ESSENTIALS OF BUSINESS Topic 01

Introduction to Business

Introduction to Business

The word business is actually derived from the idea of

‘busy-ness’. This idea of ‘busy-ness’ quite

accurately describes most business organizations.

They are busy organizing resources, producing,

selling, managing people and keeping track of

finances. The people running the business have to

organize people, money, materials, machines to

produce goods and services for their customers.

Definition of 'Business'

• Business is an economic activity, which is related

with continuous and regular production and distribution of goods and services for satisfying human wants.

• Stephenson defines business as, "The regular production or purchase and sale of goods undertaken with an objective of earning profit and acquiring wealth through the satisfaction of human wants."

Characteristics or features of business

• All business activities are directly or indirectly concerned with the exchange of goods or services for money or money's worth.

• A businessman regularly deals in a number of transactions and not just one or two transactions.

• The business is carried on with the intention of earning a profit. The profit is a reward for the services of a businessman

• Business is subject to risks and uncertainties.

• Every business transaction has minimum two parties that is a buyer and a seller

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Definition of Business Process

A business process is a network of connected activities and buffers

with well defined boundaries and precedence relationships, which

utilize resources to transform inputs into outputs with the purpose

of satisfying customer requirements

Process

Customers Suppliers

Resources

Inputs Outputs

Different types of transformations

• Physical (Ex. raw material finished product)

• Location (Ex. flying from Male’to Gan.)

• Transactional (Ex. depositing money in a bank)

• Informational (Ex. accounting data financial statement)

What Businesses Do Take Inputs Process/Manufacture Output

Costs – Fixed and Variable Revenue

Profit

Components of business

INDUSTRY Economic activity concerned with the processing of raw materials

and manufacture of goods and services. Industries can be classified in a variety of ways. Mostly industry is often classified into sectors:

Primary – This involves the extraction of resources directly from the Earth, this includes farming, mining and logging. They do not process the products at all. They send it off to factories to make a profit

Secondary – This group is involved in processing products from primary industries. This includes all factories including those that refine metals, produce furniture, or pack farm products such as meat

Tertiary – This group is involved in the provision of services. They include teachers, managers, tourism and other service providers.

Components of business

COMMERCE Commerce is a branch of business. It is concerned with

the exchange of goods and services. It includes all those activities, which directly or indirectly facilitate that exchange.

Classification of commerce • Trade

▫ Trade means buying and selling

• Aid to trade ▫ Institutions that are meant and build to assist and

support the trading process.

Factors of production

• Labour: Workers employed directly in the car industry;

engineers, designers, paint sprayers, testers, management staff, transport & distribution workers etc

• Land: Natural resources used in manufacturer, land for

plant and equipment • Capital: Fixed capital: machinery, technology, buildings

+ Working capital: i.e. stocks of raw materials and components

• Entrepreneurship (sometimes seen as a separate factor): management, risk-taker

Economic Systems

TYPES OF ECONOMIC SYSTEMS

• The world's economic systems fall into one of four main categories:

• Traditional economy

• Market economy

• Command economy

• Mixed economy

Traditional Economy

• Family or Community based Economic System that relies on custom and ritual to make its choices.

• Rraditional economy is where nobody really cares, everybody produces for themselves.

• Eg: Agricultural villages in South Africa

Advantages & Disadvantages Traditional Economy

• Advantages

• Every member of the society knows exactly what they are to do and most don't have any complaints about it.

• Disadvantages

• These societies are often very slow to change and when new technologies are introduced, these ideas and techniques are discouraged.

Market Economy / Free Market

Economy

• Features

• All the resources in a market economy are privately

owned by people and firms.

• Every business will aim to make as much profit as

possible i.e. profit is the main motive.

• There is consumer sovereignty.

Market Economy / Free Market

Economy

• Firms will only produce those goods which consumers

want and are willing to pay for.

• Price is determined through the price mechanism.

• Eg: USA, Canada, Germany & UK

Advantages of Market Economy

• Market economies responds quickly to people’s wants.

• There is wide variety of goods and services in the market.

• New and better methods of production are encouraged

thus leading to lower cost of goods and services.

Disadvantages of Market Economy

• Public goods may not be provided for in Market

economy, thus the government will have to interfere to

provide these types of goods.

• Market economies encourage consumption of harmful

goods.

• Prices are determined by the demand and supply of

goods.

