Business - Full unit 1

business

an organization that satisfies the needs and wants of customers by selling goods and services, usually for profit.

solves problems and profits from the solution by creating added value.

customers

people or other businesses that purchase goods and services

willing to pay because production adds value to final product

added value

producing a product or service worth more than the cost of its inputs (process stage —> added value)

set up cost

costs paid when starting a business or before it begins operating

—> one-off, often large payments

start up capital

initial sources of finance required to open a business

start up business

a new business formed to bring a new commercial idea, good or service to market

(equipment, furniture, legal and registration fees)

fixed costs

costs that do not change when output changes (short term)

(rent, insurance, salaries, property tax)

variable costs

costs that change as output changes

(raw materials, packaging, production electricity)

goods

physical (tangible) products

services

intangible products

capital goods

goods other businesses use to produce their own products

(sold B2B)

consumer goods

goods used as the final product by the consumer who bought them.

(sold B2C)

visionary

an entrepreneur with foresight who drives the organization’s growth (sees or sets market trends before they happen)

entrepreneurship

Entrepreneurship is the process of identifying a business opportunity and taking risks to establish and manage a new business.  

entrepreneur

individual with an idea and skill who starts and runs a new business using own resources and takes financial risk to earn profit.

ad: high potential profit, independence and control: own decisions

disad: high financial risk; may lack funds; competition and rising costs; lack of knowledge can cause failure

intrapreneur

employee who develops a new business idea or venture within an existing company.

ad: less financial risk; job stability; promotion chances or stke in the venture

disad: lower rewards; less control and independence; internal conflict or company restrictions

labour-intensive

relies heavily on human workers rather than machines; most of the budget goes on wages (restaurants, law firms, hair salons, hotels —> service)

ad: flexible; personalized service; lower initial investment

disad: high labor costs; lower productivity; inconsistent quality; workers need managing

capital-intensive

relies heavily on machinery and technology; most of the budget goes on buying and maintaining capital assets

(car manufacturing, oil mining)

ad: higher productivity; lower labor costs; consistent quality; can run long hours

disad: high set-up costs; less flexible; maintenance costs; technology becomes obsolete

factors of production

1. land

2. labor

3. capital

4. entrepreneurship

land

raw natural resources that are to be processed into products (goods and services); some can be sold as is

(water, sand, minerals, animals)

labor

human effort used to produce goods and services (skilled and unskilled)

(workers, managers)

capital

Man-made resource used in production. Both physical and digital tools that are directly related to the production of the service.

(tools, machinery..)

entrepreneurship

identifying an opportunity and taking risks to set up and manage a new business

business departments

human resources (HR): manages the workers and complies with employment law.

accounting and finance: manages the money; ensures enough funds for daily operations.

marketing: identifies customer needs and wants and meets them profitably.

operations: turns resources into goods and services to meet customer needs.

all four are interdependent:

For example, a marketing campaign needs finance approval, production changes with market research, and HR supplies the people for every department.

sectors in industry

1. primary

2. secondary

3. tertiary

4. quaternary

primary sector

extracts natural resources from the environment

(farming, fising, forestry, mining, oil and gas)

raw materials; often B2B so consumers rarely recognize the firms; workers paid less than secondary

added value: low

low-income economies

secondary sector

processes and manufactures raw materials into finished or semi-finished goods

—> transforms primary output

(car manufacturing, construction, food processing, tailoring)

added value: slightly higher

middle-income economies

tertiary sector

provides services to consumers and other businesses

(intangile, often B2C and brand-reliant)

(retail, banking, transport, tourism, healthcare, education)

added value: very high

high-income economies

quaternary sector

provides knowledge-based and information services

—> research, technology, information, specialist knowledge; tech-oriented

(R&D, biotechnology, consultancy)

added value: extremely high

retail businesses (tertiary)

sell goods directly to consumers

service business (tertiary)

provide services such as banking, transport, insurance

starting a business

1) Write a business plan

2) obtain start-up capital

3) register the business

4) open a business bank account

5) hire

6) marketing

7) operations

why people start businesses

Money, autonomy (be their own boss), challenge, passion, family ties, unfilled market gap, making a difference, unable to find employment

