BM Unit 1 - LO1 1
Higher Business Management
Unit 1Learning Outcome 1
Business in Contemporary Society
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What is Business Activity?
Using “resources” to produce goods and services which people require in order to satisfy their “wants”.
Any kind of activity that results in the provision of goods and services which satisfy human “wants”.
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Goods and Services
Goods Food Clothing Houses Cars TVs Computers Furniture CD players
Services Hairdressers Insurance Gas and
Electricity Hotels Leisure Clubs Lawyers Banking Education
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Durable Goods
Things that will last a long time and will be used regularly. Cars TV Washing Machines Cookers Microwave Ovens Refrigerators
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Non-Durable Goods
Things that are “consumed” shortly after purchase. Food Drink Clothing Shoes Newspapers Magazines
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Inputs and Outputs
OutputsInputs
Resources
Raw materialsLabour
Machinery‘Organisation’
Goodsand
Services
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Business Activity
TheOrganisation
(Internal)
InputsLand
LabourCapital
Enterprise
OutputGoods
andServices
Marketing
People(HumanResources)
Finance
Production(Operations)
External Influenceseg Competition
External Influenceseg Government Policy
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Factors of Production
Land - raw materials, factory site Labour - people with required
skills Capital - finance to buy
equipment, machinery, computers, etc
Enterprise - organisation of the above factors, risk-taking, ideas
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Cycle of Business
WANTS
IDENTIFICATION
PRODUCTION
CONSUMPTION
WANTS
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Sectors of Industry(Business Activity)
PRIMARY(Extractive)
MiningFishingFarming
Oil
SECONDARY(Making goods)
ManufacturingConstruction
DurablesNon-durables
TERTIARY(Services)
BankingInsuranceTourism
Distribution
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Organisations
Types of Organisation
Private Sector
Profit-making Non-profit-making
Public Sector
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Private SectorOrganisations
Profit-making Sole Traders (1) Partnerships (2 - 20) Private Limited Companies (50) Public Limited Companies (no
limit) Franchises Co-operatives
Non Profit-making Charities and Clubs
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Public SectorOrganisations
Public CorporationsBBC and Royal Mail
Bank of England Local Authority Services
Education, Housing, Police, Social Services
Central Government DepartmentsTreasury, Defence, Health, Employment, Social Services, Environment, Transport, etc
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Business Objectives
Survival Maximising profits Growth Good reputation Maximising sales Satisficing Providing a service Managerial objectives
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Enterprise and the Entrepreneur
Having and developing a business idea
Acquiring the necessary resources Raising the finance to acquire
resources Risking losing the money invested
Anita Roddick, Richard Branson, James Dyson, Marth Lane Fox
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Stakeholders
Internal Shareholders/
Owners Managers Employees
External Suppliers Customers Banks/lenders Society/Local
Community National
Government Local Government Taxpayers Donors (Charities)
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Stakeholders’ Interests
Shareholders - dividends, capital growth Managers - job security, fringe benefits Employees - job security, pay and conditions Suppliers - regular orders, prompt payment Customers - low prices, high quality, good
service Banks - ability to make payments for loans Government - payment of taxes, compliance
with laws Community - corporate responsibility
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Stakeholders’ Influence
Shareholders - voting rights at AGM Managers - day-to-day decisions Employees - possible industrial action Suppliers - period of credit, level of discounts Customers - taking their business elsewhere Banks - granting of loans and rate of interest Government - legislation, equal pay, minimum
wage, etc Community - protest movements, direct action
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Sources of Finance
Long-term Capital Mortgages Debentures Sale and
Leaseback Venture
Medium-term Bank Loans
Short-term Overdrafts Factoring Trade Credit
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Government Help for Businesses
Local Enterprise Companies Education/Business Partnerships Business Start-up Scheme Loan Guarantee Scheme Reduced rate of Corporation Tax Zero Rating (VAT) on Exports Dept of Trade and Industry - advice,
Trade Fairs Export Credit Guarantee Department EU - Regional Development Funds
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Other Sources of Help
The Prince’s Youth Trust - help for young people to set up in business
Local Authorities - ‘small business advisers’
Trade Associations - ‘Association of Small Businesses’, ‘Scottish Motor Trade Association’, ‘ABTA’, etc
Local Chambers of Commerce
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Methods of Growth
Integration - 2 firms combining to become bigger
Merger - integration on equal terms
Take-over - one firm’s identity is lost in the take-over. Can be ‘friendly or hostile’
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Integration
Horizontal - firms at the same stage of production
Vertical - forwards towards the customer and backwards towards the raw materials
Lateral - firms with related goods not in competition with each other
Conglomerate/Diversifying - firms operating in completely different markets
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Reasons for Growth
Eliminate competition/increase market share
Achieving greater economies of scale Security from hostile take-over - more
assets Cutting out “middlemen” Securing sources of raw materials Controlling distribution of products Spreading risks - ‘not having all eggs in
one basket’ Smoothing seasonal fluctuations in sales
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De-integration
De-integration - conglomerate selling off firms to concentrate on “core” business
De-merger - subsidiary companies splitting away from the parent company and operating on their own
Divestment - selling off companies Contracting out/out-sourcing - getting
other companies to do work on your behalf Management buy-out/buy-in - usually a
struggling company sold to a management team
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Business as a “System”
Inputs - raw materials and other resources
Processes - transformation into goods Outputs - the finished product/service
to be marketed Feedback - the reaction of the market
A system is made up of 4 inter-dependent parts:-
Any system is affected by the environment in which it operates
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Internal Pressures to Change
New personnel or management
New technology (the internet) Change in financial position
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External Pressures to Change(the ‘PEST’ analysis)
Political/legal (legislation, planning, devolved Parliament, etc)
Economic (interest rates, foreign exchange rates, the Euro, etc)
Social (ageing population, role of women, greater general prosperity)
Technological (e-mail, internet)