Introduction to business

management
1.1 What is a business
Pages: 1-12
Introduction to Business Management and conceptual
understandings (from the DP Business Management guide):

• Change is essential for businesses to achieve their desired

aims.

• Creative business planning can lead to organizational

success.

• Ethical business behaviour improves a business’ image as

well as customer loyalty.

• Sustainable business practices can enhance a business’

existence.
What is a
business?AO1

A business can be defined as a decision-

making organization established to
produce goods and/or provide
services. Goods are physical products, e.g.,
food, clothes, furniture, cars and
smartphones. Services are intangible
products, e.g., haircuts, tourism, public
transport, banking, insurance education,
and healthcare.
What are the differences between
goods and services?

• Goods and services differ in four ways.

Specifically, services are:
• Intangible – Unlike goods, services are not
physical in their nature.
• Inseparable – The service received is attached to
the people who deliver the service and the
processes used to deliver the service.
• Perishable – Services do not last but are usually
consumed at the time of purchase.
• Variable – services are heterogeneous, i.e., each
customer experience is unique.
To produce goods and services, businesses need to combine human,
physical and financial resources in an effective way. Economists call these
resources factors of production, which are comprised of:

• Land – These are natural resources needed to produce goods and

services. Examples include water, timber, sand, minerals, metal ores,
plants and animals. Hence, these are sometimes referred to as
physical resources.
• Labour – This refers to human effort used to produce goods and
services. Hence, this is often referred to as human resources.
• Capital – This refers to non-natural (or manufactured) resources
used in the production process. Examples include tools, machinery,
motor vehicles, physical premises, and infrastructure. As these are
all funded by money, capital resources are sometimes referred to as
financial resources.
• Entrepreneurship – This refers to the knowledge, skills and
experiences of individuals who have the capability to manage the
overall production process. Entrepreneurs have the ability and
willingness to take risks in order to produce goods and provide
services to customers, profitably.
In order to provide goods and services, businesses
carry out a number of functions. In large
organizations, there is scope for these functions to be
split into departments (or functional areas):

HUMAN FINANCE AND MARKETING, OPERATIONS

RESOURCES ACCOUNTS AND MANAGEMENT
Human resources
• Human resources (HR) is the function that handles all
aspects relate to the workforce. It involves all aspects of
business operations related to staff (personnel) within an
organization. Examples include the: recruitment,
induction, training, development, appraisal, promotion,
remunerating (rewarding) and dismissal of staff.
• The HR Department must also comply with legal aspects of
the external business environment business environment.
In particular, it must observe different labour laws in all
the countries it operates in. Examples include laws about:
minimum wages, working hours, gender equality, equal
opportunities, and anti-discrimination.
Finance and accounts
• The finance and accounts function of an
organization refers to the responsibility for
ensuring that the business has sufficient funds in
order to conduct its daily operations. Essentially,
the finance and accounts department is
responsible for managing the organization’s
money and maintaining accurate accounts
(financial records) of the firm’s funds.
 Marketing

• 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.
• Marketing activities include:
• Market research to discover the products that customers want, in
an ever-changing and dynamic business environment
• Determining appropriate pricing methods to sell the products
• Promotion to inform and persuade customers about buying the
products
• Distributing the products to customers efficiently.
Operations management
(production)

• Operations (also known as operations management or production) is the

process of making goods and providing services from the available
resources of a business to meet the needs and wants of its customers. It
involves ensuring that goods and services meet production targets,
deadlines and certain quality standards.
• All four of these functions of a business are interdependent, i.e. depend
and are reliant upon one another. For example, the marketing department
cannot determine an appropriate marketing campaign without necessary
discussions and approval from the finance and accounts department.
Production of a certain good may need to change if recent market research
shows changes in consumer habits, fashions and tastes. All business
decisions have implications on the human resources department as people
are needed to carry out the other three functions
 Exam practice question:

(a) Describe the meaning of adding value. [2 marks]

Explain the nature of businesses in

(b) combining factors of production to [4 marks]
create goods and services.
Primary, secondary, tertiary,
& quaternary sectors-AO2
 Primary sector:

The primary sector refers to business activity

involved with the extraction of natural
resources. For example, metal ores and coal have
to be mined, oil and natural gas have to be drilled The added value of primary sector output is
from the ground, rubber needs to be extracted relatively low. For example, raw materials such
from trees, foodstuffs need to be farmed, used to manufacture a smartphone costs far less
livestock need to be managed by farmers, and fish than the final product sold to consumers. Hence,
need to be trawled. Hence, primary sector workers in the primary sector are typically paid
production is also known as extractive less than those in the secondary or tertiary sector.
production.
Ex: farming, extraction and fishing.
 Secondary sector:

