Copy of MGTA01 Textbook 2nd Edition-compressed
Chapter 1 – What is a Business?
Six Characteristics that are common to all businesses.
1. A business requires organization and effort
2. A business attempts to provide the things that people need or want
3. A business must try to satisfy customers’ needs
4. By selling products to customers, and satisfying their needs, a business generates revenue
5. A business incurs expenses
6. A business tries to generate more revenues than it incurs in expenses, in other words, a business tries to make a profit
Starting a business is inherently risky and are driven by the profit incentive.
Profit incentive – People/Businesses will use time and effort in the pursuit of a profit, or people only do something if there is an incentive to do so.
Organization – Group of people who work together to meet a need or peruse some common goals. e.g. a family, soccer team.
Business – An organized effort to provide the things that people need and want and are willing to pay for. A business exists to satisfy those customer needs and to make a profit. e.g. a pizza store or a business that sells fish
1. A Business is an organized effort
a. One or more people must have an idea, and has to have put time, thought, and effort into carrying out their idea.
b. You must partake in activities that represent time, effort, and organization. (Taking the bus somewhere talking to prospective clients).
c. Businesses don’t just happen.
2. A Business provides things that people need and want
a. “Businesses exists “to provide the things that people need and want”.
b. If you start a private tutoring company for high school students, you identified they need better grades to get into the university they want to get into.
c. A business must provide something that people want; it must satisfy a need.
3. A Business must try to satisfy customers’ needs
a. A business would not and cannot exist, unless there are people who need and want – and are willing to pay for – the things that those businesses produce.
b. Customers – The people who need or want, and are willing to pay for, the things that a business provides. (A business must have this).
c. You will only start the math tutoring company if you think there are enough high school students who want to improve their grades.
4. A Business Generates Revenue
a. Revenue – is the money that flows into a business every time it sells a product or a service to a customer.
b. A customer must decide that the product or service which the business provides is worth paying for.
c. Anytime you get a haircut or buy something, a payment is expected.
5. A business incurs expenses
a. A business that provides products must incur costs to provide them.
b. An airline must buy and maintain its aircraft, must hire and pay pilots, co-pilots, and other staff.
c. All things being provided cost the business (expenses), which are subtracted from the revenue to see the profit.
6. A business tries to make a profit
a. “A business exists in order to make a profit”.
b. Profit – The positive benefit from running a business, its equal to revenue – expenses (when it’s positive).
c. People and businesses are driven by the profit motive.
Loss – When the revenue – expenses produce a negative result.
Businesses Versus not-for-profit organizations
If you run your tutoring business for free, it may be out of the kindness for the children, because a family member did the same for you, or altruistic reasons. This is not a business, however.
Things like a church/mosque/or organizations that run without profit as an incentive are not businesses, they are organized efforts.
Not-For-Profit Organization – An organization that provides people with things that they need, and may collect revenue, but is not intended to make a profit. (i.e. Mandir, Charity, and University). (A lot of these places revenues comes from donations).
Even if these organizations make a profit (Expense < Revenue), it’s the intent behind it, they may just save it for next year or this year they made some extra. If you run a business, the profit belongs to the owner.
The Profit Motive – A Virtue or a Vice?
Karl Marx – German philosopher, economist, political theorist and author (1818-1883) from whose theories the term “Marxism was coined”.
He wrote “The Communist Manifesto” and “Das Kapital”, these ideas of Marxism are related to the idea of communism.
Marx referred to the people who start and own businesses as “Capitalists”, and the people who worked for the businesses as “labourers”.
Marxism – The economic and political theories developed by Karl Marx. He argued that the owners of the means of production are a class of people who grow wealthy by exploiting the labour of others.
He thought, that if a business produced $40 worth of a product, the person who owned the business gets those $40 while the person who worked got $10. This was an exploitation of the workers.
