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Cambridge Business Studies Stage 6 Year 11 Fifth Edition

TOPIC 1
Nature of business
20% of indicative time

Principal focus
This topic focuses on the attributes of business and the part it plays in a changing environment.

Introduction
Businesses form one of the most important
sectors of the community. They provide
consumers with the goods and services that
Video 1.0
Introducing satisfy their needs and wants, and enhance
Topic 1 Nature
of business
their standard of living. Businesses also employ
millions of people in the labour force.
This topic will look at the different types
of businesses in Australia and how they seek
to achieve various goals. The environment in
which a business operates is often subject
to considerable change. Through the use of
case studies, you will be able to examine how
these changes impact on the functions or the
performance of a business.
Businesses also serve the interests of
various stakeholders, whether they are
individual owners, shareholders, customers,
creditors, employees or society. How fairly they
do this while attempting to achieve a balance
between what is considered good for the
business but fair for society is often subject to
considerable debate.

Outcomes
Students will:
• discuss business attributes, the role • plan and conduct investigations into issues
business plays in society and the different affecting modern business
structures a business can have • evaluate information about real and potential
• explain what businesses are influenced by, situations affecting businesses.
both internally and externally
• analyse internal and external stakeholders,
and the responsibilities business has to them

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 Topic 1 Nature of business 3

Content
Students will learn about business roles, types, influences and life cycles (growth and decline)
through examination of current business issues and investigation of real and potential business
situations.

By the end of this topic

Students will have learned to:
• discuss how one Australian business has
grown internationally
• discuss how one international business has
moved into Australia
• explain how Australian tertiary, quaternary
and quinary industries have grown as a
result of external influences changing
• identify the issues that develop for
stakeholders in a business that has gone
into liquidation
• distinguish between business types
• identify real businesses that have reached
different stages in the business life cycle
• outline potential strategies that businesses at
different stages in the life cycle could adopt.

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 4 Cambridge Business Studies Stage 6 Year 11 Fifth Edition

Nature of business

1.1 The nature of a

business
1.2 Producing goods
and services

1. Role of business

• Profit
• Employment
• Incomes
1.3 Economic and social • Choice
roles of business • Innovation
• Entrepreneurship and risk
• Wealth and quality of life

• Small to medium enterprises (SMEs)

Size
• Large

• Local
• National
• Global
2.1 Classification
2. Types of businesses
of business

Industry

• Sole trader 2.2 Factors influencing

• Partnership choice of legal structure
Legal structure • Private company
• Public company
• Primary • Government enterprise
• Secondary
• Tertiary • Size
• Quaternary • Ownership
• Quinary • Finance

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 Topic 1 Nature of business 5

3.1 External influences 3.2 Internal influences

• Economic • Products
• Financial • Location
• Geographic
3. Influences in the • Resources
• Social business environment • Management and
• Legal business culture
• Political
• Institutional
• Technological
• Competitive situation
3.3 Stakeholders
• Markets

4.2 The stages of the 4.3 Responding to challenges at

business life cycle each stage of the business life cycle

Establishment

Growth
4.1 The business 4. Business growth
life cycle and decline
Maturity

Post-maturity

4.4 Factors that can 4.5 Voluntary and

contribute to business decline involuntary cessation

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 6 Cambridge Business Studies Stage 6 Year 11 Fifth Edition

1 Role of business

Chapter objectives
In this chapter, students will:
• identify the nature of a business
• investigate the production of goods and services in a business
• analyse how value is created and added to business processes
• discuss the benefits that business provides for stakeholders.

