Unit 1: Understanding Business Activity

1.1 Business Activity

Needs vs. Wants

Needs

• Essential things needed for survival- shelter, food, water, etc.

• Always in demand, so you’ll always have a market

• Lower priced as there are many competitors

• As there are always customers, there are more and more companies

Wants

• Desirable, Not Essential- phones, candy, etc

• Easier to have a unique product (Unique selling point or USP)

• Less demands usually

• Usually more expensive

• Easier to enter the market

Example: Phone: Want or need?

Need: 

• Quick contact in case of emergencies (police, ambulance, etc)

• Easier to notify about important messages (active shooting, important personal events, etc)

• Social trends (online menus, contacting during lockdowns)

• Education

Want: 

• You can access people and communicate through many different means (mail, pigeons, etc)

• Other ways to do basically any feature on a phone/ alternatives, often better than a phone

• Entertainment

How can we turn a want into a need? 

• Strikes all alternatives and easy access

• Gives you everything in one place

Businesses exist to satisfy the needs and wants of customers.

Scarcity & Opportunity Cost

Due to problems surrounding scarcity, choices have to be made by producers, consumers, and the government about the most efficient/best use of these resources. 

This is known as an economic problem:  There are unlimited wants and limited resources to provide the goods and services to satisfy the unlimited wants.

These resources are known as Factors of production

• Land: A natural non man-made resource used in production

• Labour: physical and mental effort exerted by individuals in the production process

• Capital (Cash): physical assets or man-made resources used in production (machinery)

• Enterprise (ideas): ability and willingness to coordinate, and take risks in production process, skills and abilities of entrepreneurs. the skill of the person who brings other factors of production together to make goods

These are all limited, but people’s wants are not. This leads to scarcity.

Scarcity 

• lack of sufficient resources and products to fulfil total wants of the population

• there are not enough products to fulfil the wants of the population

• Since there are limited resources, we have to make choices on what we want. 

• This means that we will be giving something up, this is the opportunity cost

Opportunity cost 

Loss of the next best alternative when making a decision

• The impact of the decision you did not make- what benefits you have lost from not choosing the ‘other’ option/what you missed out on.

• the thing we give up by choosing another item. 

• The next best alternative.

• There is an opportunity cost in the allocation of resources:

  • When a customer purchases a new phone, they now may not be unable to purchase the pair of jeans. Jeans represent the next best alternative, the opportunity cost

  • When a producer decides to allocate all their resources into electric vehicles, they may be unable to produce petrol vehicles. The petrol vehicles represent the loss of the next best alternative, the opportunity cost

  • When a government decides to provide free school meals to all primary students in the country, they may be unable to fund rural libraries which may have to close. The libraries represent the loss of the next best alternative, the opportunity cost

Specialisation

Specialisation:

People and businesses concentrate on what they are best at to use limited resources in the most effective way possible.

• Occurs when people and workers focus on one particular task or role, gaining significant skill in doing it

• when people and businesses focus on what they are best at.

• Division of labour: Separation of a work process into a number of tasks that are completed by a separate person or group of persons

  • When production is split into different task and each worker performs one of these tasks

• Specialisation results in higher output per worker which increases productivity

• Specialisation is now more common due to specialised technology, machinery and increasing global competition

• Using specialised machinery, work is more efficient

• Being efficient keeps costs low, good for competition

• A specialised worker has higher living standards

• Division of labour is when production is split in different tasks and each worker performs one of these tasks

Different levels

1. On an individual level

2. On a business level e.g. one firm may only specialise in manufacturing drill bits for concrete work

3. On a regional level e.g. Silicon Valley has specialised in the tech industry

4. On a global level as countries seek to trade e.g. Bangladesh specialises in textiles & exports them to the world

Purpose of Business Activity

Combines factors of production to produce goods and services to satisfy people’s needs and wants while employing people as workers and paying them wages to allow consumption of products by others. 

• Purpose of business activity is to take inputs, add value to them, and create products which meet customer needs

• Activities that businesses engage in to produce goods or services that meet customer needs while adding value

• To produce goods or services

  • Produce goods or services that satisfy a need or demand in the market

    • Goods are physical products

    • Services are non physical items

• Meeting Customer Needs

  • Create products that meet the needs and preferences of customers and provide value to them

    • By meeting customer needs, businesses can build customer loyalty, increase brand awareness, and generate revenue

• To add value

  • Add value to products or services 

    • Added Value: Difference between the price that is charged to the customer and the cost of inputs required to create the product or service

  • Value-added features can differentiate products from competitors, create a unique selling point, and increase customer satisfaction

    • Differentiate: Making a product different from other similar products through use of unique features and branding

    • Unique selling point: Elements that make one businesses products better than those of competitors

Business Objective

The targets or aims that a business is working towards (e.g increase production, increase sales, survive, increase profit) Objectives can differ from business to business and can change over time.

Summary

Needs of all individuals cannot be met, and wants are infinite, whereas goods and services and the resources to make them are finite or limited. This is known as the economic problem of scarcity. Scarcity means that we must make choices between options that satisfy our wants and needs, with every choice creating an opportunity cost, which is the benefit of the next best alternative given up.

Process of Adding Value

Adding value

Process of taking raw materials and using them in such a way that the end product created is worth much more than the cost of the raw materials used to create the product, value is added. 

Added Value

Difference between the selling price of the product and the cost of the inputs required to create the product or service.

• Input ($) → Process (adding value here to increase output) → Output($$$)

• E.g. customers are willing to pay more for potatoes when they are packaged as chips than they would be willing to pay for a bag of potatoes

• If value is not added to the materials and components that a business buys then fixed cost cannot be paid and no profit will be made 

• Its importance is…

  • To pay for other costs

    • Labour cost

    • Management expenses

    • Advertising costs

  • To make a profit is total cost is less than added value

Methods of Adding Value

• Service (speed): Provides convenience for the customer and adds value as it costs more to deliver things quicker. 

• Design: Enhancing the aesthetics and functionality of a product or service. It can also improve the user experience and increase perceived value of the product. 

• Branding: Creating a unique identity that distinguishes it from its competitors, increases customer loyalty and recognition which translates to higher sales and profitability 

• Quality: Customers are willing to pay for a premium price for products or services of high quality because they offer greater value and satisfaction

• Unique selling point/proposition: characteristic of a product that makes it different from other similar products. Businesses can attract new customers, increase sales profitability, and build a loyal customer base. 