Followers of Marx’ ideas (Soviet Union, China, and Cuba at certain time periods) argued that governments should own or control all business activity, so that no one citizen could become rich by exploiting the labour of another. This was referred to as Communism. (Based on the ideas of Marx).
Adam Smith – Scottish academic, philosopher and author (1723-1790) widely regarded as the founder of the study of economics.
He wrote: “An Inquiry into the nature and Causes of the Wealth of Nations”. This helped to create the modern academic discipline of economics.
He believed that if humans are rational, then they will divert their time, energy and money into some enterprise only if there is some payback for their self-sacrifice and risk.
If there was no profit available, the rational person would merely conserve their resources for personal use and no investment would occur.
Smith argued that people will be most productive, and society will most benefit when individuals are left alone to pursue their own self-interest, with a minimum of government intervention. He believed that, left to their own devices, people will make the choice to co-operate with others, because it is in their own interest to do so. This belief is often referred to as liberalism.
Satisfying Customers and Perusing Profits – Mutually Dependant activities
Canada is the second easier place on earth for ease of starting a business (behind New Zealand)
People return to and recommend businesses that they had a good experience at. If you had a bad experience you wouldn’t return to spend money or recommend it. This good experience can drive profits.
Smith referred to the businessman’s “Self-interest”, if a business wants to make a profit, it must give customers value and satisfaction.
This chart shows the number of Canadian Businesses that entered/exited the marketplace in each year between 2005 and 2014.
Roughly 140,000 businesses were created every year while 120,000 were closing their doors.
Why Do Businesses make losses and fail?
In the example of GM in 2009, GM did not fail because its boss was stupid, inadequately educated, or lacked industry experience. It failed because running a business is a human endeavour. “Willing to undertake risks” is the key characteristics of a business.
Chapter 2 – Products: The Things That People Need and Want
A business must do two things at once, it must satisfy customers to make a profit and at the same time, unless it makes a profit a business cannot continue to satisfy customer needs.
A business must strive to satisfy customer needs, if a salesperson is kind to you and understanding of your needs, you’re much more likely to purchase from them and return in the future especially compared to a salesperson who ignore you and wouldn’t adapt to your concerns.
Said scenarios amplify the importance of satisfying a customer and how it can lead to business profits.
The Things that people Need and Want
Product – Whatever a purchaser hopes to get, or believes they are getting whenever they make a purchase from another individual or organisation.
Public Sector organisation – An organisation that is owned or funded by the government. Usually are paid for by taxpayers and provide big services we need like hospitals. Not in the business to make a profit.
Private Sector – The part of the economy that is run by private individuals, usually with the aim of making a profit.
Products: Goods & Services
Goods – Products which can be seen and touched. Things like Soap, shampoo, and toothpaste.
Service – Products which are experienced but cannot be seen or touched. Things like A taxi and internet services.
1. Goods can be made in advance while services are performed immediately.
2. Many Services require the involvement of the customer
3. Services are customised
4. Most goods can be stored while most services cannot (can’t store a house cleaning)
5. Services are more difficult to provide than goods
6. Products are filling needs and satisfying wants, a product must deliver three elements
a. Functions
b. Features
c. Benefits
Immediacy – The quality that makes something important or relevant because it is happening there and then. (Services have and use this)
High Contact Service – Services that require personal interaction with the customer. (getting a haircut, taxi services).
Low Contact Service – Service operations that don’t necessarily involve interaction with the customer. (Engine getting tuned, grass getting cut).
Customisation – The characteristic of a service that means that no two customers want the same thing, delivered in the same way. (you want your dog to be groomed particularly to how it is not exactly the same as a completely different dog).
Function – What a product is intended to do. (Car takes you somewhere)
Feature – An additional attribute or offering which contributes improved usefulness or better experience of the product. (Car with A/C will make driving better)
Benefit – An advantage that is derived from purchasing a product. (You could walk, driving is faster though, convenience)
The Value Package
Value – The regard with which a product is held by potential buyers, expressed as its financial worth.
