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Name: Unit 1 – Business organisation and environment

1.1 Introduction to Business Management

Learning Objectives
• LO1: To explain why businesses exist and what business inputs are
• LO2: To describe the main functions of a business
• LO3: To differentiate between economic sectors
• LO4: To explain why and how people start up a business
• LO5: To analyse challenges new businesses face
• LO6: To examine the importance of business plans

LO1: To explain why businesses exist and what business inputs are
Imagine that your group has been given ₫1m what will you do to turn it into ₫2m within a month?
- We could invest in assets, stocks, crypto
- Buy the products at a low price and resell them for a higher price

What is a business?

A business is an organization where goods and services are exchanged for one another or for money.

Why do you
think
businesses
exist?
Why do businesses exist?
- To produce the goods and services that satisfy customer’s wants and needs and to generate a profit
out of it
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Name: Unit 1 – Business organisation and environment
- To benefit society by creating job opportunities for people
- To develop, grow and survive
- To create higher living standards, instead of being self-sufficient and making our own resources
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Name: Unit 1 – Business organisation and environment

Key Terms
Consumer goods - Physical and tangible goods sold to the general public. These can be durable (long-
lasting), e.g. car or non-durable, e.g. food and drinks, that can be used only once.
Consumer services - Non-tangible products sold to the general public, e.g. hotel accommodation,
insurance, train journeys etc.
Capital goods -Physical goods that are used by industry to aid in the production of other goods and
services such as machines and commercial vehicles.

Match the business inputs to the descriptions below:

Business inputs (factors of production)
Labour Manual and skilled workers who make up the labour force for the business. Some firms
are labour-intensive, they have a high proportion of labour inputs compared to other
business inputs
Enterprise The driving force of business, provided by risk-taking individuals, combining the other
factors of production into a unit capable of producing goods and services. Provides a
managing, decision-making and coordinating role. It is essential.
Land A general term that includes land itself but all renewable and non-renewable resources
of nature.
Capital This has two elements – 1) finance needed to set up and pay for business operations. 2)
the capital goods such as machinery, offices, factories, vehicles etc. Some businesses are
capital-intensive – using a lot of machinery compared to labour.

Which natural resources might businesses use?

- Solar energy
- Oil
- Coal
- Plants
- Energy
- Water
- Trees
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Name: Unit 1 – Business organisation and environment
LO2: To describe the main functions of a business
In groups, research the main functions of business and what they do:
Human Resources Management
- Recruit new members of the company
(internal and external): checking CVs and
interviewing, choosing the best candidates
- Train employees (on-the-job, off-the-job,
induction training)
- Handle communication between staff
- Create motivational systems to increase
morale and encourage productivity, aids
business in achieving their objectives
Marketing
- Marketing mix: product, price, place,
promotion
- Market Research: primary and secondary.
Finding out the characteristics of the
customers and competitors, what customers
want or prefer
- Marketing Segmentation: finding a target
audience and creating niche markets for
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Finance and accounts
- Make sure the business has sufficient funds
to carry out necessary activities
- Make sure there are budgets for investment
to achieve business’s vision
- Maintain accurate accounts, cash flow
forecasts, balance sheets
- Preparing a financial plan in case a bank
load is needed
Operations management (production)
- Job, batch, flow production of products or
services
- Lean production: keep costs on waste low
and increase efficiency
- Maintain production of goods
- Checking the quality of products and
services before customers receive them
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Name: Unit 1 – Business organisation and environment
higher sales
- Advertising and branding the products
- Advertisement campaigns
- Making a marketing plan for make

Interrelationship of functions
Effective strategic decision-making develops from the functions working closely together!
Good communication, cooperation and close interrelationships are essential when making major decisions.
For example, when BMW decided to develop their first electric sports car the i8
● Marketing – will consumers be prepared to buy this car and at what price?
● Finance – do we have the capital to develop and produce it?
● HR management – do we need to recruit any additional engineers before this project can be turned
into a market-ready car?
● Operations management – can we produce this car at a cost which allows marketing to set a
profitable price level? Will the quality be up to normal BMW standards?

Marketing
HR
Finance
Operations
Marketing

HR

LO3: To differentiate between economic sectors

Which sectors are these businesses in?
Primary Secondary Tertiary Primary
Tertiary Secondary Primary
Primary Tertiary Tertiary
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Name: Unit 1 – Business organisation and environment

Primary Secondary Tertiary

UK 5% 2% 20% 17% 75% 81%
China 30% 42% 30% 26% 40% 32%
Ghana 50% 54% 25% 20% 25% 26%

Changes in economic sectors over time

Industrialisation – the growing importance of the secondary sector in developing countries.
Benefits of industrialisation Problems of industrialisation
- Higher GDP -> Higher standards of living - Higher labour turnover (harder to retain
- More job opportunities staff)
- Increasing output of goods -> More exports - Pollution
and less imports which help the country - Urbanization -> high influx of people from
grows rural to urban areas -> housing shortages
- Profitable firms pay more tax to the - Import costs increase
environment
- Value added to country’s output of raw
materials rather than exporting
unprocessed products

Deindustrialisation – the decline in importance of the secondary sector and an increase in the importance
of the tertiary sector. Reasons and possible impact of these changes include:
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● Rising incomes -> higher living standards -> more spending on services, e.g. tourism, hotels,
restaurants etc

● As the rest of the world industrialises, it does so with cheaper labour. More imports -> factories
closing

● Manufacturing workers may find it hard to find employment in other sectors – structural
unemployment.