• Convenience: Products that offer a more convenient option to customers can sell for a higher value ie. chopped fruits over whole fruits

Businesses may use several methods of adding value. It's important to understand that adding value raises costs, but it is worth it if the increase in selling price outweighs the costs associated with the method

Added Value Can also be increased by

• Increasing selling price

• Decreasing cost of materials

1.2 Classification of businesses

3 main sectors of Business :

• Businesses can be classified according to the type of business sector it operates in, this classification is a simplified way of categorising industries

  • It helps to provide a means of making comparisons between firms in the same sector

  • It does not capture the full complexity and interconnectedness of the business world

  • Many businesses operate across multiple sectors or may not fit neatly into a single category

Stages/Chain of Production

• three sectors are linked in the chain of production which is the series of steps taken to turn raw materials into a finished product that can be marketed and sold

• Firms can usually add value to their product throughout the chain of production

Stage 1: Primary Sector 

• Extracts and uses the natural resources of the Earth to produce raw materials

• concerned with the extraction of raw materials from land, sea or air such as farming, mining or fishing

• Doesn’t make enough money (does not require high education or skill) so countries prefer to reduce their primary sectors

Examples

• Farming: Breeding livestock, Intensive farming (stables and farms) and extensive (outdoor in nature, farmers go there to take care and protect)- Sheep, cattle, pig, and poultry

• Agriculture: Cultivation of land to obtain vegetable products (crop farmer), Plough the land→ plant seeds→ fruits and vegetables are harvested, Dry farming: Grows only with rain water (wheat, almonds), Irrigation: Watered artificially (tomatoes, rice)

• Forestry: Cultivation and exploitation of woodland and hill (Firewood, wood), Helps to investigate how to protect the environment/nature

• Fishing: Catching fish and other aquatic animals, River fishing, sea fishing, Deep sea fishing: done by big boats far from the coast with refrigerated chambers for the catch (they spend a lot of time at sea), Shallow sea fishing: small boats close to coast fishing daily

• Aquaculture: Production of algae and aquatic animals in tanks (fish farms)

• Mining: Collection of mineral sources from floor and subfloor (miners), Metallic minerals (iron, gold), Non-metallic minerals (marble, granite), combustible (oil, gas, coal), Combustible are the most important but contaminate the most

Stage 2: Secondary Sector

• Manufactures goods and elaborate materials using the raw materials provided by the primary sector

• concerned with the processing of raw materials such as oil refinement, and the manufacture of goods such as vehicles

Examples

• Factories: Produce elaborate products with machinery, Many workers, Large quantity of products 

• Industries: 

  • Base industry (Transforms raw materials into semi-elaborate products) 

  • Usage industryTransforms semi-elaborate products into ready-to-be-sold products

  • Equipment industry:

    • Produce machinery or tech for other industries (e.g hammers, saws, nails for building)

    • Classified according to the raw materials used and products made

• Crafts: Made by craftsmen, Works are created in small workshops and are manufactured via machines or handmade (e.g handbags, sculptures)

• Constructions: Completes buildings and engineering works (tunnels and roads), Large quantities of structures are created 

Factories contaminate the environment. They work for their own economic profit without consideration of the surroundings. More sustainable choices should be made (usage of renewable energy). 

Stage 3: Tertiary Sector

• Providing services to both consumers and other sectors of the industry

• concerned with the provision of a wide range services for consumers and other businesses such as leisure, banking or hospitality

Examples

• Selling or service: Products made in secondary sector are sold to/offering a service

• Welfare: Looking after health (doctors, nurses)

• Education: (Teachers) Teaching students knowledge and values

Changes in Sector Importance

As economies grow and develop, many firms within the economy change their sector of operation (sectoral change)

• In general, their are successively higher levels of profits to be made in each subsequent sector

  • Each sector adds more value than the previous sector, higher added value equates to higher profits

Less Developed Economies:

A less developed economy will primarily be focused on the primary sector – with most people employed in agriculture and the production of food

• There has been a global trend away from employment in primary sector industries over the last two decades

• Only in the least developed nations is the proportion of the workforce employed in the primary sector consistently high

  • partly as a result of lower participation rates in education and a lack of infrastructure to support manufacturing or service provision 

Emerging Economies:

In emerging economies improved technology enables less labour to be needed in the primary sector and more workers are involved in manufacturing

• Proportion of workers involved in manufacturing has risen over the past few decades

• Many businesses have relocated production facilities to take advantage of the lower average wage rates in these economies

Developed Economies:

The most developed economies have a higher proportion of the workforce employed in the provision of services eventually increasing the focusing onto the quaternary sector

• Developed economies use their wealth to fund advanced education and higher-level skills training which further supports the growth of these industries

Note

• As economies develop, a movement away from the primary sector towards the secondary sector. de-industrialized economies are focused on the tertiary and quaternary sectors. 

• It is easy to assume that tertiary sector employment is higher-paid than jobs in the secondary sector. This is not necessarily the case. Value-added is certainly higher in most tertiary industries than in secondary sector industries but in many tertiary sectors (such as hospitality and healthcare) pay is very low and a cause for concern. 

  • Economies like Portugal and Greece, whose economies depend upon tourism, as well as the UK suffer from low pay in the tertiary sector with many workers relying on government support to cover basic living costs

  • High-paid secondary sector engineering and construction sectors in economies such as Germany and Norway make employees in these economies some of the highest-paid in the world.

Public and Private Sectors

Public sector firms

• Businesses and organisation that are owned and controlled by the government or state agencies 

  • Examples: Public transport, public schools, public healthcare,and utilities, strategic firms like defence, energy, telecommunications, and natural resources

    • Allows the government to exert control over sectors vital to national security, economic stability, and long-term development

• Government makes decisions about what to produce and how much to charge consumers 

• Some goods and services are provided free of charge to the consumer as health and educational services 

  • This money comes from taxes

• Main objective: 

  • Service to the community

  • protect strategic industries 

  • national security

  • create jobs

  • provide economic growth

  • ensuring that critical services are accessible to the public,

• Can operate on a local, regional or national government level

• Referred to as state-owned enterprises (SOEs) or government corporations

• Operations may prioritise social welfare over profit maximisation

By investing in and owning entreprises, governments can promote employment, stimulate economic activity, create jobs, and support industries that contribute to the overall growth and stability of the economy

Private sector firms

• Owned by other firms private individuals (entrepreneurs and shareholders)