Key terms
• accountability • inputs
• brand • management
• business • marketing
• competitive advantage • net profit
• dividend • outputs
• downsize • price
• economy • product
• entrepreneur • profit
• ethics • quality
• expenses • redundancy
• finance • service
• global business • shareholders
• goals • small business
• good • strategy
• innovation • wage

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 Chapter 1 Role of business 7

1.0 Introduction
1.1 The nature of a
business
1.2 Producing goods
and services

1. Role of business

• Profit
• Employment
• Incomes
1.3 Economic and social • Choice
roles of business • Innovation
• Entrepreneurship and risk
• Wealth and quality of life

Source 1.1 Role of business

1.1 The nature of a business of human skills to create Business An organisation that attempts
ice-cream, a product to satisfy the needs and wants of the
A business is an organisation that attempts to
that has greater worth to community by providing goods and/or
satisfy the needs and wants of the community
many consumers than services.
by providing goods and/or services. Businesses
the individual inputs. This Good An item that businesses produce
play an important part in satisfying our needs and that can be seen and touched.
process is referred to as
wants as consumers and provide employment
value adding. Service An intangible product that
to millions of people in Australia each year. is performed for someone by another
There are many types of businesses and not all person. An example is a consultation
businesses exist in order to earn a profit. provided by a dentist.
From this definition of business, we can see Profit The difference between revenue
that businesses are responsible for providing us Digital quiz earned and total expenses for the period.
Please see the
with the goods and services that help maintain Interactive
Inputs The resources (such as labour,
and improve our standard of living. But to do Textbook to finance, raw materials and equipment)
access digital
that a firm uses to create outputs.
this, a business owner must be able to combine activities.

a variety of resources to produce goods and/or Finance The process of providing and
managing the funds that are needed so
services. These resources are known as inputs.
that goods can be produced and services
Inputs are the resources (such as labour, provided.
finance and equipment) that a firm uses to create Outputs The goods and/or services
outputs. For example, the inputs of cans of Coca- produced using various inputs.
Cola include sugar, water, syrup and aluminium Product A good, service or idea that can
Source 1.2 Businesses
cans. The finished product is the Coca-Cola soft can satisfy the needs be exchanged in the market. It includes
drink available for us to consume. of the customer and all tangible and intangible features,
provide employment to such as size, colour, image and warranty.
Creating and adding value to millions of people.
business processes
By combining inputs such as raw materials
with human skill and equipment, businesses
add value. They take resources and combine
them into a product that is of more importance
to the consumer than the value of the
individual resources. Milk, cream and flavouring
are processed using machinery and a variety
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 8 Cambridge Business Studies Stage 6 Year 11 Fifth Edition

1.2 Producing goods and Activity 1.1

services Comprehension
Businesses play a key role in our society. They Choose one of the following goods:
are the driving force behind much of what • bread
Digital quiz
occurs in our day-to-day lives. They provide us • soft drink
Please see the with a diverse range of goods and services, from • doughnut
Interactive
Textbook to the fashion items we wear to entertainment and • ice-cream.
access digital
activities. leisure activities. Businesses also provide goods Using illustrations, demonstrate how a
and services that improve our quality of living. business would add value to inputs to
They employ millions of Australians each year produce the good you selected.
and generously give to social organisations that
seek to assist those members of the community
in need. Accountability refers to the process whereby
managers are answerable to particular groups
affected by the activities of the business. Ethics may
1.3 Economic and social roles be defined as what is seen as right or wrong based
of business on the values of management, employees and the
The role of business can be examined from community. They are what society considers the
social and economic viewpoints. The economic most appropriate courses of action. Ethics determine
role of a business is concerned with the financial the ‘right’ choice to make in any given situation.
impact that the activities of the business have
on various groups in the Profit
Management The people responsible business environment. The profitability of a business is a key consideration
for running the organisation. for its long-term survival. Profit is essential if a
Has additional wealth been
Accountability The process whereby business is to meet day-to-day expenses (such
created for the owners? Can
managers are answerable to particular
more people be employed? as production costs, wages, insurance, electricity
groups affected by the activities of the
business. Are businesses developing and rent).
new products and entering Business owners will often have different
Ethics Standards of behaviour and
moral position, which influence the new markets in order to expectations of what level of profit is adequate. A
choices and decisions the person reach more consumers? business operating in a very competitive market
makes; what is seen as right or wrong The social role of a business and located near many of its competitors would
for a business based on the values is focused primarily on the be unlikely to achieve the same level of profit as
of management, employees and the
impact of the business a business with few competitors spread across
community.
on the community. How a particular market. Small business owners will
Expenses All the costs incurred in
does the community benefit achieve lower levels of profit than their larger,
earning revenue; this could include
wages, the cost of marketing and the from the  activities of the better-known competitors. As a general rule, the
purchase of materials and stock. business? Do businesses level of profitability within a business is measured
Wage An hourly rate of pay; may include provide essential services? by the return on investment.
overtime payments for work done outside Are their actions environ- The return on investment is the level of profit
normal hours. mentally friendly? Does an investor receives based on the amount that
Small business A business that management operate the the investor has invested in the business. This
employs fewer than 20 people (Australian business in a fair and just can be illustrated by the following examples:
Bureau of Statistics classification). • Don invested $200 000 in a café and
manner?
Net profit The final amount of revenue received a net profit of $50 000 in his
Issues of accountability
remaining after all expenses have
a n d ethics are also first year. The return on investment is
been paid.
raised  in relation to the 25 per cent.
social and economic roles • Cheryl invested $100 000 in a children’s
of business. clothing store and earned a net profit of
$50 000. The return on investment is
50 per cent.

