Chapter 1

CHAPTER 1
INTRODUCTION TO
BUSINESS
201053_Ch1_Introduction to business
Learning objectives
1. Explain the reasons why businesses exist
2. Identify who the stakeholders are in an

individual business
3. State the general objectives of businesses
4. Specify the nature of sustainability and

corporate responsibility
201053_Ch1_Introduction to business 2
TOPIC LIST
1. What is an organisation?
2. What is a business?
3. Stakeholders in the business.
4. What are the business’s objectives?
5. Mission, goals, plans and standards
1. Why do organizations exist?
To be more productive:
- Overcome individual limitations

Enable people
- Enable specialization to be more
- Save time PRODUCTIVE
- Accumulate and share knowledge
- Pool expertise
-
201053_Ch1_Introduction to business Enable synergy – the combined power 4
Examples of organizations
- A car manufacturer
- A retailer
- A restaurant
- An accountancy firm
- A trade union
- A school
- A government authority
- An army
- A club
Organisation - Definition
A social arrangement for the controlled

performance of collective goals, which has
boundary separating it from its
environment.
How do organizations differ?
• Private sector
Ownership • Public sector
• By themselves
Control • By other people
• Manufacturing
Activity • Services…
• Profit orientation
Profit orientation • Not-for-profit orientation
• Small
Size • Large - Multinational
• Company
Legal Status • Unincorporated body
• Share issues
Sources of finance • Borrowing
• High use of technology

201053_Ch1_Introduction to business Technology • Low use of technology 7
2. What is the business?
2. What is the business?
3. Stakeholders in the business
Stakeholder: literally, a person or group of persons

who has a stake in the organisation
Or They have an interest to protect in respect of

what the organisation does and how the
organisation performs
Or those whose interest is “at stake”
3. Stakeholders in the business
201053_Ch1_Introduction to business Source:

11 wikipedia
Stakeholders in the business
- Owners (shareholders or partners or proprietor)
- Directors/managers
- Employees and trade unions
- Customers
- Suppliers
- Lenders (Bankers)
- Government
- Local community
- Natural environment
4. What are the business’s objectives?
➢ The simple explanation of a business’s primary

objective is profit maximisation so as to increase
shareholder wealth
➢ A business has several secondary objectives to

support its primary objective
Secondary objectives
Market • By increasing share in a particular market

position • To avoid relying on a single customer
• To operate in new markets
Product • By investing in research and development

development • To develop new products
• To improve quality of existing products
• By exploiting appropriate technology
Technology • To improve productivity
• To improve efficiency i.e. to reduce cost
Employees • By investing in employees
and • To improve productivity
management • To reduce labour turnover
• Leadership, innovative, moral, loyalty…
Alternative primary objectives
Revenue
Profit satisficing
maximisation
Managers may choose to

maximize revenue to
Managers may choose to maintain market share,
achieve a profit that is
satisfactory and discourage competition,
acceptable to etc. because they
shareholders, which is personally benefit from
easer and quicker for running a large
them, as well as at a low successful company,
level of risk from probably receiving
high salaries,
201053_Ch1_Introduction to business commission…
15
Alternative primary objectives
Multiple Constrained
objectives objective
Managers may manage a business by Decisions are

balancing a variety of objectives: taken with
1.Market standing reference to other
2.Innovation ethical
3.Productivity constraints, such
4.Physical and financial resources as staff relations,
5.Profitability customer
6.Manager performance and satisfaction…
development
7.Worker performance and attitude
8.Social responsibility
5. Missions, goals, plan and standard
201053_Ch1_Introduction to business
Source: 17
https://www.alamy.com/
5. Missions, goals, plan and
standard
➢ Vision: is where the business aims to be in the
future
➢ Vision is closely linked with mission:
▪ Vision: ‘being the leading provider of X by 2018’
▪ Mission: ‘providing high-quality environmentally

friendly X to all our customers’
standard
Purpose Strategy
• Why does the • What do we do?
organization exist? • How do we do?
• For whose benefit?
(shareholders?)
MISSION
Policies and standards of Values
behaviour
• The core principles –
• Ways in which mission what does the
influences behavior organization believes to
201053_Ch1_Introduction to business be important? 19
Goals: aims (qualitative goals) and
objectives (quantitative goals)
 Definition:
- A desired end result (Shorter Oxford English

Dictionary)
- The intentions behind decisions or actions (Henry

Mintzberg -> B&F)
Two types of goals
Non-operational, Operational,
qualitative goals quantitative goals
(aims) (objectives)
• E.g. To advance in • E.g. To pass the B&F
career exam at overall
score of 95% by 30
June 2020
Characteristics of
operational goals (objectives)
Aim: cut cost
Objective: reduce budgeted expenditure on office stationery
by 5% by 31 December 2016
SPECIFIC MEASURABLE ACHIEVABLE
RELEVANT TIME-BOUND
Purpose of setting operational objectives
Implement the
mission
Assess and Operational Publicise the

control actual direction of the
performance objectives organisation
Appraise the
validity of
decisions
Non-operational goals (aims)
 Think about a business’s aim: to

satisfy customers
 Since aims are not quantified, they

are more flexible!
Plans and standards
 Plans: what should be done to achieve operational objectives
 Standards: specify a desired level of performance.

- Physical standards: Eg units of raw material per unit
produced
- Cost standards: Eg standard labor cost of making product X
- Quality standards: Eg customer service standards. be used
- Cost: physical of forms, e.g. each car produced is to be signed
off by a quality assurance process
standard
Planning and control system
Where there is deviation identified, a decision has to be made as to whether:

-Adjust the plan
-Adjust the performance
End of Chapter 1

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1. Explain the reasons why businesses exist

2. Identify who the stakeholders are in an

3. State the general objectives of businesses

4. Specify the nature of sustainability and

3. Stakeholders in the business.

4. What are the business’s objectives?

5. Mission, goals, plans and standards

- Overcome individual limitations

- Accumulate and share knowledge

A social arrangement for the controlled

• High use of technology

Stakeholder: literally, a person or group of persons

Or They have an interest to protect in respect of

Or those whose interest is “at stake”

201053_Ch1_Introduction to business Source:

- Employees and trade unions

➢ The simple explanation of a business’s primary

➢ A business has several secondary objectives to

Market • By increasing share in a particular market

Product • By investing in research and development

Managers may choose to

Managers may manage a business by Decisions are

➢ Vision is closely linked with mission:

▪ Vision: ‘being the leading provider of X by 2018’

▪ Mission: ‘providing high-quality environmentally

- A desired end result (Shorter Oxford English

- The intentions behind decisions or actions (Henry

SPECIFIC MEASURABLE ACHIEVABLE

Assess and Operational Publicise the

 Think about a business’s aim: to

 Since aims are not quantified, they

 Plans: what should be done to achieve operational objectives

 Standards: specify a desired level of performance.

Where there is deviation identified, a decision has to be made as to whether:

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