LO4: To explain why and how people start up a business

Why
start a
business
?
- Wish to make money
- Independence, be your own boss
- Business opportunities
- Losing a job

Research the difference between an intrapreneur and an entrepreneur

Intrapreneur Entrepeneur
- Employee who is tasked with a specific - The founder who sets up a company with
project, responsible for turning an idea into his own ideas or concepts
a profitable product - Risk takers
- They don’t face risks and get the same - Operates and organizes the activities within
benefits as entrepreneurs the business
- Use the resources provided by the - Provide the financial resources to start the
company business
- 3 types: creator, doers, and implementers - Responsible for managing a venture
+ Creators: innovative and look for better ways
to do things
+ Doers: take the ideas/have picture of grand
scale and drill down the details
+ Implementers: execute plans and ensure
things get done

Write the personal qualities and skills of an entrepreneur / intrapreneur around the outline below
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Hard working
Innovative
Risk takers
Creative
Effective
Confident
communication skills
Perseverance
Independent

Start-up businesses
In pairs: research which industries it is more and less likely for new entrepreneurs to be successful in.
More likely to succeed More likely to fail

- Necessity goods: rice, potatoes -> not that
competitive, potential for growth since
these products are needed daily
- Technology: growing fast due to stay-at-
home regulations
- Semiconductor: also a growing industry due
to the need for IoT
- Hotel management: service sector growing
- E-commerce: everyone is moving to online
shopping and banking
- Food/delivering services: food are
necessities
- Manufacturing: new funds needed initially
- Space exploration: extremely costly
- Real estate: huge competitors
- Phone services: already a lot of reputable
brands like Apple, Samsung -> hard to
compete
- Fashion industry: people loyal to big brands
-> have to come up with extremely
innovative ideas
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- Carwash/gas stations: very few businesses
are doing this -> can stand out

Impact of enterprise (and intrapreneurship) on business activity

Governments usually follow policies to aim to encourage more people to become entrepreneurs. What are
the claimed benefits to the economy?

Benefits to
the economy
of new
businesses

- Higher taxes
- Lower unemployment
- Economic growth
- Innovation and technological change
Steps in starting a business

Identify market opportunities

Increase capital

Determining a location

Building a customer base

Challenges faced by entrepreneurs

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What skills might entrepreneurs be lacking and why?
Entrepreneurs are leaders, they must know what they’re doing so if they’re lacking
Poor management skills it means that they are not communicating well (not giving clear
management instructions -> workers might not understand tasks and tasks not done on time), they
skills are not delegating tasks and responsibilities efficiently and coordinating the
departments effectively and failing to make big decisions.

Why are accurate records important? What must businesses keep track of?
They need to keep track of finances (expenditure, revenue, cost inflows, cash outflows,
paying taxes and dividends), making staff redundant, stock control... They can also help
Lack of record
keep track of expenses, which helps the business to keep costs low. They contain
keeping
information about financial budgets which can keep the business from going over the
estimated budget.

What actions can competitors take which may affect a business?

Competitors can lower their prices which means that the business might also have to
lower their prices which reduces revenue, they can also launch a new product which
Competition could take customers away from one business, they could launch marketing campaigns
which can reduce their market share. They can also cause persuade employees from
other businesses to work for them (poach staff) -> labour turnovers. They may also copy
an original idea.
Lack of finance Working capital: the Why is obtaining finance such a major problem for entrepreneurs?
funds a business uses in
its day-to-day trading It is a major problem because they might lack financial plans or history, and
and working operations, calculated
as the current assets
capital they must have security or else banks won’t lend them money.
minus the current
liabilities.
CA - CL
Current assets (CA) –
assets which can be
Why is working capital important?
converted to cash within
12 months, e.g. finished Working capital is needed to pay off labour costs and production costs,
stock.
Current liabilities (CL) - wages, cover short-term debts, setting up machinery and equipment, pay
amounts due to be paid
to creditors within 12 suppliers.
months.

How can management of working capital be improved?