The secondary sector refers to business activity

involved with the manufacturing or construction of
finished products. It encompasses transforming Secondary sector output is the predominant sector in
primary sector output into finished goods, ready for economically developing countries (or middle-
sale or use by the consumer. For instance, plastics income economies). It accounts for the majority of
need to be made from using oil. It also includes gross domestic product (GDP) and employment in
businesses that are involved in transforming other these countries or states. However, in many high-
secondary sector output into finished goods, such as income countries, the mass use of high-tech
assembling the component parts of motor vehicles, mechanisation and automation has also caused
laptops, or smartphones.Examples:Car unemployment in some industries.
manufacturing,carpentry,construction,engineering,
energy production
 Tertiary sector:

The tertiary sector refers business activity that

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

The quaternary sector (often referred to as the knowledge

economy) refers to business activity involving the creation or The added value is extremely
sharing of knowledge and information. It involves the generation
and exploitation of knowledge in wealth creation of the high in the quaternary sector. For
economy, rather than traditional industries that use natural
resources or physical labour. Businesses operating in these
example, each year, many
knowledge-based industries deal with digital information and
communications technology (ICT), research and development
students (or their parents) are
(R&D), and other high-level services. Examples of production
activities in the quaternary sector include:Tertiary and higher
willing to pay very high tuition
education, including educational research, information and
communications technology (ICT), management
fees charged by higher education
consultancyOnline educational providers, such establishments and universities.
as InThinking
InThinking and Pamoja
Pamoja Education, research
Education esearch and
development
and
development
esearch and
development
(R&D), e.g., biotechnology and pharmaceutical
companies and software and ‘app’ developers.
Difference between a capital intensive & a
labour intensive business:
• • Labour Intensive Business means production relies heavily on workers more than other inputs.
• • Capital Intensive Business relies on machinery and equipment which requires a higher initial investment
cost esp.in the short term.
• • Note that when a labour intensive business decides to become capital intensive, this implies that
workers are prone to lose their jobs.
Entrepreneurship-
AO2

• “Three components make an

entrepreneur: the person, the
idea and the resources to make it
happen.”
- Anita Roddick (1942 - 2007),
Founder of The Body Shop
• 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.

• A visionary is an entrepreneur who has the foresight

and driving force behind an organization’s growth
and development. S/he can see market changes and
trends before they actually happen or materialise, or
even set the trends themselves. For example, a
visionary will be instrumental behind an
organization’s product development, acquisitions and
strategic partnerships. Entrepreneurs are typically
self-employed or hold the position of chief executive
officer (CEO) of an organization.
Entrepreneurship and Intrapreneurship:

• Entrepreneur: an individual who demonstrates

enterprise and initiative to make a profit. (Business owner and
risk taker)
• Intrapreneur: is an individual employed by a large organization
who demonstrates entrepreneurial thinking in the development
of new products or services.
• Both entrepreneurs and intrapreneurs are vital to business activity as they provide the impetus for
innovative products and new business opportunities.
• Entrepreneurs are typically self-employed (or were central to the start-up of a business for which they
work).
• Intrepreneurs are employed by large organizations and develop new products or services for the bene t of
their employers (which usually bene t them, the intrapreneurs, as well).
• Both entrepreneurs and intrapreneurs must balance the risk of failure against the likelihood of success for
new business ventures.
• They are both types of people who want to create a start-up, either for a new product or for a whole new
business.
• Innovation is central to what entrepreneurs and intrapreneurs
Entrepreneurship is a rare commodity. Entrepreneurs share
some common sought-after characteristics and skills:

•Creativity •Decisiveness •Drive (motivation)

•Effective •Flexibility and open-

•Leadership
communicator mindedness

•Planner •Risk tolerance •Risk management

•Teamwork •Time management •Vision

 The story of Jeff Bezos
https://www.youtube.com/watch?v=a171hw91QjI
Hofstede's cultural
dimensions