• The business will decide about what to produce, how it should be produced, and what prize should be charged

• The objective of most private sector organisations is profit maximisation

• Often is more efficient than the public sector with higher levels of productivity (output per unit of input) 

• Types of business ownership vary from sole trader to partnerships to company shareholders

Privatisation

• Occurs when government-owned firms are sold to the private sector

• Governments sell public sector businesses to private owners. In many countries, water supply, electrical supply and public transport have been privatised

• Why does privatisation happen

• Because private sector businesses have a main goal of profit therefore they lower the cost, the owners also invest more capital into the business

  • Capital: Money invested into the business by owners

Mixed Economy:

An economy that contains both private and public sector firms 

• Nearly every country in the world has this economy

  • Free Market Economy: All resources are owned by the private sector, profit motives are very important

  • Command/Planned Economy: All resources owned and controlled by state

1.3 Enterprise, business growth and size

Entrepreneurship

Entrepreneur

A person who organises, operates, and takes risks for a new business venture, willing and able to create a new business idea or invention and takes risks in pursuing success

What do entrepreneurs do?

Characteristics & Skills of an Entrepreneur

Entrepreneurs require a unique skill set in order to be successful

Skills: Communication, team working, problem solving, organisation, numeracy, information technology, identify and pursue opportunities, create value for customers, build thriving businesses, persuasive, and decisive in decision making

Characteristics: Hard working, risk taker, creative, optimistic, innovative, independant, determined, initiative, resilient, confident

Note: 

• Should be able to explain why governments want to encourage more entrepreneurs to set up businesses there

  • Entrepreneurship drives business growth and innovation

Knowing some examples of real life entrepreneurs can help in remembering their skills and qualities

Business Plans

• Main aim of producing a business plan is to reduce the risk associated with starting a new business and help the owners to raise finance

Business Plan

• a document produced by the owner at start-up, which provides forecasts of items such as sales, costs and cash flow

• A document containing business objectives and details about the operations, finances, and owners of a new business

• A formal report detailing the marketing strategy, productions, costing, and financial implications of a business

• Producing a business plan forces the owner to think about every aspect of the business before they start which should reduce the risk of failure

Benefit to entrepreneurs

• Banks often ask for a business plan before providing a loan, A well-written business plan can help a business to obtain finance

  • Lenders (e.g. banks) and other investors will be able to explore the plan and make an informed decision about whether the business is credible and worth the financial risk

  • Investors (e.g. venture capitalists) will use the business plan to explore whether there is an opportunity to increase the value of their investment and make a worthwhile profit

• It gives the owner clear goals and objectives to work towards (motivation)

• The business, having carried out research to support the plan, will be well-informed about the potential problems and chance of success and can select the most appropriate source of finance based on this information

A clear action plan provides direction for the business and helps lenders and investors to have confidence in the future success of the business 

Elements of  a business plan

Measuring Business Size

• Simple method of classifying businesses is measuring their sizes

• Business size can be measured in several ways, including the size of the workforce, the value of capital employed and the value of sales or output

Methods

Note: Profit is not a measure of business size. If a multinational like Netflix makes a loss, it does not mean that a sole-trader hairdresser which earns a profit is a larger organisation. 

Types of Business Growth

Reasons for Business Growth

• firms start small & will grow into large companies or even multinational corporations

• Reasons include:

  • Possibility of higher profits

  • Higher salaries

  • Lower average costs - Desire to reduce costs by benefiting from lower unit costs as output increases e.g suppliers offer bulk order discounts

    • Unit cost: total cost of producing one unit of output

  • Larger share of market - Owners/shareholders desire higher levels of market share and profitability

    • Market Share: Percentage of total market revenue that a single firm has

  • Owners/Shareholders/Managers desire to run a large business & continually seek to grow it

  • The desire for stronger market power (monopoly) over its customers and suppliers

  • Growth provides opportunities for product diversification

    • Product Diversification: firm is able to increase the number of products it offers

  • Larger firms often have easier access to finance 

Methods of Business Growth

• achieved by growing organically, or inorganically

Types of Inorganic Growth

• Vertical integration (forward or backwards)

  • When one firm merge or takeover over a firm in the same industry but at a different stage of production

  • merger/takeovers of another firm in the supply chain/different stage of production process

  • Forward vertical integration involves a merger or takeover with a firm further forward in the supply chain

    • E.g. A dairy farmer merges with an ice cream manufacturer

  • Backward vertical integration involves a merger/takeover with a firm further backwards in the supply chain

    • E.g. An ice cream retailer takes over an ice cream manufacturer

• Horizontal integration

  • When one firm merges or takes over another firm in the same industry at the same stage of production

  • mergers/takeover of a firm at the same stage of the production process

    • An ice cream manufacturer merges with another ice cream manufacturer

• Conglomerate Integration

  • When one firm merges or takes over another firm in a completely different industry, also known as diversification

    • An ice cream manufacturer takes over a pet retail store

Problems of Business Growth

In some cases, growing the size of a business can fail to improve its profitability and can lead to cash flow problems and poor coordination

Problems

Why Businesses Stay Small

Some businesses choose to remain small on purpose:

• Type of industry the business operates in

  • Small businesses dominate some industries such as hair and beauty, home improvement and childcare services

• Market size

  • provide a product that is in a niche market - small market size but potential for high profits

• Owner’s objectives

  • Small business owner's goal is satisficing, enough money to make owner/shareholder happy, rather than profit maximisation

• unable to access external finance for expansion

• offer a personalised service and focus on building relationships with customers (excellent customer service)

• able to respond quickly to changing customer needs/preferences

• Diseconomies of scale can be avoided

Why Businesses Fail

Business failure is a risk to both new and established businesses, however New businesses are often more at risk of failure than well-established businesses

• Poor management

  • Lack of experience can lead to poor decisions related to product range, pricing or promotional activity

  • Making decisions based on hunches rather than market research

  • Ineffective coordination and planning of business operations such as stock purchasing or staffing can increase costs 

• Failure to plan for change

  • Costs may rise sharply and eliminate profit margin

  • Ineffective or delayed response to new technology, powerful new competitors and major economic change 

• Poor financial management

  • Cash shortages mean that creditors cannot be paid what they are owed

• Over - expansion

  • Overtrading: This occurs when a business expands too quickly

  • Poor coordination/planning of growth can lead to diseconomies of scale which increases costs

• Risks of new business start up (poor planning/lack of financial resources)