Business plan

Written document explaining a business's goals, business model and how it will achieve them; used to attract investors and lenders

ad: Gives direction; helps secure finance; identifies problems early; lets you compare actual results with forecasts

disad: Time-consuming and expensive; forecasts may be inaccurate; false sense of security; may restrict flexibilitydisad:

types of organization

1. public sector

2. private sector

public sector

owned and controlled by the government; provides essential goods and services

—> serves the public; not necessarily for profit

ad: provides essential services even if unprofitable; lower risk for users; creates secure employment; can earn revenue and reduce taxpayer pressure

disad: High opportunity cost (money could be used for healthcare/education; high set-up and running costs; hard to attract private investors; bureaucracy

private sector

owned and run by private individuals or organizations; usually aims to make profit

—> profit for owners and shareholders

ad: Strong profit incentive; faster decisions; more competition; quick response to customers

disad: May prioritise profit over social need; risk of failure; less focus on social goals

nationalization

government buys or seizes a private business

privatisation

government sells a state-owned business to private owners

public-private partnership (PPP)

Private sector provides some funding or resources a public enterprise cannot afford alone

private sector business structures:

1. sole trader —> one owner

2. partnership —> two or more

3. privately held companies —> shares privately owned/not traded on stock market

4. publicly held companies —> shares can be bought or sold by general public on stock exchange

5. social enterprise /cooperation/NGOs

Sole proprietorship/ sole trader (priv sec)

for-profit business owned by one person.

General characteristic: the owner has unlimited liability and is personally responsible for the business’s debts/ or it is the simplest form of business.

partnership

business owned by two or more people who share profits and responsibilities.

General characteristic: partners usually have unlimited liability and share the workload, skills, and finance (even for another partner’s debts)

They come up with a legal partnership agreement on who gets how much of the profit and rules to obey (Sign a Deed of Partnership): responsibilities.

deed of partnership: sets roles, voting rights, and profit shares;

corporation

A business that is a separate legal entity from its owners, meaning it can own assets, enter contracts, and be legally responsible for its debts.

• owned by shareholders through transferable shares

• limited liability

• assets and debts belong to the company

• must write a memorandum and articles of association

privately held corporation

A company owned by shareholders whose shares are not publicly traded on a stock market. 

General characteristic: shareholders have limited liability (if the company goes into debts → only lose the amount they invested in) and the company has greater financial privacy. 

• shares sold privately w approval, limited liability, fewer regulations, accounts not public, limited number of shareholders

publicly held corporation

A company owned by shareholders whose shares can be bought and sold by the general public through a stock exchange.

General characteristic: it can raise large amounts of finance by selling shares, but is subject to greater regulation.

• Must disclose all their financial information to the public → less privacy.

• joined by IPO; no max number of shareholders; must publish audited accounts (quarterly disclosure); strict regulation

memorandum of association

objectives, external activities, who owns how many shares

articles of association

internal rules, roles of executives, shareholder rights

Deed of partnership:

Contract between the partners outlining each of their responsibility, voting rights, and how profits are to be shared between the owners. 

IPO (initial public offering)

process a private company becoming public and listed on a stock exchange; long difficult, expensive

social enterprise

organization that aims to solve social or environmental issues, prioritizing these alongside or OVER profit.

for-profit social enterprise

makes profit while addressing a social or environmental issue

non-profit social enterprise

Addresses a social or environmental issue social purpose rather than profit for owners. Any surplus is reinvested.

—> surplus is reinvested; no profit paid to owners; funded by grants and donations; goal often free services

private social enterprise

social enterprise owned and controlled by private individuals or organizations

public social enterprise

social enterprise owned or controlled by government

—> benefits society rather than maximizing profit

cooperative

a business owned and operated by its members.

Characteristic: it is democratically controlled, with members having equal voting rights.

—> aim: to provide cheaper products or services for its members

—> secondary aim: enough profit to survive and innovate

types of cooperative:

Financial (credit union)	takes on role of bank; lower interest and more generous loans; microfinance for people without bank access
Housing	Provides cheaper housing; rent covers upkeep; members vote on new tenants
Worker	Owned and run by workers; priority is safeguarding jobs; often formed when a business is failing
Producer	Usually agricultural; share machinery and pool resources for economies of scale
Consumer	Provides goods or services to its part-owners

NGOs (Non-governmental organization)

Non-governmental, non-profit organisation

Short-term event or long-term issue; can do political and social advocacy; private sector

charity

non-profit organization with narrow focus than an NGO

—> single event or issue; may be politically or religiously affliated; private sector

crowdfunding

Raising money or funding a business by getting small amounts of capital from a large number of people, usually through online websites.

vision statement

Long term aims and highest goals of the business

Broad, abstract, long term; should never change as it holds core values. Vision = future destination

mission statement

Refers to a declaration that highlights the purpose of the organization. It helps guide decision-making and communicates the firm’s values to external stakeholders. 

