Business World and Business Management Notes

The Business World and Business Management

Role of Business Organizations

• Business organizations play a vital role in providing products and services necessary for society's existence and thriving.
• They satisfy societal needs within a market economy.

Business Defined

• A business is a complex system that transforms resources into products and services to meet people's needs in exchange for profit.
• Four key elements of a business:
  1. Human activities: Businesses are managed by people.
  2. Production: Resources are transformed into products and services.
  3. Exchange: Products and services are exchanged for money.
  4. Profit: Businesses are rewarded for meeting people’s needs.

Market Economy

• A market economy (or market system) is where individuals decide what to produce, how to produce it, and at what price to sell.
• Businesses mobilize a country's resources to satisfy the needs of its inhabitants.
• Businesses are grouped into industries.

Industries

• Industries can be categorized:
  • Formal Sector: Large businesses listed on the JSE (e.g., Old Mutual, Exxaro, Telkom, Sasol).
  • Informal Sector: Micro-enterprises that don't contribute to rates and taxes (e.g., independent family-owned enterprises).

Sustainability

• Sustainability is the ability of a business to survive and prosper long-term.

Themes of Sustainability:

• Social responsibility: Measured by contributions to employment and the economy.
• Employment equity: Creating equal opportunities and redressing inequalities.
• Business ethics: Ethical behavior of managers and executives.
• Consumerism: Protecting consumers against unsafe products.
• Environmental sustainability: Addressing air, water, and soil pollution.

Needs and Need Satisfaction

• Human existence depends on satisfying physical and psychological needs.
• Abraham Maslow: Explained needs via a hierarchy.
• Humans have unlimited physical, psychological, and social needs.
• Needs range from basic (food) to self-realization.

Maslow’s Hierarchy of Needs

1. Physiological needs
2. Safety needs
3. Social needs
4. Esteem needs
5. Self-realization needs

Limited Resources

• Society’s resources are limited:
  • Natural resources (e.g., water, forests, minerals).
  • Human resources (e.g., employees).
  • Capital (e.g., buildings, machinery, computers).
  • Entrepreneurship (including management; e.g., Elon Musk, Richard Branson).

Factors of Production

• Land: Natural resources; supply cannot be increased.
• Labour: Human effort, including mental talents and skills.
• Capital: Assets used for further production of consumer products.
• Entrepreneurship: Managerial capacity; individuals taking risks to provide products/services.

The Economic Principle

• Given unlimited needs and limited resources, society faces the economic problem: maximizing need satisfaction with scarce resources.

Economic Issues

• What products/services should be produced and in what quantity?
• Who should produce these products/services?
• How should these products/services be produced and with what resources?
• For whom are the products/services being produced?

The Cycle of Need-Satisfaction

• The economic motive drives the community.
• The community chooses its need-satisfying system.
• Members decide which economic system best satisfies their needs: market economy, socialism, or command economy.
• Entrepreneurs and their businesses are the need-satisfying institutions in a market economy.

Main Economic Systems

• Three main approaches to solving economic problems:
  • Market economy (free-market economy/free-enterprise system).
  • Command economy (centrally directed economic system).
  • Socialism.

Market Economy

• Most products/services are supplied by private organizations seeking profit.
• Assumptions:
  1. Members may possess assets and earn profits.
  2. Resources are allocated by free markets.
  3. Members have free choice of products, services, residence, and careers.
  4. Minimal state interference.

Command Economy

• The state owns and controls the community’s resources/factors of production.
• System of communal ownership (individuals own no property except private domestic assets).
• Choices are limited to what the state offers.
• The state decides the community’s needs, and how and where goods are obtained and used.

Socialism

• The state owns and controls principal industries and resources (e.g., steel, transportation, communications, health services, energy).
• Compromise between market and command economies.
• Businesses and consumers operate within free markets, making unrestricted decisions.
• Consumers have greater freedom of choice than in a command economy.

Comparison of Economic Systems

Need-Satisfying Institutions

• Business organizations: Seek profit to survive (e.g., Pick ‘n Pay).
• Government organizations: Provide strategic, economic, or politically important products/services (e.g., SAA, SABC).
• Non-profit organizations: Not primarily profit-motivated (e.g., SPCA).

Functional Management Areas

• General management
• Marketing management
• Financial management
• Production and operations management
• Purchasing management
• Human resource management
• Public relations management

Summary

• Business organization's role in society
• Business is a social process that transforms a country's means of production
• Business as a component of the economic system
• Business provides for the needs of the people.