STUDY UNIT 1 – THE CONTEXT OF BUSINESS MANAGEMENT AND ENTREPRENEURSHIP

Learning outcomes
After you have studied this unit, you should be able to:
1. Explain the role of entrepreneurs and business managers in satisfying human
needs through the effective use of the factors of production
2. Describe, in your own words, the significance of the different factors of
production
3. Explain the field of study of Business Management
4. Distinguish between the various economic systems
5. Distinguish between the concepts ‘business enterprises’ and ‘operating units’
Learning outcomes
6. Describe the main contents of Business Management as a science, with
specific reference to the object of study and the problem statement of the
subject
7. Understand the role of Business Management as a normative and applied
science
8. Distinguish between the fields of study of Business Management and
Economics
9. Distinguish between the functional and systems approaches towards
Business Management
STUDY UNIT 1

Lecture 1
LEARNING OUTCOME 1

Explain the role of entrepreneurs and business managers in

satisfying human needs through the effective use of the
factors of production
Important business management concepts
Business/Business enterprise =
Management = Process of getting
An institution created by the efforts
things done by performing the tasks
of the entrepreneur to produce
of planning, organising, leading and
products and services that meet
controlling
peoples needs and wants

An entrepreneur = Is a person who

Entrepreneurship = Collective
accepts economic risks, seeks a
activities which result in new
profitable opportunity, devises a plan
business creation/growth of an
& manages a business to be
existing business.
profitable
 THE ROLE OF THE ENTREPRENEUR
Factors of production Role of the entrepreneur
• Natural resources
• Human resources
• Capital
• Entrepreneurship
• Knowledge
THE CONVERSION PROCESS BY BUSINESS ENTERPRISES
 MASLOWS NEEDS PYRAMID
We know that
It is possible to identify
humankind has a wide
five types of basic
and almost unlimited
biological and
range of needs, wants
psychological needs
and desires.

These needs 5 needs The hierarchy are

are illustrated in arranged in the order in
Maslow's hierarchy of which people usually
needs attempt to satisfy them.
SATISFYING NEEDS THROUGH EFFECTIVE USE OF THE FOP

In the attempt to satisfy needs we

first need to identify the economic
motive and understand the economic
principle Economic Motive The urge to satisfy needs
by means of products
and services

Economic Minimise input;

PRINCIPLE Maximise output
LEARNING OUTCOME 2

Describe, in your own words, the significance of the different

factors of production
SECTION 3: THE BUSINESS ENTERPRISE AND
THE FOP (PG. 6 - 8)
FACTORS OF PRODUCTION NATURAL RESOURCES
Occurs naturally on the earth E.G. Sea and wind

HUMAN RESOURCES
Physical and mental effort E.G. Workforce

CAPITAL
Funds to invest in a business to finance activities
E.G. Equipment

ENTREPRENEURSHIP
Entrepreneurs are driving force & bear all risks

KNOWLEDGE
Information and internet
 NATURAL RESOURCES

FACTORS OF PRODUCTION NATURAL RESOURCES

 The factor of production natural resources
includes the resources provided by nature, for
example land in general, agricultural land,
mineral deposits, forests, wind, solar and
water energy.
 Irreplaceable FOP
 Compensation is needed for the use of these
resources (rent, or price per quantity)
 E.g Californium is priced at $27m per gram
 HUMAN RESOURCES

FACTORS OF PRODUCTION HUMAN RESOURCES

 Human resources refers to the mental and physical
effort expended by individuals to earn an income
and to satisfy human needs
 Human resources are divided into:
• The working population
• The workforce
 Human resources are mostly compensated by
means of wages and salaries
 Human resources are seen as an asset to the firm
• Further discussed in Ch16 (Semester Two)
 CAPITAL

FACTORS OF PRODUCTION CAPITAL

 Funds to invest in a business to finance activities
E.G. Equipment
 Firms need ownership over assets
 These assets are used to generate income
 The T-account on page 8 illustrates how capital is
sourced (liabilities) and how it is used (assets)
 ENTREPRENEURSHIP

FACTORS OF PRODUCTION ENTREPRENEURSHIP

 Entrepreneurs are driving force & bear all risks
 Entrepreneurs supply capital and arrange
production by choosing between various possible
combinations of the factors of production.
 Entrepreneurship is discussed in detail in chapter 3.
 KNOWLEDGE

FACTORS OF PRODUCTION KNOWLEDGE

 Information and internet
 Creates competitive advantage
 Without knowledge nothing can be done
LEARNING OUTCOME 3