Value package – The bundle functions, features, and benefits that a business offers to buyers of a product.
To increase customer satisfaction, and to maximize its revenue, a business needs to understand what makes potential customers place value on a product, and to augment that value by adding the extra something. (The added value as well as function, feature, and benefit combination is what makes people what to buy a product).
Understanding Different Products and Their Consumers
Consumer Products – Products purchased by the end user, for personal use.
Industrial products – The parts, ingredients, materials, and supplies that are bought by one business from another in the process of making consumer products.
The differentiation between these two is integral as very few people buy the ingredients and machines to make cereal, while millions of people may eat the cereal.
The Taxoxonmy of products
Convenience Products – Inexpensive consumer products which are purchased frequently with little expenditure of time and effort. (Cup of coffee, chocolate bar, and disposable razors) Convenience service – Things like a mobile delivery app, or mobile banking.
Shopping Products – Products that are moderately expensive and purchased infrequently causing consumers to spend time comparing features, benefits and price. (Cars and laptops)
Shopping Service – Things like life insurance or a contractor to remodel your kitchen
Specialty Products – Products to which consumers will attach a great deal of importance and for which they will spend a good deal of both time and effort to find exactly what they want. Usually buy only once (Wedding gown)
Specialty Services – Things Catering to a wedding or booking that hall, things usually bought once and have a great deal of importance in making the decision.
Research & Development (R&D)
R&D – Looking for innovations and ideas which will lead to the next generation of products.
The automotive industry usually has the greatest expense in term of R&D. As they always want to make breakthroughs in technology to sell more cars. Same idea goes for technology companies like Samsung.
The Product Life Cycle
Product Life Cycle (PLC) – The introduction, growth, maturity, decline, and in some cases demise of products and industries, as technologies and tastes change.
No matter how long a product lasts for, it will always go through the PLC. (Decline can be combatted, by making improvements or a new product, why demise isn’t counted usually).
Introduction – The stage of the PLC when the product, or the technology that created it, is new and little known.
Growth – The second stage of the PLC, when demand for a product expands rapidly.
Maturity – The third stage in the PLC, when sales peak.
Decline – The final stage of the PLC, when demand falls, prices fall, profits fall, and the number of competitors declines.
Economies of Scale – A decrease in the cost to produce a product as the volume of production increases. (Cost goes down so volume goes up, better for consumer.)
Saturation – When a market can absorb no more products. (Is usually in maturity as many people may already own the product, the sales stagger).
The PLC + Profit Graph
Businesses begin with an investment and a loss, profit usually occurs in the growth phase but is the strongest in the maturity phase.
Life Cycle Extension
Life Cycle Extension – Any effort by a business to re-package, re-launch, or update a mature, but well-known product. (Things like coca cola making coke cherry, coke zero, diet coke).
They are trying to extend and keep it in the maturity stage (and therefore generating a profit) as long as it can.
Chapter 3 – Creating Businesses & Products: The Factors of Production
Factors of Production – The basic building blocks that, in combination, are required to create a business, and produce goods and services.
The four agreed upon factors of production are:
1. Natural Resources
2. Labour
3. Capital
4. Entrepreneurship
Natural Resource – Things found in nature. Resources that grow out of the earth or can be extracted from it. (Things like land)
Resource Intensive – A business or a process that requires either a large quantity of natural resources or is particularly dependant upon them. (Things like fruit farming)
Labour – The people who contribute their efforts to a business
Labour Intensive – A business or a process that requires either many workers or is particularly dependent upon workers. (Things like the army and Walmart/McDonalds).
Capital – Money, or the machines and technologies that money can buy.
Capital Intensive – A business or process that requires either a large amount of capital or is particularly dependent upon capital. (Things like banks)
No business can exist without the combination of these factors, they aren’t mutually exclusive things. Some businesses may be more reliant on certain ones but not exclusively that one.
Factor substitution – Substituting one factor of production in place of another so that products can be made more quickly or cheaply.