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 Chapter 1 Role of business 9

Profit

Employment Quality of life

Key roles
Income Wealth
of business

Choice Entrepreneurship
and risk

Innovation

Source 1.3 Key economic and social roles of business

known as comparative ratio Entrepreneur An individual who has

Source 1.4 A business’s profits will depend on
the size of the company.
Although both entrepreneurs achieved a profit
of $50 000, it took Cheryl less money to achieve
this return. As a result, she has the higher return
on her investment. It is important to also compare
the return on investment with that of competing
businesses. The café industry is very competitive
and may have an average return on investment
of 12 per cent. When Don’s profitability levels
are compared with those of his competitors,
his business is performing very well. (This is
analysis, and is discussed developed certain ideas and is willing to
in more detail in Cambridge take a risk to implement them through a
Business Studies Stage 6 business.
Year 12 Fifth Edition.) Economy A system where governments,
businesses, consumers and other
Employment relevant organisations interact to satisfy
the needs of society.
In many cases, the owners
Global business A business that often
of a business will employ
sells its products across many countries.
other people to perform
Downsize To decrease the scale of
various activities within the operations – for example, through
business. The goods and/ a reduction in the number of staff
or services the business employed.
provides to the community
are produced using the
knowledge, skills and effort of human resources.
For this reason, the provision of employment is a
key function in business.
Over the past 20 years, the Australian
economy has opened up to increased competition
from global businesses. In response, many
Australian businesses have downsized their
workforce in order to remain competitive. For
example, in 2018, Telstra announced that it
would reduce its workforce by 25 per cent.
This is equal to more than 8000 employees.

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 10 Cambridge Business Studies Stage 6 Year 11 Fifth Edition