Explain the field of study of Business Management

 FIELD OF STUDY BUSINESS MANAGEMENT

BUSINESS MANAGEMENT ENTAILS A STUDY OF THE FOLLOWING:

 Business Management is a science

 Free market system and profit motive

 What is a business enterprise
 How a business is established and managed
 The role of entrepreneurs
 The business functions performed in an enterprise
LEARNING OUTCOME 4

Distinguish between the various economic systems

 SECTION 5: ECONOMIC SYSTEMS AND
BUSINESS MANAGEMENT (PG. 10 - 14)
An economic system
There are two main is a means by which
societies or
economic systems
governments organize
and distribute
available resources,
services, and goods
across a geographic
region or country
Read through
this in your
textbook.
LEARNING OUTCOME 5

Distinguish between the concepts ‘business enterprises’ and

‘operating units’
 SECTION 6: THE BUSINESS ENTERPRISE AND
THE OPERATING UNIT (PG. 15 - 17)
Enterprise Operating Unit
 Entity that is engaged in  An operating unit is a functional
commercial or industrial activities unit within a business enterprise that
with the goal of generating revenue performs specific tasks or activities
and making a profit. to support the overall objectives of
the organization.
 SECTION 6: THE BUSINESS ENTERPRISE AND
THE OPERATING UNIT (PG. 15 - 17)
BUSINESS ENTERPRISES
Institutions that have a profit motive in offering products and services to satisfy human needs. These
businesses are established, owned and managed by entrepreneurs.

Private Types Government

• Ford • SABC
• Pick ‘n Pay • SAA
• Guest Public Non-profit • Transnet
houses
• Clothing (NGOs)
boutiques • Listed
companies • SA Red cross
• SPCA
• Nelson Mandela
Children's fund
 ENTERPRISE

Dependent on
entrepreneurs for
Independent Profitable use of Uses operating unit
establishment,
economic entity factors of production to achieve goals
survival and future
growth

Accepts risks (loss of

customers, fire, theft,
Offer products and
unsaleable More detail on page
services more or less
products), 15 of textbook
continuously
uncertainty, rapid
change
OPERATING UNIT (PRODUCTION UNIT)
Physical, visible production/technical unit owned/managed by private business enterprises in a free market system

Transformation (conversion) process takes place

Objective – optimal productivity

Minimisation of inputs; maximisation of outputs

Exists in every enterprise

Example: Kariega (previously Uitenhage) branch of Volkswagen

In free market system its survival depends on the enterprise

Can be a factory, a shop, store, warehouse, bank branch, restaurant, etc

Volkswagen Head Office – Germany

Copyright Farrington, S & Gray, B (2012)

VW Branch – Kariega
Enterprise and/or operating unit
Large business
enterprises

The operating unit

Small business
enterprises

The enterprise & operating unit

STUDY UNIT 1

Lecture 2
LEARNING OUTCOME 6

Describe the main contents of Business Management as a

science, with specific reference to the object of study and the
problem statement of the subject
SECTION 7: THE SCIENTIFIC FRAMEWORK OF
BUSINESS MANAGEMENT (PG. 17 - 19)
OBJECT OF THE STUDY
 For business management, the object of study represents business enterprises and their operating
units. The goal to maximise the rate of return is generally considered as the problem statement of
business management.

PROBLEM STATEMENT OF BUSINESS MANAGEMENT

The focus is on is the angle or view point taken
 The main aim of business management is to maximise the rate of return
LEARNING OUTCOME 7

Understand the role of Business Management as a normative

and applied science
SECTION 7: THE SCIENTIFIC FRAMEWORK OF
BUSINESS MANAGEMENT (PG. 19)
NORMATIVE SCIENCE
 A normative science is one which studies what ought to be.
 Provides certain guidelines
 Certain goals should be achieved

APPLIED SCIENCE
 Applied science is one which studies what is.
 Knowledge should be applied when establishing and managing a business enterprise
 Applied science is the application of existing scientific knowledge to practical applications, like
technology or inventions. Within natural science, disciplines that are basic science develop basic
information to predict and perhaps explain and understand phenomena in the natural world.
LEARNING OUTCOME 8

Distinguish between the fields of study of Business

Management and Economics
SECTION 7: THE SCIENTIFIC FRAMEWORK OF
BUSINESS MANAGEMENT (PG. 19 - 20)
BUSINESS MANAGEMENT ECONOMICS

Goal: Goal:
-Profit -Need satisfaction of a countries
-Pursuit of a rate of return population
-Needs satisfaction (smaller scale
focus is on business enterprise)
LEARNING OUTCOME 9