Industrial Revolution – The period of history in the 18th and 19th centuries when many inventions and discoveries, many of them labour saving, transformed the most important industries of age. (Using machines to replace humans saved capital, subbed labour with some capital to make more)
Factory System – The concentration of work in large buildings erected for the purpose and performed at standardised and regulated house.
Entrepreneurs – The people who are motivated to take the time to incur the costs and risks and make the effort to make something happen
Enterprise – A project or undertaking that requires energy and effort and whose outcome is uncertain.
Entrepreneurship – The willingness or the motivation to take initiative, and to accept the risk of failure in return for suitable gratification or reward.
Agricultural Revolution – The period of history when a number of discoveries related to agriculture changed human society from a nomadic life to a settled one.
Capitalists – The people who own the capital used as a factor of production
Information Revolution – The period of history when a large number of inventions and discoveries in computing and information technology are changing the nature of business and having far-reaching consequences on society.
This revolution is why information can be considered as the fourth factor of product, an evolution to this theory.
Chapter 4 – Economic Systems – Who owns and controls the factors of production?
Capitalism (Pure Capitalism) – An economic system where private individuals own and operate businesses for profit, with minimal government intervention.
Command Economy – An economic system where the government controls production, allocation, and distribution of goods and services.
Communism – A political and economic ideology advocating for collective or state ownership of the means of production, aiming for a classless society.
Crown Corporation – A government-owned corporation that operates commercially to serve the public interest.
Economics – The study of how societies allocate limited resources to meet unlimited wants and needs.
Economic System – The structure through which a society organizes its production, distribution, and consumption of goods and services.
Great Leap Forward – A failed economic and social campaign in China (1958-1962) aimed at rapid industrialization and collectivization.
Market Economy – An economic system where supply and demand determine the production and pricing of goods, with minimal government interference.
Mixed Market Economy – An economic system that combines elements of both capitalism and government intervention in business and public services.
Nationalisation – The process of transferring private industries or assets into government ownership.
New Deal – A series of government programs and reforms introduced by Franklin D. Roosevelt to combat the Great Depression.
Perestroika – Economic and political reforms in the Soviet Union under Mikhail Gorbachev aimed at restructuring the economy and encouraging market practices.
Planned Economy – An economic system where the government makes all decisions about production and distribution.
Privatisation – The transfer of ownership of state-owned enterprises or assets to private individuals or companies.
Progressive Taxation – A tax system in which the rate increases as an individual’s or business’s income rises.
Social Darwinism – A theory that applies "survival of the fittest" to human societies, justifying inequality and competition.
Socialism – An economic system where the means of production are owned or regulated by the state to promote equality and public welfare.
State-Owned Enterprise – A business owned and operated by the government, typically to provide essential public services.
Chapter 5 – When Buyers & Sellers Interact – How Markets Work
Barrier to Entry – Obstacles that make it difficult for new competitors to enter a market.
Barrier to Exit – Obstacles that make it difficult for businesses to leave a market.
Branding – The process of creating a unique identity and image for a product or company to differentiate it from competitors.
Differentiation – The process of distinguishing a product or service from others to make it more attractive to a particular target market.
Legislated Monopoly – A market where only one provider is allowed to operate, often due to government regulation or law.
Market – A place or system where buyers and sellers interact to exchange goods and services.
Market Price – The price at which a product or service is bought and sold in a competitive marketplace.
Market Share – The percentage of total sales in a market that is controlled by a particular company or product.
Market Structure – The organizational characteristics of a market, including the number of firms, the nature of competition, and the level of product differentiation.
Monopolistic Competition – A market structure where many firms offer differentiated products, but each has some degree of market power.
Monopoly – A market structure where only one firm controls the entire supply of a product or service.
Natural Monopoly – A type of monopoly that occurs when a single firm can supply the entire market at a lower cost than multiple firms could.