Redundancy Workers are made

redundant when their labour is no
longer needed. This may be a result of
the business downsizing, restructuring
or introducing technology to perform the
workers’ role. The business may ask
workers to volunteer to leave (voluntary
redundancy) or their employment may be
terminated (involuntary redundancy).
Brand A name, design or symbol that
distinguishes a particular product from
the product of another business.
Price The money value or cost to the
consumer of buying a good or service.
Quality The extent to which employees
are working to the best of their ability
within the business and the extent to
which outputs are free from errors.
Innovation The process of introducing a
new product or improving an existing one
through new ideas, methods, systems
and procedures.
Marketing The process of developing
a product and implementing a series of
strategies aimed at correctly promoting
and pricing the product and distributing
it to a core group of customers.
Strategy A plan designed to achieve a
goal or objective.
Telstra faces strong
competition from Optus
and Vodafone, and has
lost considerable revenue
from the number of
Australians who no longer
have a fixed land line
phone connected to their
home.
Redundancy occurs
when a business needs
to get rid of employees as
the jobs they are doing are
no longer required – for
example, where there has
been structural change.
Often technology replaces
these employees.
Incomes
In return for their services,
employees are paid an
income by the business.
This allows the workforce
to spend part of their
income on satisfying their
needs and wants.
Choice
A primary function of business is to produce goods
and/or services for consumers to satisfy their
needs and wants. Most Australian businesses
operate in a competitive market environment.
This means that there are a large number of
competitors offering similar goods and services.
For example, if a teenager sought to purchase
a pair of brand-name sports shoes, there would
be a variety of brands from which to choose and
a number of different retail stores from which to
purchase the shoes.
This choice presented to consumers
encourages businesses to provide goods and
services at the lowest possible price with the
highest quality. The ways in which the product
is promoted will also influence the brand that
consumers will buy and where they will choose
to purchase the product.
Innovation
Choice encourages businesses to be innovative
and to be different from their competitors.
Innovation can be defined as the process of
improving the features of a product. A business
will seek to develop new products, improve
product features and/or use different marketing
strategies to ensure that when the consumer

Source 1.5 Choice forces businesses to produce better-quality and better-value products to enable
them to stay ahead of their competitors.

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 Chapter 1 Role of business 11

does make a purchasing decision, they will
decide to purchase that business’s product.
Innovation can also be applied to the
production process, where improved methods of
production are implemented. The new production
methods may make use of fewer resources and
result in increased output. Innovation may also
be evident in products that offer improved and/
or advanced features.
Technology has played a key role in developing
new methods of production that require less
labour. It has also facilitated the development
of improved features in many of the products
that we use in our day-to-day lives. For example,
mobile phones were once large and bulky with
limited uses. Today, mobile phones – now known
as smartphones – are compact and offer the
consumer the ability to access the internet, take
photos and send images to other users, among
other things.
In the modern commercial environment,
innovation is crucial for a business to maintain
its competitive advantage Competitive advantage Those
over other businesses. features of a product or business that
Business managers must provide it with an advantage over its
continually seek new competitors.
product ideas, consider the
possibilities of expanding
into new markets and, where necessary, modify
their products to revitalise sales. An innovative
business is one that stands out in the marketplace.
It is regarded as better than its competitors.
Entrepreneurship and risk
An entrepreneur is an individual who has
developed certain ideas and is willing to take a
risk to implement these ideas through a business.
Entrepreneurs take risks by developing strategies
to enable their ideas to reach fruition. Through
business, entrepreneurs are provided with an
avenue to transform their ideas into actual goods
and services.

Business Bite
Using Bluetooth to connect to a person’s phone, smartwatches allow
the wearer to access email, make and answer calls, check and reply to
messages, control their music player and track fitness activity as well as tell
the time. Their versatility
makes them convenient
for a wide range of
activities.
There has also been
innovation in the
introduction of pay
services through
smartwatches where
consumers can easily
link their banking details
to their watch. Google
Pay and Apple Pay
allow the consumer to
simply scan their watch
to the business’s payment Source 1.6 Smartwatches have a variety of uses.
system and then the
transaction occurs.

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 12 Cambridge Business Studies Stage 6 Year 11 Fifth Edition

Business Bite
They are delicious and tasty and we all enjoy eating pastry scrolls.
Based in Sydney’s south, Oregano Bakery is now one of Australia’s
leading producers of pastry scrolls. Tony and Sonia Jabbour came up with a
very simple yet effective idea – flavoured scrolls. They range from cookies and
cream to salted caramel, and Nutella and banana. As she is the face of the business,
Sonia is now referred to as the Scroll Queen.