Distinguish between the functional and systems approaches

towards Business Management
 APPROACHES TO BUSINESS MANAGEMENT
(PG. 20 - 23)
TWO APPROACHES
FUNCTIONAL APPROACH SYSTEMS APPROACH
Embraces all aspects of a specific group
of tasks in such a way that the purpose of Assumes that all business enterprises comprise
each task becomes clear independent parts that can be understood only by
reference to the whole
E.G. inputs + process + outputs
 APPROACHES TO BUSINESS MANAGEMENT
(PG. 20 - 23)
FUNCTIONAL APPROACH
Embraces all aspects of a specific group
of tasks in such a way that the purpose of
each task becomes clear
 APPROACHES TO BUSINESS MANAGEMENT
(PG. 20 - 23)

SYSTEMS APPROACH

Assumes that all business enterprises comprise

independent parts that can be understood only by
reference to the whole
Synergy
E.G. inputs + process + outputs
Workplace synergy
 EXAMPLE OF A SYSTEM
Synergetic principle: 2 + 2 = 5 (The whole is greater than the sum of its parts)

Interdependent parts  Inputs  conversion/transformation processes  outputs

CASE STUDY QUESTIONS
 Tips when answering case study questions
 Throughout your academic career most tests and exams will include case study
type questions.
 It is therefore necessary that you know how to correctly answer these questions.
 Here are a few tips when answering a case study question:
• Read the questions first before reading the case study
• Read the case study and highlight sections that are relevant to the questions
• Answer all questions and refer to the case study in your answer.
• Note: When you make reference to the case study only include the relevant
section of work, do not include the entire case study
 CASE STUDY
In March 2022 Mary Simanye started making clothes to sell in her free time. When
her activities grew, she eventually left her job as a seamstress to become a full-
time businesswoman and run her new clothing factory.

In August 2022 Mary found that she needed help with the production of the
clothes, so she hired Joan and Celia to cut the materials into the required sizes
and help with the stitching while she attended to other activities such as organizing
the selling of her finished garments. Mary also had to use some of her own money
to buy two extra sewing machines, two new overlockers and other equipment. This
money was not used to satisfy her own needs but was used in the business for the
purpose of increasing the production of her clothing range.
 MOODLE SU1 APPLICATION QUESTIONS
1.1 Name the specific elements/means of production that made it possible for Mary to manufacture
clothes.
(a) Who provided the entrepreneurship? Mary Simanye
(b) Who did the work, and thus provided the labour? Joan and Celia
(c) Which natural resources were used? Material, buttons/zips, threads, needles
(d) Where did the capital come from? Mary Simanye
(e) What role did knowledge play in the business? Mary used her experience as a seamstress to start
and manage her business
1.2 Describe the inputs, transformation process and outputs of Mary's clothing manufacturing concern.
Inputs: material, buttons, threads, needles, labour, capital, entrepreneurship.
Transformation process: combining the factors of production to produce clothes
Outputs: clothes, thereby satisfying a consumer need.
 MOODLE SU1 APPLICATION QUESTIONS
1.3 Is the economic principle applicable to Mary’s manufacturing concern?
Mary must use the resources in such a manner that with the lowest input the highest output must be
achieved.
1.4 Enterprise vs operating unit

Yes it is possible to differentiate between the operating unit and the enterprise. The operating unit
(establishment) is where the clothes are actually manufactured.
 MOODLE SU1 APPLICATION QUESTIONS
In January 2023 Mary took in her cousin, Pandy, as a partner. Pandy brought in R320
000 capital which was used to purchase a truck to deliver the clothes to various
retailers. Pandy is also responsible for taking orders for the clothing and delivery.
1.5 Arrival of a partner – Mary’s cousin Pandy (invested R320 000 capital)
(a) Form of business enterprise Sole proprietorship to Partnership
 MOODLE SU1 APPLICATION QUESTIONS
By February 2023 Mary and Pandy employed 20 workers who were engaged in the
actual clothing manufacturing activities. Mary attended to financial and labour
matters, Pandy undertook the responsibility of taking orders and the delivery thereof.
Mary’s son, Clive, was responsible for the quality control and clothing manufacturing.
Based on this information, list the business functions and the names of the individuals
responsible for each.

 (b) Based on the information above, list the business functions and names of the
individuals responsible for each?
Financial and human resources functions: Mary
Marketing function: Pandy
Production function: Clive (Mary’s son)
 PREPARATION FOR NEXT

LECTURE
Pre read chapter 2 – The context of business management and entrepreneurship.

 Self study
• Do the self evaluation questions 1 to 10 pg. 25