mission or vision.

Advantages of non-profit social enterprises

-Exempt from paying income taxes and corporate taxes

-Local communities and societies can aid with fundraising and donations

Disadvantages of non-profit social enterprises

-Source of finance is limited, only reliance is donations and external support

-Earnings of workers are often lowered

-Cost and financial control may not be stable as there is no expectation to earn a profit

SMART

Specific, measurable, achievable, realistic, time constrained.

CSR (Corporate social responsibility)

Refers to organization's duties to its internal and external stakeholders by behaving in a way that positively impacts society as a whole.

SWOT Analysis

Management tool to assess where a business is at the present time and how it is affected by external business environment.

Ansoff Matrix

Market penetration: Existing markets and existing products, focuses on promoting product in same market

Market Development: Business sells its existing products in new markets

Product Development: Business introduces new products into existing markets

Diversification: Business introduces new product in new market

Internal stakeholders

Members that are directly in the organization, such as employees, managers, directors and shareholders

External Stakeholders

Not members of a business or organization yet have a direct interest in its operations and performance. Customers, suppliers, competitors, government and local community

STEEPLE Analysis

examines influences in external environment in which a business operates (Social, technological, economic, ethical, political, legal, environment)

Advantages of small organizations

-Enjoy independence in decision-making, freedom to operate independently from the demands of directors and shareholders

-Greater control and ownership of the business

-Closer relationship with customers

Advantages of large organizations

-Greater access to financial resources

-Less likely to fail and lower risk to owners

-Benefit from economies of scale

Internal Growth

When a company grows using its own resources, without involving other organisations

External growth

Business relies on third-party organizations for growth, e.g merger, acquisitions and franchising

Takeover

When one company purchases more than an existing company's shares by 50% in order to own a majority of said company.

Merger advantages

-Range of economies of scale gained through external growth

-Potential to enter new industries and geographic markets

-Could be a way for a business involved in the merger to survive due to its poor cash flow or financial difficulties

Disadvantages of Merger

-Resistance from employees, trade unions, managers and shareholders

-Not always successful and has a lot of risk, especially when entering a new market and diversifying

-Corporate culture clashes, different organizational structures and management styles.

-Diseconomies of scale

Joint Venture

Arrangement between two or more separate parties to pool their resources together to form a new legal entity

Strategic Alliance

Two or more businesses join forces to benefit from growth without any fundamental changes, and does NOT create an external entity.

Advantages of franchising

-Expand the business without the need to raise finance and invest their own funds to make the business grow

-Fast method of business external growth

-Less stress of controlling a multitude of operations in your business, as the franchisee will control.

Disadvantages of franchising

-Very expensive for the franchisee

-Franchisee is charged an annual fee

-Franchisee lacks flexibility in decision making

-Diseconomies of scale can arise

Multinational Company

An organization that operates or owns/controls production in two or more countries, and has a base country for its headquarters.

Fishbone diagram

Diagram that identifies root causes of a problem or an issue

Decision Tree

A diagram that allows managers to visualize possible options and their probable outcomes

Definition of business

A decision making organization who uses resources to create goods/services to satisfy the needs and wants of people

Inputs

Resources uses in production process (labour, raw materials)

Processes

Turning raw goods into manufactured goods

Outputs / Product

Final good / service

Goods

Physical product (car, computer, phone)

Services

Cannot touch. (hairdressing, counseling)

Four factors of production

Land(All natural resources), labour(human effort), capital(manufactured resources), enterprise

4 Functional areas / departments

Human Resources, Marketing, Finance + accounts, Production + operations

Human Resources

Manages people (recruitment, training, dismissals)

External activities / shock

social changes, government policies (sudden oil price change)

Finance and Accounts

Recording and reporting of transactions and documentation. Informs on firm's financial position and performance

Marketing

Ensures product sells through market research, advertising and branding. (Product, price, promotion, place)

Operations management/ production

Management of resources (raw goods) into final product

Customers vs. Comsumers

Customers buy the product, Consumers use the product. Can be the same. (Parent buys food, child eats it)

Capital (goods)

Physical products brought by business to produce other goods. (machinery, tools, buildings)

Chain of production

Transforming raw materials into finished goods (pathway and process) Value is added at every stage

Primary Sector

Involved in extraction/harvesting (farming, mining, fishing,) GOODS

Secondary Sector

Manufacturing and construction (raw materials turned into consumer/capital goods) GOODS

Consumer goods

Goods targeted to be sold at general public

Tertiary Sector

Personal and commercial services to general public (shops, banks) SERVICES

Quaternary Sector

Tech. businesses / knowledge industries (help services) SERVICES

Intrapreneurs

Employees in big companies given resources to produce profitable innovations

Entrepreneurs

Creates a business with all financial and willingness to take high personal risks- unlimited liability. Innovative and passionate.

Business Plan

Written document setting out business goals and how these will be achieved

Problems new businesses face

High start up/production costs, legalities, cash flow, marketing, competition, poor location, poor management

Reasons to start up business

GET CASH - Growth, earnings, transference, challenge, autonomy, security, hobbies

Sectoral Change

Shift in relative share of gross domestic product (or national output) and employment that is attributed to each business sector - ((when country shifts sectors))

Needs

Basic necessities (food, water, shelter)

Wants

People's desires, things they would like to have

Charities

Non-profit social enterprises, voluntary support for good causes (protection of children, animal shelters ect.)

Co-operatives

For-profit social enterprises with social mission. In Public Sector. Owned and run by members (can be employees or customers) Want to make profit (run like a company) - limited liability

Incorporated organizations /Company

Private sector. Business that is owned by shareholders. Separate entity. Limited Liabilities. EX: Private/public companies, Joint-stock. Legal continuities. Becoming company is expensive and lots of documentation.

Deed of partnership

Legal contract signed by owners of a partnership (responsibilities, share of profits/losses of each partner)

Incorporation

Legal difference between owners of a company and business. Ensures owners are protected by limited liability

IPO - initial public offering

When business frist sell all/parts of to shareholders on the stock exchange

Limited liability

Restriction on amount of money owners can lose if the business goes bankrupt *cannot lose more than they invested

Vision statement

Very long term goal, aspiration, desires of an organization

Mission statement

Purpose, values, beliefs of organization. Can be changed frequently

Aims

States what organization want, long-term goal

Objective

Targets in order to achieve aim. Short-term (SMART)

Business Strategy (Strategic aims)

Plans of action, Long-term method to achieve objective (Survival, growth, reputation, increase profit, revenue maximisation)

Tactics

Short-term methods to reach objectives

Corporate social responsibility (CSR)

Behaviors of organization, social impact, Code of Practice (published) positive role in environment *reputation

SWOT Analysis

To build on their strengths to take advantage of new opportunities.

Strengths - internal (skills, selling point, location, loyalty)

Weakness- internal (location, finance, resources)

Opportunities- external (new market, developments)

Threats- external (recession, legalities, publicity, natural disaster)

Ansoff Matrix

Helps understand and assess growth, potential, risks.

Market penetration (AM)

Existing product to existing customers (price, promotions, selling points, increase loyalty)

Product Development (AM)

New products to existing market (new model of cars)

Market Development (AM)

Existing products to new market (new countries)

Diversification (AM)

New products to new customers (riskiest strategy and most expensive)

SMART goals

Specific, Measurable, Achievable, Relevant/Realistic, Timely

Business ethics (what, benefits, costs)

- Creates a unique selling point

- Interactions with stakeholders, treatment of employees + customers

- Employee motivation

- Improved recruitment

- Positive consumer reaction

- Attractive to investors

- Can raise costs (lower profit margin)