  • Limited access to finance such as loans/trade credit can be particularly problematic for start-ups

• A business may be unable to generate enough revenue to sustain its operations

• Changes in laws or taxation can increase pressure on businesses to make difficult choices

No. of employees and revenue can be a measure of how large a company is

1.4 Types of business organisation

Main Types of Ownership

• When an entrepreneur starts a business, they need to consider what kind of legal structure they want for their business

• Their decision will depend upon a range of factors

  • The level of personal risk they are willing to take

  • The advice they receive

  • The level of privacy they would prefer in running the business

• Sole traders and partnerships are unlimited liability businesses

  • They are easy to set up and start trading

  • Information about their financial performance does not need to be shared outside of the business

• Private limited companies and public limited companies offer the protection of limited liability to their owners (shareholders

  • Limited Liability: a legal structure in which assets of the owners are considered to be separate to those of the business. If business is sued, owners cannot lose their own possessions
    Shareholder: A person or organisation that owns shares in a company, 

    • These are people who have shares in the company, but do not run or manage the company.

  • Setting up a company is a legal process that takes time to arrange

  • Information about financial performance needs to be shared with Companies House and is available for scrutiny by any interested third party

Incorporation

• Unincorporated: When the owners of a business and the business itself are one legal identity, in addition to having unlimited liability.

• Incorporated: When the owners of a business and the business itself are separate legal identities, in addition to having limited liability.

Liability

Sole Traders, Partnerships and Limited Companies

• When an entrepreneur starts a business, they will often start operating as a sole trader

• Over time - or if the business requires significant investment - they may change the legal structure of the business

  • They may join with others to form a partnership to gain more funding or increase their capacity

  • They may form a private limited company to provide more financial security for the owners as they will benefit from limited liability

Annual General Meeting(AGM): An annual meeting between directors and shareholders of a company to vote on major company decisions, to inform them on company performance, elect new directors, etc.

Sleeping/Silent Partner: A partner that only provides money and receives profit returns but isn't involved with management.

Limited Liability Partnership(LLP): Some/all partners have limited liability, but they also have to retain an automatic management responsibility.

Sole Proprietor: Owner of a Sole Trader business

Franchises & Joint Ventures

Franchising

• Franchising involves a business (franchisee) buying the rights to operate an existing successful business model (franchisor)

  • This right includes the use of its branding and software tools, support from the successful company (franchisor) in exchange for an initial lump sum plus ongoing royalties

    • Royalties: Legally binding payments made to an individual or company for the ongoing use of their franchise model

• The franchisee operates the business under the franchisor's established system and receives training, marketing support, and ongoing assistance

• The franchisee may initially be operating as a sole trader, partnership, or private limited company. Franchisors usually require the franchisee to become a private limited company 

• An agreement between a company with another business organisation to allow the distribution of the company's goods and services and the use of its brand name or trademark through the other business organisation;

Franchisor: The company that allows the distribution of its goods and services; it usually is well-known, has an identity with a market and brand name for its product.

Franchisee: The business organisation that buys the rights to use the company's brand name, business name, production method, etc.

Tip: A franchise is not a form of business ownership - it is an alternative to starting up a brand new business from scratch. In most cases franchisors require businesses to operate as private limited companies as this ownership type is considered to have more stability than sole traders or partnerships

Joint ventures

• A joint venture is a medium- to long-term agreement for two or more separate businesses to join together to achieve a defined business outcome, such as entry into a new market

  • A new combined business entity is formed 

  • Risks and returns are shared by the parties involved in the joint venture

  • Businesses in a joint venture are usually looking to benefit from complementary strengths and resources brought to the venture

• A contractual agreement between two or more business organisations to run a new business project.

• Many European companies have set up joint ventures with businesses in China

  • Chinese managers and employees understand market needs and consumer tastes, which gives the venture a greater chance of success

  • The Chinese government encourages joint ventures rather than foreign direct investment (FDI)

Deciding on Business Ownership Model

Unincorporated and Incorporated

• A business may be unincorporated or incorporated. These terms are closely linked to the concepts of limited liability and unlimited liability

  • An unincorporated business does not have a separate legal identity from its owner(s)

    • If the business is sued the owner is responsible and may need to cover legal costs with their own money

    • Unincorporated business types include sole traders and partnerships

  •  An incorporated business is called a company and has a separate legal identity from its owner(s)

    • If the business goes bankrupt its owners (shareholders) cannot be held responsible for debts and only lose the money they initially invested

    • Unincorporated businesses include private limited companies (Ltd) and public limited companies (PLC)

Which Type of Ownership?

• An entrepreneur must choose the ownership structure that suits the business needs, particular circumstances and the level of personal liability involved

Deciding on the best form of legal ownership requires the owners to consider many different factors

• Type of ownership

  • Is unlimited or limited liability most appropriate?

  • Is the business based on an original idea or a franchise?

• Desire for control and privacy

  • How much direct control over decisions does the owner(s) want?

  • Does the owner(s) want to share the workload?

  • Does the owner mind if the financial accounts are made publicly available?

• Financial considerations

  • How much start-up finance is required?

  • How might the choice of finance affect the break even point/profits?

    • Break Even Point/Profit: total revenue earned for a product is exactly equal to its total cost, business doesn’t make any profit or a loss

  • How is finance to be managed?

• Aims and Stage of Business Growth

  • Is the business new or established?

  • Does the owner want it to grow?

Note: When assessing the best form of business to be used in a particular situation (or if a business should change its form), the decision needs to consider any evidence provided about the business owner, the product, the nature and size of the market, the funds required, and the level of profitability. 

• For example, a business which is generating sales of £30k a year is unlikely to be ready to become a public limited company, but it may well benefit from transitioning from a sole trader to a private limited company

Public Sector Businesses

Public Sector

• Public sector firms are owned and controlled by the government and are usually funded through taxation

• Firms funded by taxes on the private sector to provide essential goods and services (e.g. water, electricity, education, etc.)