- Keep accurate accounts, balance sheets
- Construct cash flow forecasts
- Maintain good relations with the bank – short-term overdraft might
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be needed
- Ensure there’s enough start-up capital

What changes might there be in the external environment which might affect a
business?
- New competitors
- Economic crisis
- Globalisation
Changes in the
- Global pandemic
business
- Price of imports
environment
- Inflation
- Changing customer needs
- Technological changes
- Currency exchange

Which of the challenges faced by entrepreneurs is the biggest problem and why?
- Legal regulations: for example, fining a business for pollution issues so they might have to change
production methods
- New competitors: can make it difficult for the business to gain customers and a higher market share
- Changing customer needs: businesses need to produce new products that can attract them or keep
improving its own products which can raise costs significantly
- Economic recessions: reduce in real income so people have less to spend

LO6: To examine the importance of business plans

Business Plans - Contents
● Executive summary – overview of the business and its strategies
● Description of the business opportunities
● Marketing and sales strategy
● Management team and personnel
● Operations – premises used, production facilities, IT systems
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● Financial forecasts – sales projections, cash flow forecasts

Why are
business
plans
important?

- Help the business obtain finance (e.g. bank loans)

- Help unite the business together by showing what they’re aiming towards
- To check progress - they can compare their performance to what is planned
- Force entrepreneurs to plan so they are better planned

Business Plans – who uses them and why?

New To see if it is worth investing in this business and if the business is going to make profits
investors which means higher dividends
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Bank To see if the business is viable, has collateral and can repay the loans

Managers Check progress against targets and budgets

Employees To see if the business they’re working for is ethical and profitable because this might mean
higher wages for them, to see targets and objects that can help motivate them

Suppliers To see if it is worth establishing a relationship with them, see if they can return the debts

Other

1. A business is an organization where goods and service

2. Business inputs are the factors of production. Factors of production can be categorized into:
- Land: raw materials from nature that a business use like oil, soil, trees…
- Labour: manual and skilled workers
- Capital: finance, machinery, needed for business operations
- Enterprise: risk-taking ability of an entrepreneur to start and manage a business venture.
3. Primary sector businesses: farming and forestry because they work directly with natural resources
4. Secondary sector businesses: building construction, baking because they produce goods from the
raw materials provided by the primary sector.
5. Tertiary sector businesses: hotel and banking because they provide services to customers or other
businesses.
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6. Quaternary business: business consulting, research and development because these fields involve
the use of information technology.
7. a) Operations
b) Marketing
c) Human Resources
d) Finance
8. For example, when a huge decision like launching a new product is being made, each department
will have certain tasks that they are responsible for in order to make the launching of this product
successful: the Human Resources department will have to recruit the appropriate candidates and
train them so that they can help with the production of goods, the Finance department will have to
work out how much capital is available so that they can use this capital efficiently to buy the raw
materials needed or whether a loan is needed, the Operations department will decide on the stock
levels and which production method to use to make the products, and finally the Marketing will
find out customers preferences and advertise the produced product to gain customers.
9. a) The output and employment in the secondary sector have increased over the years. This is
because people are earning higher disposable incomes so they have more to spend on products
and services, making it grow more rapidly.
b) The expanding manufacturing industry means that they will have to pay more taxes to the
government and labour turnover rates will be higher because it will be more difficult to recruit and
retain staff.
10. - Entrepreneur: the person who manages, operates and takes the financial risks for a new business
venture.
- Intrapreneur: an employee in the organization who holds responsibility for turning an innovative
idea into a profitable product, this employee uses resources provided by the business and does not
have to take financial risks unlike entrepreneurs.
11. They both have to be innovative so that they can come up with creative ideas that can distinguish
them from other businesses, they also have to be self-motivated and hard-working to turn that idea
into a product or service that actually generates profit for the business.
12. – Determining a location: the business has to decided a location where the business will operate.
This depends on many factors such as the methods of production, whether the business has gained
weight so it will need to be located near to the market, the amount of available labour, and the
number of customers or competitors there so that costs are kept low and a profit can be made.
- Building a customer base: customer loyalty can help increase revenue for the business. The
business will have to come up with marketing campaigns or promotions like buy-one-get-one, after-
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sales services that can keep current customers loyal to the business and attract new ones.
Customers that are loyal to the business can also introduce the business to their family and friends,
which helps the business grow.
13. – High level of competition: competitors can make it difficult for the business to attract customers
because they can launch products that can take customers away from them, or reduce the prices
which means that business might also have to reduce prices, leading to lower revenue.
- Lack of finance or working capital: the business has no collateral so banks may be reluctant to lend
them bank loans to fund a project because they see it is risky. A new business may also have small
amount of assets that can be converted into cash.
14. – Forecast profit: investors want to see if the business is going to generate profits because higher
profits means higher dividends for them.
- Cash flow forecasts: to see if the business is managing their cash well so it is safe for them to invest
in. Investors would not want to invest in businesses that are in huge amounts of debts.