Source 1.7 Oregano Bakery is known for its flavoured pastry scrolls.

Wealth creation can convert to cash by selling their shares at

Wealth refers to the total value of all assets owned
by a person or business. Most businesses seek to
make a profit from their activities. The production
and provision of goods and services are the
means by which businesses
fulfil this goal. By increasing
Goals Targets to work towards
sales and developing strategies
in the longer term; the overall
accomplishments that an to promote brand awareness
and sales, the management of a
organisation plans to achieve.
Goals are realistic, achievable business hopes to increase the
and measurable. value of the organisation. This,
Shareholders Owners of a in turn, will increase the value
company; they provide the capital of the funds that owners have
that allows the company to
invested in the business.
operate.
In the case of public
Dividend The income earned
companies, a successful
from owning shares in a company.
It is usually paid every three or business may see its share
price rise on the stock
six months, and is based on the
profits the company makes. exchange. This creates wealth
for shareholders, which they
the higher price. Alternatively, if they retain
the shares, they should see an increase in the
dividends they receive from them.
Businesses also generate increased wealth for
the community. Profits generated by business are
taxed by the government. The government uses
this taxation to: fund essential services; improve
educational, health and transport facilities; and
employ emergency staff, such as police, fire
brigade and ambulance officers.
Ethical Spotlight 1.1
Do employees have the right to
know the true financial performance of the
business employing them or should this
information be restricted to management
and shareholders? Not all businesses create
long-term wealth for shareholders.

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 Chapter 1 Role of business 13

Business Bite
Buy now and pay later – it’s a simple concept that has proved to be
extremely popular with Australian consumers.
Launched in 2016, Afterpay
is an Australian business that
allows consumers to purchase
an item, take it home and pay
for the item over a period of four
weeks. Any payments beyond
the four weeks incur interest.
Over the past five years,
Afterpay has increased its Source 1.8 Services such as Afterpay are believed
customer base to now be to have led to decreasing use of credit cards.
used by more than one million
Australians across all major retailers.
Its share price of $1.00 in 2016 has now risen to more than $100 in 2021. This means
that every $1000 worth of Afterpay shares five years ago is now worth $100 000.

Quality of life Review 1.1

In the early 1980s, consumers would not
have imagined being able to take photographs
Comprehension
using their phone or talking to their friends via Answer these questions on paper or in the
a computer video link. Through the variety of Interactive Textbook.
products and services provided by business, 1 Explain how businesses benefit economic
the quality of life of almost all Australians activity.
has improved. 2 Describe how businesses encourage
Business research and development has wealth creation within society. List those
also contributed to a significant improvement features of a product or business that
in our quality of life. Each year, governments, provide it with a competitive advantage.
research organisations and pharmaceutical
companies spend millions of dollars on research
and development. Part of this expenditure is used
to develop products that will help consumers
maintain a healthy lifestyle. For instance, a
growing number of different types of bread
cater to consumers’ diverse range of health
issues  and concerns, such as the need for
gluten-free products.

Source 1.9 The larger choice of healthy

alternatives is improving consumers’ quality
of life.

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 14 Cambridge Business Studies Stage 6 Year 11 Fifth Edition

Chapter summary
A business is an organisation that attempts to satisfy the needs and wants of the community by
providing goods and/or services.

To provide goods and services to the community, businesses make use of inputs. By combining
inputs such as equipment and human skill, businesses add value.

The roles of business include:

• Profit: Profit is essential if a business is to meet day-to-day expenses (such as production
costs, wages, insurance, electricity and rent) and provide a return on the owners’ financial
investment.
• Employment: With this labour, businesses are able to offer the community a diverse range
of goods and services.
• Incomes: In return for their services, a business will pay a form of income to its
workforce. This allows the workforce to spend part of their income on satisfying their needs
and wants.
• Choice: A primary function of business is to produce goods and services for consumers to
satisfy their needs and wants. This in turn provides consumers with choice.
• Innovation: This is the process of introducing a new product or improving an existing one.
• Entrepreneurship and risk: Entrepreneurs take risks by developing strategies for their ideas
to come to fruition.
• Wealth creation: By increasing sales and developing strategies to promote brand awareness
and sales, the management of a business hopes to increase the value of the organisation.
This, in turn, will increase the value of the funds that owners have invested in the business.
• Quality of life: Business research and development has also contributed to a significant
improvement in our quality of life.