More specific; current purpose; may change to reflect the current situation. Mission = how we get there

aim

long term goal (vision summarizes it)

business objectives

Clearly defined and measurable targets of an organization, used to achieve its overall goals

strategic, tactical, and operation objective

Strategic Objectives

• Medium to Long-term goals for the whole organization.

• Require greater human and financial resources.

• Set by senior management

• Often focus on survival, growth or profit maximization.

• More difficult to change or reverse.

Tactical Objectives

• Medium to Short-term, specific targets with definite timelines.

• Usually relate to specific departments or areas.

• Set by middle managers

• Easier to change or reverse than strategic objectives.

Operation Objectives

• day-to-day target set by floor managers

strategy

long term plan to achieve strategic objectives

types of objectives (extra)

Types of objectives	Meaning
Common objectives	Growth, profit, protecting shareholder value, ethical objectives
Strategic types	Profit maximisation (higher dividends), growth, market standing, image and reputation
Tactical types	Survival (limited recognition, competition, recession, hostile takeover); sales revenue maximisation
Profit	Sales revenue minus total costs. A firm can be profitable but still have liquidity problems and go bankrupt
Shareholder value	Protected through survival, profit, growth, market share and CSR; CEO and board are responsible

4 common business objectives:

• Growth

• Profit

• Protecting shareholder value

• Ethical objectives 

why objective changes:

internal: Leadership change; HR (unions, culture); organisation (growth, mergers); product (Apple moving to premium); finance (loans harder after 2008); operations (outsourcing)

external: changes outside the business such as COVID-19 and distance learning

economic cycle —> important vocabs

Growth (improving), boom (best), recession (falling), trough (worst) affect which objectives suit

Corporate social responsibility (CSR)

is the responsibility of a business to make decisions and take actions that have a positive impact on society, stakeholders, and the environment.

Characteristic: It considers the social and environmental impacts of business activities, not just profit.

Why CSR is Important

• Improves corporate image and reputation —> competive advantage

• Builds customer loyalty —> Customers/consumers tends to buy brands that aligns with their values

• Consumers are more likely to stay loyal and will be more willing to pay a premium if they feel like they are doing good (added value: Feel good)

• Improves employee morale, motivation and retention —> more productivity.

• Helps protect shareholder value and strengthen stakeholder relationships

• Supports the triple bottom line: people, planet, profit

❌ Limitations of CSR

• High compliance costs → ethical practices can increase costs.

• More bureaucracy → CSR policies can slow down decision-making.

• Stakeholder conflict → higher costs may reduce profits, causing conflict with shareholders/investors.

business ethics

Moral guidelines that determine how a business behaves.

Ethical objectives

Goals based on moral principles considering stakeholder impact.

Ethical code of practice

Formal document outlining how a business should behave

STEEPLE

social

technological

economic

ecological

political

legal

ethics

STEEPLE def

tools to analyze external factors that may affect a business

ad: Finds opportunities and threats; improves decisions; anticipates change; helps long-term planning

disad: Factors hard to predict; time-consuming; information goes out of date; gives no solution

Flexible firms succeed; early adapters gain first-mover advantage (brand recognition, loyalty, market share)

4 common business objectives:

• Growth

• Profit

• Protecting shareholder value

• Ethical objectives 

why its important to change/react

Businesses that are flexible and adaptable are generally more successful. 

• Being an early adapter gives you First Mover Advantage.

• Early adapter: first or one of the first to change. 

• First mover advantage: being first to market often means greater brand recognition and more customer loyalty. Usually first to capture a large market share. 

SWOT

strengths: internal (strong brand, skilled staff, loyal customer)

weaknesses: internal (high costs, lack of finance, outdated tech)

opportunities: external (business could use to grow) (new markets, new tech, weaker competitors)

threats: external (cld harm the business) (new competitors, recession, law changes)

ansoff matrix

1. market penetration

2. market development

3. product development

4. diversification

market penetration

sell more of existing products in existing markets (promotion, competitive prices loyalty)

market development

sell existing products in new markets or segments

product development

develop new or improved products for existing market

diversification

new products in new markets (riskest)

Related diversification: 

-business enters a new market/product area that is related to its existing industry or expertise. 