• Their main goal is usually to provide services such as education, healthcare or emergency services that may not be provided by businesses

• Public sector firms operate on a local, regional or national government level

•  Governments are likely to retain ownership of organisations in the public sector for several reasons

  • They are strategically important to the country, such as the defence or justice systems

  • They provide essential services such as water, electricity supply or emergency services

  • They are merit goods that may not be provided in sufficient quantities by private businesses such as education or health services

    • Merit Goods: goods/services that are beneficial to society but free market doesn't provide enough of it

Public Corporations

• Public corporations are owned by the government

• They are usually businesses which were once owned by private individuals and have been nationalised

  • Nationalised: occurs when government takes control and ownership of firms which were in the private sector

• Government ministers appoint a Board of Directors, which manages the corporation

  • Directors are expected to run the corporation according to objectives set by the government

  • Although they may be profitable, the aim of corporations is to provide a public service

  • Governments should not interfere with day-to-day operations and decisions of the corporation

Other Private Sector Enterprises

• In some cases, profit-making companies are partly owned or controlled by the government. They sell shares on the publicly listed stock exchanges so they are a mix of the private and public sector

• Other businesses are funded by central and local government but may still levy charges for some services 

  • Due to the constraints of government spending in many countries, many services are now being privatised or suffer from insufficient funding

    • Privatised: transfer of ownership and control of firms/assets from public sector to the private sector

1.5 Business objectives and stakeholder objectives

Business Objectives

Importance of Business Objectives

• Business aims are the long-term aspirations of an organisation

• Business objectives are specific, measurable, achievable, relevant, and time-bound targets (SMART targets) that must be achieved to realise business aims

• Every successful business needs to have clear aims and objectives that guide its operations and focus the efforts of all employees towards the same goal 

  • Aims and objectives are critical for businesses to function effectively and achieve long-term success

• Objectives provide a focus or target for managers and employees

• Examples

  • A business aim may be to become the market leader in a particular industry

  • The corresponding objectives may include increasing sales by 25% over the next three years, improving customer satisfaction by 15%, and expanding into new geographic markets

Common Business Objectives 

• As businesses grow, their objectives often change over time

Note: Avoid suggesting that ‘making as much profit as possible’ is always the most likely objective of a business

It often depends on economic conditions and the original aims of the owners

Many entrepreneurs are more focused on helping groups in society than making money

As markets can be very dynamic objectives  are very likely to change over time

Objectives of Social Enterprise

• Social entrepreneurs set socially-focused objectives for their business. They are in the private sector but do not have making a profit as their primary focus

  • They seek to make a profit in order to spend the money on achieving their social objective

• Objectives may include 

  • Social: to provide jobs and support for disadvantaged groups in society, such as the disabled or homeless

  • Environmental: to protect the environment

  • Ethical: to operate the business in a responsible way

  • Financial: to make a profit to invest back into the social enterprise to expand the social work that it performs

Differences in Private & Public Sector Business Objectives

The goals and objectives are mainly financial in the private sector, whereas the public sector's are generally for the greater good of society

Stakeholders Objectives

Business Stakeholders

• Business stakeholders are individuals or groups that affect or are affected by the actions of a business or groups with an interest in the activities of a business

• Internal stakeholders include anyone within the organisation such as employees, owners, shareholders, and managers

  • Internal stakeholders: an individual/group within an organisation that has an interest in its activities

  • work/own the company

  • ie, owners or employees, managers, workers

• External stakeholders are people and organisations that are outside of the business and include suppliers, governments, customers, trade unions, and creditors

  • External stakeholders: An individual/group outside of the organisation that has an interest in its activities 

  • Are outside of the business

  • Ie. government, competitor, Consumers, Banks

  • Trade Unions: Organisations formed to protect the rights of workers

  • Creditors: businesses or individuals to whom a business owes money

Objectives of Stakeholder Groups

• Stakeholders can have different objectives based on their different roles and perspectives

• A business needs to take into account the needs and interests of its stakeholders to operate successfully and ensure long term success

Business Activity Impact on StakeHolders

• If a business experiences financial difficulties, shareholders may lose value in their investments and employees may face job losses or pay cuts

• If a business is profitable, shareholders may benefit from increased dividends and employees may receive bonuses or promotions

• Customers can be affected by business activity in terms of product availability, quality, and pricing

• The local community can be impacted by the environmental and social impact of business operations, such as pollution or job creation

• The government can be affected by business activity in terms of tax revenue and regulatory compliance (following the laws)

Stakeholder impact on Business Activity

• Customers can influence product development and pricing through their purchasing decisions and feedback

• Employees can impact business activity through their productivity, skills, and job satisfaction

• Shareholders can impact business activity through their investment decisions and demands for returns

• The local community can impact business activity through regulations and permits (from the local council), and social pressure

• Pressure groups can impact business activity by lobbying for changes in policy or boycotting products

• The government can impact business activity through taxes, regulations (laws), and subsidies

  • Subsidies: amount of money paid to each firm by the government for each unit produced

Stakeholder Conflict

• Stakeholder groups can have conflicting interests and objectives, which can lead to tensions and conflicts

  • Shareholders may prioritise profit maximisation, while employees may prioritise fair treatment and high wages

  • Customers may prioritise low prices, while the local community may prioritise environmental sustainability which raises costs and prices

• These conflicts can create challenges for businesses to balance the competing demands of different stakeholder groups

  • E.g. A company may need to invest in costly environmental technology to meet the demands of the local community, but this may reduce profitability and upset shareholders

• Conflicts can also arise when stakeholders have different levels of power and influence

  • E.g. Pressure groups with strong public support may be able to influence business activity more than individual shareholders

• Managing stakeholder conflicts requires careful communication, transparency, and compromise

Note:

• The interests of stakeholders should be considered whenever a question asks you to weigh up business choices, typically in the longer-answer questions. You might consider the following:

  • Which stakeholders might be supportive of each option?

  • And which stakeholders might oppose each option?

  • Is there a conflict between different stakeholders?

  • How might conflict be overcome?