• Business Management Toolkit

(BMT) - Hofstede's cultural
dimensions
• To what extent is entrepreneurship
influenced by cultural norms and
cultural dimensions?
• You might find it useful to refer
to BMT 11 - Hofstede's cultural
dimensions (HL) before
addressing this question.
Challenges &
opportunities for
starting a business-
AO2
Challenges that new businesses may encounter
include the following:( you may study points in
pg.12)
• Lack of finance – Many new businesses lack the necessary finance to have sufficient liquidity to run the business on a
daily basis (such as paying wages and utility bills). Financial challenges are a major problem for many start -up
businesses. In some cases, the lack of sufficient working capital can lead to bankruptcies.
• Lack of market research – The key to a successful business is having a commercially viable idea. However, what
entrepreneurs think may be a good idea may not materialise due to the lack of effective market research. For example,
new businesses often overestimate the size of their potential market.
• Poor marketing strategy – Another related challenge is that new businesses have limited marketing budgets available for
promoting and advertising their products. No matter how good an idea might be or how competitively priced it is,
customers will not buy it if they are not informed that it exists. For many products, the challenge is a lack of
differentiation or not having a unique selling point, so they fail to gain any recognition in the market.
• Limited human resources – Newly established businesses often find it difficult to attract suitable skilled and experienced
staff. Without a well-established business model or corporate image, new firms can struggle to recruit the necessary
human resources for its operations.
• Long hours – Similarly, a common challenge for many new businesses is that the owner(s) often think they can do
everything themselves, partly to help keep costs low. However, this if not likely to lead to long -term success for the
business. For example, the entrepreneur may spend many hours after the close of business to work on the firm’s financial
accounts. It is common for self-employed people to work significantly longer hours than if they were employed by
someone else.
• Lack of knowledge, skills, and experiences – Too often, new entrepreneurs do not have sufficient knowledge, skills or
experience in the industry they are entering. For example, they may lack knowledge of their target market, competitors
and market trends. They may also lack knowledge of the best suppliers, which can cause higher costs and distribution
problems. Finally, inexperienced entrepreneurs may lack the experience to make effective strategic decisions. Ultimately,
all of this results in the business making huge losses.
There are many interrelated opportunities why
people start their own businesses or an
enterprise:
(you may study points on page 8)
• Money – Perhaps the key driving force for a person to start their own business is the ambition or motivation to earn profit for themselves.
A firm earns profit by selling its products at a price that is higher than its production costs. The owner(s) get to keep the profit as a reward
for risk-taking and their entrepreneurship talents. According to the Global Entrepreneurship Monitor (see infographic below), the desire to
make more income is the single most significant reason factor in starting a business in the USA.
• Autonomy – Many people set up their own business to be their own boss, rather than working for someone else. Some people do not like to
work for other people and prefer the autonomy that comes with being an entrepreneur. There is a great sense of satisfaction in being the
“boss”. The autonomy of being your own boss also speeds up decision-making. Furthermore, having such autonomy also allows business
owners to have greater flexibility, in theory, so they can have a better work-life balance.
• Challenges – Some people are driven by personal challenges. They enjoy the satisfaction of achieving what they perceive to be greatness
and striving for self-actualisation.
• Passions - Some entrepreneurs want to pursue their personal passion/interest and turn this into a business opportunity. For example, Linda
McCartney (who married Paul McCartney of the Beatles) was an animal rights activist and entrepreneur who started the famous food
brand Linda McCartney Foods, specialising in vegan and vegetarian meals. For such entrepreneurs, the aim of starting their own business
is not always to earn a profit.
• Family ties – For some entrepreneurs, running their own business is part of a family tradition. For example, Farr Estate (luxury holiday
rentals) in the Scotland has been owned as a family business for generations. Other more well-known examples of businesses owed wholly
or largely by family members include: Mars (still owned by the Mars family), the Trump Organization, Berkshire Hathaway and Walmart.
Take a look at the Forbes website for more examples.
• Unfilled market opportunities - Some entrepreneurs spot an unfilled gap in the market for a certain type of good or service, so start their
own business. Many online entrepreneurs, for example, have recognised business opportunities in this way, such as Travis Kalanick and
Garrett Camp who co-founded Uber in 2009.
• Making a difference – Finally, some people start their own enterprises in order to be able to make a difference to others. Examples include
providing a service to the local community such as a medical clinic, a day-care centre, or nursing home for the elderly.
• Not being able to find employment - Another reason cited by the Global Entrepreneurship Monitor is that people become self-employed if
they cannot seek paid employment elsewhere.
The process of starting up
a business-Oxford pg.9