Disadvantages of Market Economy

• Social cost may not be considered while producing goods

and services. It may lead to unemployment because

machines will be more productive than men.

Planned Economy / Command Economy

• Features

• Government decides how all scarce resources were to be

used.

• Government will decide what is to be produced, how

much to be produced and how much should be charged

for goods and services.

• Eg: China, Cuba & North Korea

Advantages of Planned Economy

• There is no competition between firms thus resulting in

less wastage.

• Government ensures that everybody is employed.

• Less gap between poor and rich.

Disadvantages of Planned Economy

• Production of goods is decided by government thus there

is no consumer sovereignty.

• Businesses usually are less efficient because of lack of

profit motive.

Mixed Economy

• Features

• Mixed economy is a combination of market economy as

well as government planning.

Mixed Economy

• It has both private sector and public sector. Some

businesses are owned by private individuals while some

businesses are owned by the government.

• Eg:

Mixed Economy

• Mixed economy attempts to overcome the disadvantages

of a market economic system by using government

intervention to control or regulate different markets.

Advantages of Mixed Economy

• State provides the essential services

• Private sector encouraged for profits

• Competition keeps prices low

• Consumer choice

• Inefficient business behavior controlled

Disadvantages of Mixed Economy

• Less efficient than private sector

• Excessive control over business activity can add costs

and discourage enterprise.

Reflect on your own economy what

discus what are the advantages and

disadvantages of this type of

economy?

Types of environmental forces

BUSINESS ENVIRONMENT

• Business establishes, grows or operates and dies in environment. It collects inputs i.e. Man money, materials, machines etc. And provides output i.e. Goods and services in the environment. Environment means surrounding. Business environment defines as a force that affects on organizational performance. It includes internal an eternal factors. It provides opportunities and threats.

INTERNAL FORCES

• It is defined as all the forces or conditions that are available within an environment that affects on organization and business. It is also known as controllable factors because business can control them. It includes

Employees • Business hires employees. It is the major internal factor. It

works inside the business. It can be controlled by the business. Employees differ in skill, knowledge, morality, and attitude and so on. When managers and employees have difference in goals an beliefs then conflict may arise. The task of management is to divide the work and assign the work to the suitable employee and handle the conflict.

INTERNAL FORCES Organization structure: • It is located inside the organization. The arrangement of various

facilities, pattern of relationships among the various department, responsibility, authority and communication is the organization structure. It also included specialization and span of control.

Shareholders: • Management deals with many shareholders. Shareholders have the

right of ownership, power of management and voting right. The actual management of organization is carried out by elected representative of shareholders jointly known as boar of directors. They have the responsibility of overseeing the management of organization. It plays the major role in formation of objectives, policies, strategies of the organization as well as their implementation.

INTERNAL FORCES

Organization culture:

• The sets of values that help the members to understand what organization stand for how it does work, what it considers, cultural values of business forces of business and so on. It helps in direction of activities.

EXTERNAL FORCES

POLITICAL

This is concerned with how political developments, regionally, nationally and internationally might affect a business’s strategy.

• Employee protection-

health/safety, redundancy pay, discrimination, minimum wage

• Consumer protection- truth in advertising, high-pressure sales tactics, sales agreements

• Competition protection- unfair trade practices, monoply, mergers & takeovers

• Government stability:- no. of political party decision making process.

ECONOMIC

: This involves the analysis of a wide variety of

economic factors and their effects on a business.

They include:

• Economic growth and rising living standards

• Low/high levels of inflation

• Low/high levels of unemployment

• Balance of payments

(value of imports vs exports)

SOCIAL

What competitive advantage might a business gain by social changes taking place outside of the business?

• Aging population, reduced birth rates, longer life

expectancy • Changing role of women in the workplace • Improved Education – better skilled workers • Early retirement, more leisure time • Rising divorce rates, more “single” households • Job security • Immigration creating a wider range of consumer

tastes

TECHNOLOGICAL

The impact of technological advancement on business

strategy. It includes existing technology and future technologies.

• Business Software applications (word processing,

spreadsheets, database, accounting systems, inventory systems)

• Computer-aided design

• Computer-aided manufacturing

• Internet/Intranet

LEGAL

• Employment law

• Health and Safety

• Taxation both corporate and consumer

• Other regulations

• International trade barriers

• Strength of the rule of law

ENVIRONMENTAL

• How people’s perception and reaction to environmental issues can affect a business.

Thank you Ibrahim Sameer

Ahmed Nasir