Unit 2: People in Business

2.1 Motivating Workers

Benefits of Motivated Employees

Motivation refers to the inner desire or willingness that drives a person to take action and achieve a specific goal or outcome

• Motivation can be intrinsic, coming from within a person (values, beliefs etc)

• Motivation can be extrinsic, coming from external factors (rewards or punishments)

Why People Work

• People work for many different reasons

  • They need to earn money to fund their lifestyle and ensure they have the necessities required, basic needs

  • For some, work is voluntary or low-paid and done to give them a purpose

    • Self-importance (esteem): to feel that you are important and that the job you do is important

    • Job Satisfaction: to feel pleasure that you have done a good job

  • Some people work for the opportunity to mix with other people

    • Affiliation (Social needs): to feel part of a group, meet people, make friends

  • For many, employment allows them to fulfil their aspirations

  •  Security: to know that you are financially secure

Benefits of Motivation

Motivation plays a critical role in business success

• Motivated employees are more productive and efficient

  • They are likely to be engaged in their work and use their initiative to meet or exceed their goals

  • They will generate higher levels of output and quality

  • Increased productivity results in higher profits for the business

• Labour turnover rates tend to be lower when a workforce is well motivated

  • Motivated employees are more likely to stay with the company long-term 

  • Lower turnover rates reduce the need for costly recruitment and training

  • Labour turnover: proportion of staff leaving a business during a specified period of time

• The reliability and loyalty of motivated workers are likely to be high

  • Motivated employees take pride in their work, show up on time, meet deadlines and take fewer sick days

  • This leads to increased trust between the business and its employees and encourages a positive organisational culture

Lack of Motivation

• Absenteeism- Employees will take sick leaves to avoid going to work as they are unmotivated (not willing to work hard at the slightest inconvenience)

• Grievances- all employees demotivated (this is contagious)

• Punctuality- less motivated to make it there on time or early

• Late replies to important messages

• Labour turnover- Employees will be more willing to quit (labour turnover is expensive!!)

• Overall business performance- As employees quit and do not work as hard, sales drop

• Accidents at work

Motivational Theories

Motivation theories offer varied perspectives on the role of money in motivating staff and how non-financial factors may drive workers to improve their effort and output

The main theories include

• Maslow's Hierarchy of Needs Theory 

  • which argues that people move through levels of needs that motivate them and once a need is met it no longer serves to motivate

• Taylor's Scientific Management Theory 

  • which states that workers are motivated mainly by pay and need tightly-defined tasks and close supervision

• Herzberg's Two Factor Theory 

  • which believes that money is not a motivator but that the lack of money leads to dissatisfaction, whereas workers are motivated by factors such as the opportunity to develop their skills

Maslow's Hierarchy of Human Needs

• Maslow's Hierarchy of Needs outlines five tiers of human needs that must be met for individuals to reach their full potential

• Once a tier of needs has been met it is unlikely to continue to motivate 

  • For example, once safety needs are met through satisfactory pay employees will look for the next set of needs - love & belonging needs - to be met

Maslow's Hierarchy of Needs explains human motivation based on the pursuit of different levels of needs being fulfilled

Tiers

1. Physiological needs

   • Businesses can provide basic necessities to their employees

     •  e.g comfortable work environment, access to clean water and food, and adequate rest breaks

     • Fulfilled by receiving wages

2. Safety Needs

   • Businesses can provide job security, fair pay, and safe working conditions for their employees

   • protection against danger & poverty

   • Having fair treatment

     • Fulfilled by having job security

3. Love and Belonging Needs

   • Businesses can encourage teamwork and generate sense of community and belonging within the community

   • friendship, belonging in a group

     • Fulfilled by having colleagues at work

4. Esteem Needs

   • Businesses can provide recognition for employees' accomplishments, and provide a positive work culture that values individual contributions

   • having status and recognition

     • Fulfilled by being recognised for good work

5. Self-Actualization Needs

   • Businesses can help employees achieve this need by offering opportunities for employees to pursue their passions and interests

   • achieving your full potential, feeling that you have done a good job

     • For example, Barclays Bank is known for supporting elite sportspeople by allowing them time off work in the day to continue their training (the focus was on getting the job done, not having to be present at work at a certain time)

     • Fulfilled by being promoted & being given more responsibility

Taylor’s Scientific Management Theory

• Developed by Frederick Taylor in the early 20th century

• It focuses on breaking down complex tasks into simpler ones, standardising work processes and providing workers with clear instructions and training to achieve maximum efficiency

• This means that if the workers are paid more, they will work more effectively

• By breaking down worker’s jobs into simple tasks, you could calculate how much output they could do in a day

• Many manufacturing businesses use Taylor's principles to structure their staff benefits

  • Piece rate pay systems link output to financial rewards

    • Piece Rate: worker’s pay is directly linked to their output

  • Production lines involving human labour are often set up based on these principles

• Taylor’s theory focused mainly on factory workers, since it is easy to work out their output done

• Taylor’s idea was that if the workers produced this target output, they would be paid more money

Taylor's method starts with a scientific analysis of what is involved in a job and then breaks it down into parts for which employees can be trained

Steps

1. Study and analyse the work process

   1. Carefully analyse each step of the work process

   2. Break down complex tasks into simpler ones and identify the most efficient and effective way to perform each task

2. Standardise the work process

   1. This involves creating detailed procedures and instructions for each task so that workers can follow these procedures consistently

3. Select and Train Workers

   1. Workers should be carefully selected based on their skills and abilities

   2. Train workers to perform their tasks efficiently and effectively

      1. This training includes both technical skills and the proper attitudes/behaviours required to be successful (e.g patience in a repetitive task)

4. Provide Incentives for Performance

   1. Scientific management emphasises the use of incentives to motivate workers

      1. This may include bonuses or piece-rate pay

Herzberg’s Motivation Theory

• Herzberg's theory suggests that there are two influences that determine employee motivation and job satisfaction - hygiene factors and motivators

  • Hygiene factors are elements that do not necessarily lead to job satisfaction, but their absence can cause dissatisfaction which decreases motivation, basic animal needs

    • Status

    • Security

    • Work conditions

    • Relations with boss and subordinates

    • Salary 

  • Motivators are elements that lead to job satisfaction and motivation, grow psychologically

    • Achievement

    • Recognition

    • Personal growth

    • Advancement / Position

    • Work itself

An explanation of how the lack of hygiene factors causes dissatisfaction while addressing the motivators increases satisfaction. Increased satisfaction leads to increased productivity and profitability

• Herzberg’s theory claims that the ‘Hygiene’ factors must be satisfied, if not, it will demotivate workers

• Only after they are satisfied, can the ‘Motivator’ factors can act as motivators for employees

Using Hygiene Factors to Decrease Dissatisfaction

• Pay fair wages/salaries

  • If an employee is not paid a fair wage for their work they may become dissatisfied and demotivated

• Offer excellent working conditions

  • If the workplace is dirty, unsafe or uncomfortable employees may become dissatisfied and demotivated

  • Google has a reputation for providing amazing workplaces which include gourmet restaurants, laundry services and dog care

• Offer employment contracts which provide job security

  • If employees feel that their job is not secure they may become anxious and demotivated and contribute less to the business goals

Using Motivational Factors to Increase Satisfaction

• Build a recognition and rewards culture

  • When employees are recognised and rewarded for their hard work they are motivated to continue performing well

  • Examples include sales person of the month award, regular staff social events

• Offer opportunities for growth and development

  • When employees are given opportunities to learn new skills and advance in their careers they are motivated to continue working for the company

  • Examples may include personalised growth plans which help workers achieve professional goals or sabbaticals which allow workers to periodically pursue a valued interest

• Provide challenging work which requires problem solving

  • When employees are given challenging work that allows them to use their skills and abilities they are motivated to continue performing well

  • Examples may include job rotation or job enlargement through delegation

Note: Motivation is a popular exam topic and can be used to build analysis on a variety of topics. Always consider how decreased motivation can lead to increased business costs, which will reduce its profitability. Using principles gained from these three motivational theories can help wise managers to increase motivation, raise productivity and decrease business costs.

