PP

Notes: Unit 1.1: What is a Business?

The Nature of Business

  • Businesses exist to satisfy the needs and wants of customers by selling goods and services, usually for profit.

  • They do this by combining human, physical, and financial resources to create goods and services to meet the needs and wants of individuals and societies.

  • A business can be defined as a decision-making organization established to produce goods and/or provide services.

  • Goods are physical products (e.g., food, clothes, furniture, cars, smartphones).

  • Services are intangible products (e.g., haircuts, tourism, public transport, banking, insurance, education, healthcare).

  • Business activity is a way to add value to inputs (land, labour, capital, enterprise) and then turn them into outputs (goods or services) that people need or want.

  • The production of value is the core aim: converting inputs into outputs that satisfy customer needs and generate profit.

Input–Process–Output and Systems

  • A business operates as a system with inputs, processes, outputs, and feedback.

    • Input: resources used in production (e.g., capital, land, labour, enterprise).

    • Process: the actions that transform inputs into outputs (e.g., production activities, service delivery).

    • Output: goods or services produced for customers.

    • Feedback: information returned to improve the system.

  • Diagrammatic idea: Input → Process → Output with Feedback looping back to improve inputs/processes.

Factors of Production

  • Land: natural resources used to produce goods and services (e.g., water, timber, minerals, plants, animals).

  • Labour: human effort used to produce goods and services.

  • Capital (non-natural resources): tools, machinery, motor vehicles, premises, infrastructure.

  • Entrepreneurship: knowledge, skills, and experience to manage production; willingness to take risks to produce goods/services profitably.

  • These factors must be combined effectively to create outputs that meet customer needs.

Business Functions (Functional Areas)

  • To operate, large organizations divide tasks into departments (functional areas):

    • Human resources (HR)

    • Finance and accounts

    • Marketing

    • Operations management

  • In smaller businesses (e.g., sole traders), the entrepreneur may perform multiple functions.

The Inputs–Process–Outputs of a Bakery (Example)

  • Inputs:

    • Labour

    • Raw materials

    • Equipment

  • Processes:

    • Mixing

    • Kneading

    • Baking

    • Packaging

    • Delivery

  • Outputs:

    • Bread

    • Cakes

    • Pastries

  • Note: This example illustrates how a bakery converts inputs into finished goods through defined processes.

Functional Areas and Interdependence

  • Marketing, Human Resources, Finance and Accounts, and Operations Management must work together.

  • Departments are interdependent: decisions in one area affect others (e.g., marketing needs data from finance; HR affects operations with staffing).

The Chain of Production and Value Addition

  • The chain of production links all production sectors from extraction of raw materials to delivery to consumers.

  • Value is added to the item at each stage as it moves through the chain (e.g., raw materials → manufacturing → services → consumer).

  • Example chain: cocoa beans (extracted in primary sector) → processed in secondary sector to chocolate → serviced/retailing in tertiary/quaternary sector → consumer purchases the product.

Sectors of the Economy (Classification by Stage of Production)

  • Primary sector: extraction/harvesting/natural-resource use.

    • Examples: farming, mining, forestry, fishing, natural resource extraction.

  • Secondary sector: manufacturing or construction of products.

    • Examples: factories, construction companies, food processing.

  • Tertiary sector: providing services to the population.

    • Examples: retail, transport, hospitality, banking, healthcare, education, entertainment, media.

  • Quaternary sector: knowledge-based activities that generate and share information (intellectual activities).

    • Examples: IT services, research and development, information services, consulting, data analysis, education.

Quick Reference: The Chain of Production (Value Addition)

  • Cocoa beans → extracted (primary) → processed (secondary) → packaged and sold (tertiary/quaternary) → consumer purchases the product.

  • Value is added at each stage of the chain as processing and services increase the product's worth.

Entrepreneurship

  • An entrepreneur is an individual who plans, organizes, and manages a business, taking on financial risks to do so.

  • Characteristics of entrepreneurs include:

    • Taking substantial risks

    • Having a vision for the business

    • Working toward profit

    • Responsibility for employees

    • Personal costs if the venture fails

RISER: Traits of a Successful Entrepreneur

  • RISER stands for:

    • Risk taker (willing to take calculated risks)

    • Innovative (creative/original thinking)

    • Strategist (strategic thinking)

    • Enthusiastic (passion, energy, drive)

    • Resilient (ability to handle feedback and setbacks)

Challenges and Opportunities for Starting a Business

  • Common challenges for new businesses:

    • Production problems

    • Poor location

    • People-management problems

    • External influences (economic, political, legal)

    • Legalities

    • Marketing problems

    • Unstable customer base

    • Lack of finance/capital

    • High production costs

    • Cash flow problems

  • Mnemonic for opportunities: GET CASH

    • A mnemonic used to remember potential opportunities for starting a business (exact word expansions not provided in the transcript).

Growth, Earnings, Transference, and Autonomy in Entrepreneurship

  • Growth: Capital growth is the appreciation in the value of business assets (e.g., land and buildings) and may exceed the owner’s salaries.

  • Earnings: Entrepreneurs can earn more than traditional salaries from employment.

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  • Transference and Inheritance: Businesses are often passed to the next generation to secure future prosperity.

  • Autonomy: Self-employed individuals have independence and flexibility in how they run their business.

  • Security: Self-employment can offer job security and potential for wealth accumulation in retirement.

  • Hobbies: Some people turn their hobbies into businesses.

Concepts in Business Management (Concept-Based Learning)

  • Concept-based learning uses three dimensions: Facts (content), Skills, and Concepts.

  • Core concepts covered include:

    • Change

    • Ethics

    • Sustainability

    • Creativity

  • These concepts are explored to deepen understanding beyond rote facts and assist with transfer of knowledge across topics.

Business Management Toolkit (BMT)

  • A set of tools for business planning and decision-making:

    • GOALS

    • IDEAS

    • TEAM

    • STRATEGY

    • INNOVATION

    • MARKETING

    • BUSINESS

    • COMPETITION

    • PLAN

    • PERFORMANCE

Summary of Key Points to Remember

  • A business exists to satisfy needs and wants, usually for profit, by combining resources to produce goods and services.

  • Inputs–Processes–Outputs framework, with feedback, governs how businesses operate.

  • The four factors of production: Land, Labour, Capital, Entrepreneurship.

  • Four major functional areas: HR, Finance & Accounts, Marketing, Operations; interdependence among departments.

  • Sectors of the economy: Primary, Secondary, Tertiary, Quaternary; with evolving examples.

  • The chain of production and value addition explains how value increases from extraction to delivery to consumers.

  • Entrepreneurship defined; key traits (RISER) and discussion prompts on whether entrepreneurs are born or made.

  • Challenges and opportunities for new businesses; mnemonic GET CASH for opportunities (expansions not explicitly detailed in slides).

  • Concept-based learning emphasizes Change, Ethics, Sustainability, and Creativity within business contexts.

  • The Business Management Toolkit (BMT) provides a structured approach to planning and growth, including a sample plan for a cleaning business.

  • Case studies (e.g., Gymshark) illustrate real-world applications and complexities of entrepreneurship.

  • TOK discussions encourage critical thinking about knowledge, causality, and justification in business contexts.