Oligopoly – A market structure dominated by a small number of large firms, each with some control over market prices.
Perfect Competition – A market structure characterized by a large number of small firms, homogeneous products, and no barriers to entry or exit.
Target Market – A specific group of consumers at whom a product or service is aimed, based on characteristics like demographics, needs, and preferences.
Chapter 6 – Understanding and measuring the business environment
Business Cycle – The natural rise and fall of economic activity over time, consisting of expansion, peak, recession, and recovery.
Depression – A severe and prolonged downturn in economic activity, typically characterized by high unemployment, low production, and falling GDP.
Discouraged Worker – A person who has stopped actively looking for work due to the belief that no jobs are available for them.
Employment – The state of having paid work or being employed in an economic activity.
GDP – Gross Domestic Product; the total monetary value of all goods and services produced within a country in a given period.
GDP Growth – The rate at which a country's GDP increases, indicating economic expansion.
GDP per Capita – GDP divided by the total population, used as a measure of a country’s economic output per person.
Gini Co-efficient – A measure of income inequality within a population, ranging from 0 (perfect equality) to 1 (maximum inequality).
Labour Force – The total number of people available for work, including both the employed and the unemployed actively seeking work.
Lorenz Curve – A graphical representation of income or wealth distribution, showing the proportion of total income earned by cumulative percentages of the population.
Productivity – The efficiency with which goods and services are produced, often measured as output per unit of labor or capital.
Recession – A period of economic decline lasting at least two consecutive quarters, typically marked by a reduction in GDP and increased unemployment.
Under-employment – A situation where individuals are working fewer hours than they would prefer or in jobs that do not require their skills or qualifications.
Unemployment – The condition of actively seeking but not finding employment.
Unemployment Rate – The percentage of the labor force that is unemployed and actively seeking work.
Working Poor – Individuals who are employed but whose income is below the poverty line, often due to low wages or part-time employment.
Chapter 7 – Enterprises & Entrepreneurs: The Many Businesses of Canada & the People Who start them
Calculated Risk – A risk that is taken after evaluating potential benefits and costs, with a reasonable chance of success.
Economic Inheritance – The wealth, assets, or resources passed down from one generation to the next, contributing to economic opportunity.
Economic Migrant – A person who moves from one country to another in search of better economic opportunities, such as work or higher wages.
Entrepreneurial Inheritance – The skills, knowledge, or business ventures inherited from family members that influence entrepreneurial success.
External Locus of Control – The belief that external factors, such as fate or others' actions, influence personal outcomes and success.
Free Enterprise – An economic system where businesses operate with minimal government intervention, driven by private ownership and competition.
Internal Locus of Control – The belief that one's own actions, decisions, and abilities shape personal outcomes and success.
Need for Achievement (nAch) – The desire to accomplish goals, overcome challenges, and attain success.
Need for Affiliation (nAff) – The desire for social connections, relationships, and being part of a group or community.
Need for Power (nPow) – The desire to influence, control, or have an impact on others and the environment.
Risk Aversion – The tendency to avoid taking risks, preferring safe and secure options even if they yield lower rewards.
Risk Tolerance – The willingness to take risks, with the understanding that higher risks may lead to greater rewards or losses.
SME (Small and Medium Enterprise) – A business that is independently owned and operated, with a small to medium-sized workforce and revenue.
Vocational Inheritance – The skills, trades, or professions passed down within a family, influencing career choices or business ownership.
Chapter 8 – Planning and Organising The Business
Business Plan – A written document outlining the goals, strategies, and financial projections of a business, often used to guide operations and attract investors.
General Partnership – A business structure where two or more individuals share ownership, management, and profits, with equal responsibility for liabilities.
Joint and Several Liability – A legal concept in partnerships where each partner is individually responsible for the full amount of the business's debts, as well as jointly with other partners.
Liability – Legal responsibility for something, such as debts or damages, that a business or individual may owe.
Marketing – The activities and strategies used to promote, sell, and distribute a product or service to the target market.
