REVISION SHEET FOR GRADE 11 1.1 , 1.2 , 1.

The process of producing a particular good or service that is worth

Adding value
more than the cost of the resources used to produce it.

A decision-making organization established to produce goods and/or

Business
provide services.

Consumers The individuals or organizations that actually use a product.

Customers The individuals or organizations that purchase a product.

The individuals who take risks in overseeing a business organization

Entrepreneurs
or business venture, usually in pursuit of profit.

The knowledge, skills and experiences of individuals who have the

Entrepreneurship
capability to manage the overall production process.

Factors of The collective term for the resources used in the production process,
production i.e. land, labour, capital and entrepreneurship.

Finance and Function of an organization responsible for ensuring that the

accounts business has sufficient funds in order to conduct its daily operations.

These are physical (tangible) products, such as cars, clothes,

Goods
flowers, food, furniture, smartphones, and toys.

The business function that handles all aspects relate to the

Human resources
workforce, involving all aspects of a firm's operations related to staff
(HR)
(personnel) within an organization.

Business function of identifying the needs and wants of customers so

Marketing that the organization can provide goods and services to meet these
requirements and desires, usually in a profitable way.

The basic necessities that an individual must have in order to survive,

Needs
such as food, water, and shelter.

Operations (or The business function referring to the process of making goods and
operations providing services from the available resources of a business to meet
management) the needs and wants of its customers.

Business activity involved with the extraction of natural resources,

Primary sector
e.g. fishing, mining and agriculture.

The process of creating goods and/or services using the factors of

Production
production available to the business.

Quaternary sector Business activity involving the creation or sharing of knowledge and
information.
 Business activity involved with the manufacturing or construction of
Secondary sector
finished products.

Intangible products, such as haircuts, tourism, public transport,

Services
banking, insurance education, and healthcare.

Business activity that involves providing services to customers, i.e.

Tertiary sector
consumers and business clients.

The numerical difference between the cost of factor inputs in the

Value added
production process and the price that the final output is sold for.

These are the desires of individual customers, i.e., the goods and
services that they would like to have (rather than things they need to
Wants
survive), such as a new smartphone, a family holiday in an overseas
location, fresh flowers, or jewellery.

What is a business?
A decision-making organization established to produce goods and/or provide services.

Benno ( Case study )

Benno is a soft drinks manufacturer. Its mission statement is “to produce
healthy drinks without damaging the environment”.

Competition in the healthy soft drinks market is fierce. Benno uses a

competitive pricing strategy. However, sales of Benno’s drinks have fallen
significantly over the last five years, particularly in the 12–18 age group. The
business has no accumulated retained profits

Benno is committed to innovation and corporate social responsibility (CSR).

Its research and development division has recently invented a new
biodegradable drink pack ring that starts to break down within two hours of
contact with sea water. It dissolves fully in 48 hours. Currently, 98% of pack
rings are made of plastic and when dumped in the sea are responsible for the
death of many sea creatures

A focus group of loyal customers used regularly by Benno’s marketing

department is wholeheartedly in favour of the new drink rings. However, the
marketing director has read recent studies that suggest:
• purchases of green products are not increasing, despite the positive attitude of
many consumers towards sustainability and biodegradable products

• consumers continue to prioritize price when purchasing soft drinks

To manufacture the new drink rings, machinery costing $5 million would be

needed. Drink ring production unit costs would rise from 10 cents to 15 cents
and prices of a six-pack of Benno soft drinks would have to increase by 5%.
Benno’s net profit margin on a six-pack is 10%.

Benno’s director of corporate social responsibility favours the change to the

new drink rings but is opposed by both the finance director and marketing
directors

Define the term innovation. [2]

(b) Explain two roles of Benno’s mission statement. [4]

(c) Explain one advantage and one disadvantage for Benno of using a focus
group of loyal customers. [4]

(d) Recommend whether Benno should replace its plastic drink rings with
the new biodegradable drink rings. [10

Answers :

Define the term innovation. [2]

Innovation is about putting a new idea or approach into action. It can be

described as the process of translating an idea/invention into a service/good that
creates value. Innovation can be achieved by improving existing goods,
processes or services

Explain two roles of Benno’s mission statement. [4]

The roles of a mission statement include: · communicating the purpose of the

organization to stakeholders · informing decision making and strategy
development · developing the measurable goals and objectives by which to
gauge the success of the organization's strategy. For Benno, the mission
statement has provided
Explain one advantage and one disadvantage for Benno of using a focus group
of loyal customers. [4]

Advantages of a focus group of loyal customers: · Can obtain detailed

information about your own customers about their feelings, perceptions and
opinions. · Are cheaper than performing individual interviews. · Provide an
opportunity to clarify any issues or problems.