Financial Methods of Motivation

• Financial incentives are rewards or payments given to employees in return for their labour - or improved performance

  • Herzberg's Two Factor Theory says that money is not generally a motivator, but the lack of it leads to dissatisfaction

  • Maslow's Hierarchy of Needs argues that people move through levels of needs that motivate them - their lower-order needs are closely linked to financial rewards whilst higher-order needs are rarely linked to pay

Financial Incentives

Non Financial methods of Motivation

• Non-financial incentives are rewards that are not directly related to money

• These incentives may be intangible and include methods that lead to recognition, praise, job satisfaction or improved work-life balance

Non Financial Incentives

Recommending a Method of Motivation

• When recommending a method of motivation for employees in a business, managers must recognise that individuals are motivated in different ways

• The following should also be considered

  • The context of the business

  • What type of business is it? E.g. manufacturing or sales 

  • The budget available 

  • How many workers does the organisation have?

  • Does the business currently use any methods of motivation?

  • What is the nature of the work of employees on a daily basis?

• The balance of the compensation package

  • Ideally it should include both financial and non-financial 

  • It should be adaptable and reflect the changing needs of staff

Example 1: Workers in chocolate biscuit factory work long shifts on a busy assembly line. They are experiencing low morale 

• Work is often repetitive and boring 

• Workers may feel that they are not gaining new skills in their role

Recommendation: Job rotation, may allow workers to experience different elements of the production line which could increase motivation and skills

Example 2: Some members of the sales department of a major perfume brand are feeling demotivated. They discovered that they have a lower base salary than their competitors

• This is a competitive industry for employers who want to attract and retain the best marketing talent

• The business will not want to lose the best employees to competitors

• Increasing salaries may be costly

Recommendation: The business should increase salaries in line with those of its competitors in order to retain staff

Alternatively, workers may be motivated by a higher bonus for hitting their sales targets

2.2 Organisation & Management

Organisational Charts & Roles

An organisational structure outlines the reporting relationships, roles, and responsibilities of employees in the organisation, A visual representation of people and their positions within a business, levels of management and division  of responsibilities within the organisation

• Businesses must determine what the best structure is for them so as to effectively implement ideas and achieve their objectives

  • They should consider how the structure may affect the management and effectiveness of operations and communications

  • A well-designed organisational structure helps to promote clarity, efficiency and accountability

• Organisational structures show the chain of command in a company

  •  this is usually in the form of an Organisational Chart

  • Organisational Charts show a clear structure of the business and make it easy to see which part of the company does what

• The benefits of an organisational chart are that it shows how everybody is linked together in the organisation, they know who to reach and how.

• Each employee can also see their own position, who’s authority they are under and who they have authority over

• It gives everyone a sense of belonging, motivates them to move up the chain of command

This organisation chart shows a traditional hierarchy where workers are answerable to the supervisor or manager who has authority over them in the structure

Hierarchy 

• A hierarchy refers to the levels of authority within an organisation

  • It describes the ranking of positions from top to bottom

  • The higher the position in the hierarchy, the more authority and power it holds

  • The hierarchy usually includes top-level management, middle-level management, and lower-level employees

• a structure that shows the levels of management within a business

Chain of Command

• The chain of command is the formal line of authority that flows downward from the top management to lower-level employees

  • It defines who reports to whom and who is responsible for making decisions

  • The chain of command helps to establish a clear communication channel and helps to maintain accountability within the organisation

• the structure in a business that allows instructions to be passed down from a person to another, below them in the command.

• The order of management levels with senior positions towards the top

Span of control

• Span of control refers to the number of employees that a manager or supervisor can effectively manage

• It is based on the principle that a manager can only effectively manage a limited number of employees

  • A narrower span of control means that there are more layers of management

  • A wider span of control means that there are fewer layers of management

• how many subordinates work directly under a manager

• The amount of people/subordinates a manager is responsible for

Tall & Short Organisational Structures

• The chain of command and span of control are closely linked

  • A long chain of command usually results in a narrow span of control

    • This is known as a tall organisational structure

  • A short chain of command usually results in a wide span of control

    • This is known as a flat organisational structure

Tall

• Multiple levels of management 

• A long chain of command and narrow span of control

• Common in large organisations with complex operations

  • E.g. government agencies and universities

Short

• Fewer layers of management

• A short chain of command and wide span of control

• Common in small organisations or start-ups

  • E.g. tech start-ups and small businesses

Subordinates

• someone who is lower in rank, under authority of a superior

• The employees beneath you in an organisational chart

Subordinates

• someone that has recognised power to make decisions and to delegate tasks

Authority

• the process of giving authority to a subordinate to perform a task (instructions)

Delayering

• Some businesses may choose to remove layers from their hierarchy which shorten the chain of command

  • This is known as delayering

• Removing a level of the hierarchy to make it flatter, better communication, and save money

Note: Remember the following distinctions: 

The longer the chain of command, the ‘taller’ the organisational structure and the ‘narrower’ the span of control

The shorter the chain of command, the 'wider' the span of control

In exam questions you may be asked to define a specific key term in this section or explain a type of organisational structure

Role of Management

• The organisational structure of a business determines the roles, responsibilities and relationships in an organisation 

  • Individuals at the top of the structure usually have more authority

  • Middle managers will have relationships with senior managers, other middle managers, and their subordinates

  • These hierarchies determine the formal routes through which communication often flows in a business

Managers

• Managers have many responsibilities in the business and help it to operate effectively on a day-to-day basis

• Types of managers include directors, line managers and supervisors

• Work to achieve the short and long-term targets set by the owners or directors

• May be responsible for a function within the business, e.g. marketing or finance

• Use employees and other resources in the best possible ways

Delegation

• Delegation is a process where responsibility for specific tasks is given to subordinates by managers 

  • Delegation usually involves transferring authority from manager to subordinate

  • E.g. the Human Resources Director of a large company delegates authority for recruitment and training to the Recruitment and Training Manager

• Some managers are reluctant to delegate as they lose some control over decision-making

  • Managers may need support to be able to balance trust and control to delegate appropriate tasks

  • Autocratic leaders may not be willing to give authority to others

  • Some managers may feel threatened by highly skilled subordinates seeking promotion

Leadership Styles

Leadership

• Leadership is about having a vision, sharing that vision with others and providing direction

• Leadership is necessary in many different contexts

• Leaders can inspire and motivate others to work towards a common goal

  • This contributes to the meeting of aims and objectives and supports the development of a motivated workforce

• Leadership is all about motivating others so that they perform well and continue to contribute towards the objective of the organisation.