Unrelated diversification:

-business enters a completely different industry or market with little connection to its existing market.

linear model

Take, make, use, dispose

• Businesses use virgin resources (new/freshly harvested resources) to make products.

• Consumers use the products.

• Products are usually thrown away in landfills after use.

• This creates a disposable society, where consumers are used to buying, using, and throwing away products.

Cradle-to-grave

Examines a product's whole life from resources to disposal

planned obsolescence

Designing a product to become outdated or unusable after a period

circular model

turns former outputs back into inputs

circular business model:

1. circular supply

2. resource recovery

3. product life extension

4. sharing

5. product-service systems

internal: employee dissatisfaction, intrapreneurship

external: changing social trends, ethical objectives, CSR

Advantages: increased CSR, marketing value, appeals to eco-conscious customers, cheaper packaging.

Disadvantages: costly to change, may hurt in the short term, needs time and resources to plan.

circular supply

replace scarce or finite resources with renewable ones (inputs)

resource recovery

recovery materials from used products and waste (end of life)

product life extension

make products last longer (opposite of planned obsolescence)

repair (fix broken parts)

recondition (rebuild, replace worn parts)

refurbish (restore to original condition)

renovate (upgrade or add features)

sharing

rent or share products instead of owning them

product-service systems

replace physical products with digital services or subscriptions

stakeholders

A stakeholder is any individual, group, or organization that has an interest in, can affect, or is affected by the operations, decisions, or success of a business, project, or policy.

A corporate stakeholder is a party that affects or is affected by the business's actions

Internal stakeholders  

Refer to groups who have a direct relationship with the business. They are involved in the operations and decision making of the business and are directly impacted by the organization’s decisions.

external stakeholders

Refer to groups who have a direct interest in the actions of the business but are NOT part of the business themselves. External stakeholders will reactively respond to the business’s actions.

internal and external stakeholders example

Internal: 

Employees:

• Can greatly impact the business through their motivation and productivity. 

• Aim for fair compensation for their work. 

Managers:

• Drive key business initiatives and often lead various departments. 

• Aim for fair compensation for their work. 

Shareholders: 

• Own part of the business

• Can be an internal or external stakeholder

• Aim for financial return on their investment 

External: 

Customers: 

• The greatest driver of business’ success 

• Aim for value for money 

Suppliers: 

• Can determine what credit terms or discounts are offered to the business 

• Aim for regular orders and prompt payments 

Government:

• Regulates businesses through laws, taxes, and policies.

• Aims for businesses to obey the law, pay taxes, and contribute to economic growth.

Pressure groups:

• Influence business decisions by raising awareness of social, ethical, or environmental issues.

• Aim for businesses to change their practices to support their cause.

Competitors:

• Compete with the business for customers, market share, and profits.

• Aim to increase their own market share and profitability.

stakeholders conflict

Definition: Conflict occurs when different stakeholder groups have mutually exclusive or incompatible interests.

Consequences: If not managed, conflict can lead to prolonged disagreements, disputes, and arguments in the workplace.

Stakeholder groups	Conflict of interests
Employees vs Shareholders	Employees demand higher wages, increasing production costs and reducing profits available for shareholder dividends.
Managers/Directors vs Shareholders	Managers demand large bonuses, reducing profits available for shareholder dividends.
Shareholders vs Managers	Shareholders demand higher dividends, leaving less retained profit for managers to invest in production and marketing improvements.
Customers vs Shareholders	Customers want lower prices, reducing profit margins and potentially lowering shareholder returns.
Employers vs Employees	Employers invest in new technology to improve efficiency and productivity, but this may cause job losses for employees.
Local Community vs Other Community Members	The community wants businesses to create local jobs and act responsibly, but business activities may cause congestion, noise, and air pollution.

• Employees vs owners: Employees want higher wages, while owners want to reduce costs and increase profits.

• Customers vs owners: Customers want lower prices, while owners want higher profit margins.

• Managers vs owners: Managers may want to reinvest profits for growth, while owners want higher dividends.

• Suppliers vs owners: Suppliers want to charge higher prices, while businesses want lower costs.

• Government vs owners: The government wants businesses to pay taxes and follow regulations, while owners want to maximize profits.

• Local community vs business: The community wants less pollution, while businesses want to expand production.

economies of scale

average cost per unit falls as scale of production rises

As a business expands and produces more products, it can spread its fixed costs over a larger quantity of output. This reduces the average cost of producing each product and can increase profit margins compared with competitors.