End-of-chapter tasks
Chapter revision task
Definitions and examples are a key part of success in Business Studies. In Year 11, it is
important that you get into the habit of creating your own dictionary of key syllabus terms and
then applying these with examples.
For each of the following terms, develop a definition of one to two sentences and then, in
groups, identify a real-life example for each.
business internal downsize accountability
strategy ethics stakeholders innovation
inputs entrepreneur shareholders employment

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 Chapter 1 Role of business 15

Multiple-choice questions
1 Which of the following best describes the concept of corporate social responsibility?
A Fair conduct within the business C The legal regulations that owners,
environment employers and managers are expected
B The process whereby managers are to follow
responsible to a particular group D What is seen as right or wrong for
affected by the operations of the a business based on the values of
business management, employees and the
community

2 Annie has taken an active interest in the growing health-food industry. She decides to
open a health-food store in her local neighbourhood shopping centre based on her ideas for
marketing low-sugar foods. In business terms, what would Annie be known as?
A A manager C A consumer
B An entrepreneur D An employee

3 Which of the following best describes the concept of a business?

A An organisation that operates to serve
the interests of the community
B An organisation that is developed
to achieve a financial return for its
investors
C An organisation that provides various
goods and/or services to cater to the
needs and wants of the community
D An organisation that is owned and
operated by the government to provide
essential services to the community

4 Matthew has invested some of his savings into an Australian grocery store business. Which
of the following describes the key role of the business through Matthew’s investment?
A Employment C Innovation
B Wealth creation D Entrepreneurship

5 Which of the following describes the process of value adding?

A A business selling cars to consumers C An entertainer performing at a live
B A baker using flour and water to concert
produce bread D An entrepreneur investing in the
development of a new form of
medication

6 An increase in the number of businesses selling smartphones has seen an improvement

in the features and quality of this product. Which of the following best describes how
increased competition has benefited businesses?
A There have been increased employment C Consumers are able to access lower
opportunities for consumers in this prices and improved customer service.
industry. D There have been decreased consumer
B Businesses are able to reach a greater complaints regarding the quality of the
consumer market. product.

7 An Australian pharmaceutical company has released medication that would assist in the
treatment of arthritis. This is an example of which of the following business roles?
A Wealth creation C Quality of life
B Choice D Employment

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 16 Cambridge Business Studies Stage 6 Year 11 Fifth Edition

8 X-Part Plastics Pty Ltd has developed a new form of production that would improve the
quality of its plastics. Which of the following business roles is identified here?
A Entrepreneurship C Employment
B Quality of life D Innovation

9 Not all businesses achieve profitability within their first year of trading. What would be an
important reason for this?
A The low number of competitors in the C The skills and training of the
marketplace entrepreneur
B The costs of establishing the business, D The location of the business
resulting in a delay in achieving a
return

10 A company’s decision to release a new range of foods aimed at higher-end consumers

would be seeking to fulfil which of the following roles?
A Choice C Quality of life
B Profit D Employment

Short-answer questions
1 Businesses create wealth for individuals and for the community. Explain how these two
types of wealth creation differ.

2 Define the term ‘entrepreneur’.

3 Describe how entrepreneurs act as facilitators of choice and innovation in the community.

Extended-response question
‘Businesses exist not to serve the community but to maximise the financial investments of their
owners.’ With reference to this statement, discuss the role of business and explain how these
roles can conflict with each other.

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