Leadership Styles

• Leadership styles reflect the behaviours and attitudes of a leader towards their team members and influence the organisational culture, productivity and performance of a business

• A successful leader will be able to use a variety of leadership styles, depending on the situation, to achieve the best results for their business

Autocratic Leadership

• An autocratic leader holds absolute power and authority within a business

  • Leaders set the direction and goals of the business and makes decisions without seeking input or agreement from others

  • The opinions, ideas or expertise of team members are not generally considered

  • Decisions are generally not open for discussion or debate

  • Strict obedience and compliance is expected from subordinates

  • Communication in business is mainly one-way: downward or 'top-down'

• Senior managers take all the important decisions with no involvement from workers.

• Strict, fear, tells the team what to do

Example: Elon Musk

Democratic Leadership

• Democratic leaders actively involve employees in the decision-making process and encourage discussion, though they have the final say

  • Consultation, collaboration, delegation and teamwork are common features 

  • It is most effective in organisations with skilled and experienced employees

  • It works well in creative industries when managers give workers responsibility to work on projects together and manage their own time

• Workers are allowed to make their own decisions. Some businesses run on the basis of majority decisions.

• Ask for opinions, Votes for ideas, Listening to contributions

Example: James Parker, the ex CEO of Southwestern Airlines, is well-known for his democratic style of leadership. In his book Do the Right Thing he states “I’ve always tried to expect the best of people and to trust them, and I have almost never been disappointed. Part of trusting people is empowering them to make decisions” or Nelson Mandela

Laissez Faire Leadership

• Laissez-faire leaders play a minimal role in managing subordinates or business teams

  • Leaders provide little guidance, direction or supervision to employees

  • Employees have significant autonomy and freedom in making decisions and completing tasks

  • Laissez-faire leadership is most appropriate where leaders are working with a highly skilled and self-motivated team that requires minimal supervision

  • Communication may suffer in this type of organisation as clear direction is not given

• Leader has little input into day-to-day decision-making and conscious decisions to delegate power.

• Trusts the team, Directly translates to ‘leave be’

Leaders vs. Managers

Choosing Appropriate Managing Style

• Business circumstances including the nature and size of the business

• Aims and objectives to be achieved

• Personality, experience and skills of the leader

When a business faces a crisis situation and its workers are unskilled, autocratic leadership is likely to be most appropriate

• However, if the workers are highly skilled, a democratic approach would be more effective

When a business operates in a stable environment and its workers are unskilled, a democratic approach is likely to be most appropriate

• However, if the workers are highly skilled, a laissez-faire approach would be more effective

When a business operates in a high growth/challenging environment and its workers are unskilled, an autocratic approach is likely to be most appropriate

• However, if the workers are highly skilled, a democratic approach would be more effective

Trade Unions

• A trade union is an organisation that represents the interests of its workers in negotiations with a firm’s management or owners

  • A trade union's main aim is to protect and advance the interests of its members in the workplace

  • Most trade unions are independent of any employer but try to develop close working relationships with employers

• The interests of the worker include:

  • Correct and fair pay

  • Non wage benefits of employment such as training

  • Health and safety in the working environment

  • Suitable working environment

  • The reduction of discrimination and worker exploitation

• Trade unions are usually formed by the members of specific industries

  • Airline pilots have a pilots' union

  • Rail & sea workers have a rail & maritime union

    • E.g. The NEA is the USA's largest professional employee organisation representing public school teachers and other support personnel at colleges and universities

• Workers pay a monthly fee to join a trade union

  • The fee is called a subscription

  • Membership ends when the member stops paying this fee

Come in two forms:

• Professional bodies (that you join)

• Groups within a single business

Represent the rights of the workers and campaign for the better

• Pay

• Condition

• Working hours

Support industrial Action

• Strikes

• Work to rule (do the bare minimum that the contract allows)

Effects of Trade Union Membership

• Public sector industries tend to have the highest membership density

• Women are more likely than men to belong to a trade union

• Trade union members generally receive higher pay than non-union members

• Trade unions can become so large that they are able to influence government decisions in favour of workers

Employees

Employers

2.3 Recruitment, Selection & Training of Workers

Recruitment Methods

Recruitment and Selection

• the process from identifying that a business needs to employ someone, to the point where applications have arrived at the business

• Recruitment is one of the roles of the Human Resources department

• Recruiting usually happens when an employee leaves a job, a business is starting up, or it wants to expand

• Vacancies can arise due to

  • Business growing

  • Employees leaving

  • Business structure being reorganised

  • Employees are required once a business starts operating

NOTE: Make sure you know the difference between a job description and a person specification. You will be expected to know specific types of recruitment  documentation for the exam

External Recruitment

External recruitment involves appointing an employee from outside of the business, by someone who isn’t an existing employee

1. A job analysis is done to identify the tasks and responsibilities to be carried out by the new employee, establish clear requirements

2. Once the details of the job are gathered, a job description will be made, outlining these duties.

3. From the job description, a job specification is created, which outlines the requirements, qualifications and expertise for the job, the person specification

4. Then the job is advertised in the appropriate media (i.e. if it is a finance related job, it might be advertised in finance magazine), a hiring notice is set out

5.  Candidates start sending their application forms and the company does a short-list for interviews (because they cannot interview all)

6. Interview

7.  The candidate is chosen after the interviews by the company, job is filled

Internal Recruitment

Internal recruitment involves promoting or redeploying employees that already work for the business, job is filled by an existing employee of the company

• This is commonly achieved through promotion or redeployment