Disadvantages of a focus group of loyal customers: · They can be hard to

control and manage. · You are only getting the views of loyal customers – it
tells you nothing about consumers who prefer rival brands and why they prefer
them to your soft drink. · The results are difficult to analyse, especially if the
focus group provides qualitative feedback. · Members may not reveal their own
feelings but are swayed by the majority view. · May not be representative of the
target market as a whole

Recommend whether Benno should replace its plastic drink rings with the
new biodegradable drink rings. [10]

For: · It fits in well with its mission statement “to produce healthy drinks
without damaging the environment” and this may be important in maintaining
customer loyalty. · It fits into its belief in corporate social responsibility, as the
current drink rings damage the environment and harm creatures in the seas, such
fish. · Competition in this drinks market is very intense – this could act as a
strengthening of its USP for Benno and retain loyal customers and attract
customers from rivals. It will strengthen its image as a business that has “green”
credentials. · Sales of Benno’s drinks have fallen significantly over the last five
years– so it is important that Benno does something to stem this tide. · Accept
any other reasoned arguments

Against: ·

It will cost $5m to buy the machinery to produce the new rings and the business
has no accumulated retained profits – therefore the funds will need to be raised,
probably externally via a bank loan, which will lead to interest charges and an
increase in operating costs.
It may take time to find a suitable angel investor to help finance this project.
Will the angel investor wish to exert some control over Benno’s operations?

· The unit cost increase is 50 %, a rise from 10 cents to 15 cents per ring, and
the business only has a net profit margin of 10 %. As the market is competitive
and reports suggest that consumers are price sensitive, a price rise – passing on
the cost of the new rings – is probably not going to be possible. The result is
that Benno’s net profit margin will fall.

· Sales are falling, particularly to the 12–18 age group – are they going to be
energized into buying a product that is more environmentally friendly,
particularly when reports suggest purchases of green products are not
increasing?

· In terms of a new way forward for Benno, the introduction of the new rings
has a great deal of merit. There are a large number of marketing opportunities
available in a competitive market and this idea will strengthen Benno’s brand.
However, the forecasted financial implications of this idea are not ideal and if
sales volumes do not increase significantly then Benno may find itself
financially worse off if profits do not increase. One solution may be to wait
until some more objective market research via a new untested focus group have
given their thoughts on the new ring. · Accept any other reasoned arguments

To test your understanding of this topic in the IB syllabus (Business

objectives), have a go at answering the following true or false questions.
No
Statement True or False?
.

An organization can change its business objectives over time

1. due to changes in both the internal and external True
environments.

False - it tends to
2. A vision statement tends to be narrow and specific. be broad and
abstract

The statement which sets out an organization’s purpose and False - this is the
3. mission statement
its corporate values is known as the vision statement.

An organization’s moral duties to its internal and external

4. stakeholders in acting as a good corporate entity is known as True
corporate social responsibility (CSR).

The statement which sets out an organization’s long-term True

5.
aspirations is known as the vision statement.

Reducing pollution and environmental damage by using non-

6. fossil fuels is an example of an ethical objective set by a True
business.

Fairer trade with low-income countries is an example of an True

7.
ethical objective set by a business.

A vision statement gives a clear time frame for when future False
8.
goals will be achieved.

An organization’s mission and vision statements serve to True

9.
guide the its strategic goals and corporate strategies.

Avoiding the risk of legal compensation is a valid reason for a True

10.
business to set ethical objectives.

Business objectives are the clearly defined and measurable True

11.
targets or goals of an organization.

Growth, as a business objective, refers to an increase in the True

12.
size of an organization and its operations.

True
13. Inorganic growth refers to the expansion and evolution of a
 business by using third party resources and organizations
rather than relying on internal resources.

The long-term approach that indicates how a business will False - these are
14. called strategies
achieve its goals are known as tactics.

Protecting shareholder value, as a business objective, is

15. about safeguarding the interests of the owners of a limited True
liability company.

Actively pursuing ethical business objectives can be

16. beneficial for the organization's triple bottom line (people, True
planet, and profits).

The short to medium-term objectives set by middle managers

17. to achieve a specific part of the overall strategy are called True
tactical objectives.

There are agreeD costs associated with implementing ethical True

18.
business behaviours and corporate social responsibility.

Strategic objectives refer to the long-term goals that the True

19.
whole organization continually strives to achieve.

Creating a positive corporate image is a valid reason for a True

20.
business to pursue ethical objectives.
PLEASE DON’T STUDY THIS

What are the main functions of a business?

Define goods.
These are physical (tangible) products, such as cars, clothes,
flowers, food, furniture, smartphones, and toys.

The process of producing a particular good or service that is worth

Adding value
more than the cost of the resources used to produce it.

Define services.

What is the primary sector?

What is the secondary sector?

What is the tertiary sector?

What is the quaternary sector?

What is entrepreneurship?

What are the main challenges of starting up a business?

What are the main opportunities of starting up a business?

What is the private sector?

What is the public sector?

Define sole trader.

List the main advantages of being a sole trader.

List the main disadvantages of being a sole trader.

Define partnerships.

List the advantages of being a partnership

List the disadvantages of being a partnership

Define privately held companies.

Define publicly held companies.

What are the main advantages of a limited liability company?

List the main drawbacks of a limited liability company.

Define social enterprises.

What are for-profit social enterprises?

What are the benefits of social enterprises?

In the context of social enterprises, what are private sector companies?

In the context of social enterprises, what are public sector companies?

How is public sector for- profit social enterprise different from private sector

for-profits social enterprise?

Define cooperatives.

Define non-governmental organizations (NGOs).

What are the main features of NGOs?

Define vision statement.

Define mission statement.

State 2 differences between vision and mission statements.

Why are business objectives important?

What is meant by growth as a business objective?

What is meant by profit as a business objective?

What is meant by protecting shareholder value?

What is meant by ethical business?

Define strategic objectives.

Define tactical objectives.

What are some tactical objectives a company may have?

What are some strategic objectives a company may have?

Define corporate social responsibility.

What factors affect a business to act in a socially responsible way?