Unit 1 - Business

organization and
environment
1.1 Introduction to business
management

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 The role of businesses in combining resources to
create goods & services
• A business can be defined as a decision- To produce goods and services, businesses need to combine human, physical
making organization established to produce and financial resources in an effective way. Economists call these
goods and/or provide services. resources factors of production, which are comprised of:

• Goods are physical products, e.g. food, •Land – These are natural resources needed to produce goods and services.
clothes, furniture, cars and smartphones. Examples include water, timber, sand, minerals, metal ores, plants and animals.

• Services are intangible products, e.g. •Labor – This refers to human effort used to produce goods and services.
haircuts, tourism, public transport, banking, •Capital – This refers to non-natural (or man-made) resources used in the
insurance education, and healthcare. production process. Examples include tools, machinery, motor vehicles,
• Businesses exist to produce goods and physical premises, and infrastructure.
services to satisfy the needs and wants of •Entrepreneurship – This refers to the knowledge, skills and experiences of
their customers (individuals, other individuals who have the capability to manage the overall production process.
businesses and/or governments), usually in Entrepreneurs have the ability and willingness to take risks in order to produce
return for a profit. goods and provide services to customers, profitably.
Customers are the people or other businesses that purchase goods and services. They are willing to pay to buy certain
goods and services because the production process adds value to the final products.

Adding value is the process of producing a particular good or service that is worth more than the cost of the resources used
to produce it. For example, a good textbook is worth far more to customers (such as IB Diploma students) than the paper
and ink used to publish it.

Exam Practice Question

(a) Define the term adding value. [2 marks]
(b) Explain how businesses combine factors of production to create goods and services. [4 marks]
( c) Differentiate between customers & consumers using examples. [4 marks]

Goods and services differ in four ways. Specifically, services are:

1. Intangible – Unlike goods, services are not physical in their nature.
2. Inseparable – The service received is attached to the people who deliver the service and the processes
used to deliver the service.
3. Perishable – Services do not last but are usually consumed at the time of purchase.
4. Variable – services are heterogeneous, i.e., each customer experience is unique.

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 The main business functions and their roles
Human resources (HR) is the function that handles all aspects relate to The finance and accounts function of an organization refers to the

the workforce. It involves all aspects of business operations related to staff responsibility for ensuring that the business has sufficient funds in

(personnel) within an organization. Examples include the: recruitment, order to conduct its daily operations. Essentially, the finance and

induction, training, development, appraisal, promotion, remunerating accounts department is responsible for managing the organization’s

(rewarding) and dismissal of staff. money and maintaining accurate accounts (financial records) of the

The HR Department must also comply with legal aspects of the firm’s funds.

external business environment. Examples include laws about: minimum

wages, working hours, gender equality, equal opportunities, and anti-
discrimination. Marketing is about identifying the needs and wants of customers so that
the business can provide goods and services to meet these requirements
and desires, usually in a profitable way.
Operations (also known as operations
Marketing activities include:
management or production) is the process of making goods
•Market research to discover the products that customers want, in an ever-
and providing services from the available resources of a
changing business environment
business to meet the needs and wants of its customers. It
•Determining appropriate pricing strategies to sell the products
involves ensuring that goods and services meet production
•Promotion to inform and persuade customers about buying the products
targets, deadlines and certain quality standards.
•Distributing the products to customers efficiently.

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 •For each activity shown in the table below, state which business function is
most appropriate: human resources, finance and accounts, operations
management or marketing. [10 marks]

Business activity Business function

Recruitment of staff
Setting prices for the firm's products
Deciding where a product should be sold
Stock (inventory) control and management
Establishing quality management processes
Researching the needs, wants and preferences of
customers
Allocating resources to purchase capital equipment
Hiring a new production manager
Financial and non-financial methods of motivation of
staff
Strategies to attract and retain customers
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Primary, secondary, tertiary
& quaternary sectors (AO2)

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The primary sector refers to business activity involved
with the extraction of natural resources.
Primary sector output is the predominant sector in less
economically developed countries (LEDCs) or low-income
economies. It accounts for the majority of gross domestic
product (GDP) and employment in these economies.
Examples of such goods produced in the primary sector
include oil, gas, water, fish, fruits and vegetables, and
wood.
The secondary sector refers to business activity involved
with the manufacturing or construction of finished
products. It encompasses transforming primary sector
output into finished goods, ready for sale or use by the
consumer. Secondary sector output is the predominant
sector in economically developing countries (or middle-
income economies). It accounts for the majority of gross
domestic product (GDP) and employment in these
countries or states. However, in many high-income
countries, the mass use of high-tech mechanisation and
automation has also caused unemployment in
some manufacturing industries.

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The tertiary sector refers to business activity that
involves providing services to customers, i.e. consumers
and business clients. Tertiary sector output is the
predominant sector in economically developed countries
(or high-income economies). The tertiary sector of the
economy accounts for the majority of gross domestic
product (GDP) and employment in these countries.
The added value of tertiary sector output is very high. For
example, households are generally willing to pay the high
prices charged by a plumber to fix a leaking water pipe.
This is because the plumber provides high added value
services to the consumer by fixing the leak, something
that the consumer has no expertise or time to complete.

The quaternary sector refers to business activity

involving the creation or sharing of knowledge and
information. It involves using computer and digital
information technologies.
The added value is extremely high in the quaternary
sector. For example, each year, many students (or their
parents) are willing to pay very high tuition fees charged by
universities.
The role of entrepreneurship

Entrepreneurship describes the traits of individuals who run their own business(es). The entrepreneur is both
willing and able to take calculated risks by investing in a business start-up or commercial initiative. They are
often described as visionaries.
The economic success of a nation is largely dependent on the entrepreneurial spirit within the country. An
entrepreneurial culture encourages risk taking in the pursuit of profit. Entrepreneurs also create jobs in the
economy, thereby further contributing to the wealth of the country.
Entrepreneurship is a rare commodity. Entrepreneurs share some common characteristics and skills:

•Creativity •Decisiveness •Drive (motivation)

•Flexibility and open-
•Effective communicator •Leadership
mindedness
•Planner •Risk tolerance •Risk management
•Teamwork •Time management •Vision
Challenges and opportunities for starting up a business (AO2)
Challanges Opportunities

Lack of finance Earnings

Lack of market research Autonomy
Poor marketing strategy Challenges
Limited human resources Passions
Long hours Family ties
Lack of knowledge, skills, and experiences Unfilled market opportunities
High production costs Security
Cash flow problems Making a difference
External influences
Common steps in the
process of starting up a
business
•An idea (creativity)
•Market research
•Business Plan
•Legal structure
•Business Location
•Finance
•Legal requirements

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Problems that a new business or enterprise may face

Lack of finance
Lack of market research
Poor marketing strategy
Limited human resources
Long hours
Lack of knowledge, skills, and experiences

Why McDonald's failed in Iceland?????

https://youtu.be/AT-E_eMiwgk?si=s3RHYRPYs3CfACja

Samah Badawi
Samah Badawi