Partner – An individual or entity that shares ownership, management, and responsibility for a business, typically in a partnership.
Partnership Agreement – A legal document that outlines the terms, roles, and responsibilities of each partner in a partnership, including profit-sharing and dispute resolution.
Personal Liability – The responsibility of an individual to pay for debts or obligations, which may extend to their personal assets in certain business structures.
Sole Proprietor – An individual who owns and operates a business alone, without partners or shareholders.
Sole Proprietorship – A type of business owned and operated by one individual, where there is no legal distinction between the business and the owner.
Target Market – The specific group of consumers at whom a business aims its products or services, based on factors like demographics, needs, and preferences.
Unlimited Liability – A situation in which the business owner is personally responsible for all of the business's debts and obligations, potentially risking personal assets.
Chapter 9 – Organising The Business: Corporations
Articles of Incorporation – A legal document filed with the government to establish the existence of a corporation, outlining its structure and purpose.
Board of Directors – A group of individuals elected by shareholders to oversee the management and policies of a corporation.
Certificate of Incorporation – A document issued by the government that officially recognizes a corporation as a legal entity.
Company – A legal entity formed to carry out business activities, often used interchangeably with "corporation" or "firm."
Corporation – A legal entity separate from its owners, with the ability to own property, incur liabilities, and enter into contracts.
Directors – Individuals chosen to serve on the board of a corporation, responsible for making high-level decisions and overseeing the company’s operations.
Incorporators – The individuals or entities who file the Articles of Incorporation and are responsible for establishing a corporation.
Limited Liability – A legal structure that limits the financial responsibility of the shareholders or owners to the amount they have invested in the corporation.
Officer – A person holding a position of authority within a corporation (e.g., CEO, CFO) responsible for the day-to-day operations and management.
Private Corporation – A corporation whose shares are not publicly traded and are owned by a small group of private individuals or entities.
Public Corporation – A corporation whose shares are publicly traded on the stock exchange, allowing ownership by the general public.
Share – A unit of ownership in a corporation, representing a claim on a portion of the company’s assets and profits.
Shareholder – An individual or entity that owns shares in a corporation and has the right to vote on certain corporate matters and receive dividends.
Chapter 10 – Financing The Business
Agent – A person or entity authorized to act on behalf of another, typically in business transactions or legal matters.
Debt Capital – Funds borrowed by a company or individual, typically in the form of loans or bonds, that must be repaid with interest.
Deposit – Money placed into a bank account or financial institution for safekeeping, often earning interest over time.
Deposit Taking Institution – A financial institution that accepts deposits from customers and provides services like savings accounts and loans, e.g., banks.
Dilution – The reduction in ownership percentage of existing shareholders due to the issuance of new shares or securities.
Equity Capital – Funds raised by a company through the sale of shares, representing ownership in the business.
Finance – The management, creation, and study of money, investments, and other financial instruments.
Financial Services – A broad range of services provided by financial institutions, including banking, investment management, insurance, and lending.
Interest – The cost of borrowing money, typically expressed as a percentage of the loan amount, paid by the borrower to the lender.
Intermediary – A person or entity that acts as a middleman between buyers and sellers, facilitating transactions.
Investment – The act of putting money into assets or ventures with the expectation of generating a profit or return over time.
Investment Bank – A financial institution that assists companies in raising capital, providing advisory services, and facilitating mergers and acquisitions.
Investment Dealer – A professional or firm that buys and sells securities on behalf of clients or for their own accounts.
Investor – A person or entity that allocates money to investments with the goal of earning a return, either through capital appreciation or income.
Loan Capital – Funds raised through borrowing, often in the form of loans, bonds, or other debt instruments, that must be repaid with interest.
Net Interest – The difference between the interest earned on investments and the interest paid on debt or loans.
Stockbroker – A professional who buys and sells securities on behalf of clients, often providing advice and executing trades on stock exchanges.