DIP 14/01 – Introduction to Small Business Management
Lim Sei Kee @ cK
1. What is a business?
2. What are the differences between goods and services?
3. Provide at least five examples of goods & services.
4. Define ‘stock’.
5. Who is a supplier?
Discussion Qs [In a group of 5]
A business can be defined as an organization that provides goods and services to others who want or need them.
What is a business?
Goods are tangible things that are produced, bought or sold, then finally consumed.
Examples: A. HOME: microwave, flat-screen television,
Nintendo Wii console. B. SCHOOL: projector, desktop, white board.
So, what are goods and services?
Services are activities that other people or businesses do for you.
When you book a holiday, visit the hairdresser or eat in a restaurant you are consuming one or more services.
Services are sometimes referred to as intangible, in the sense that you cannot touch or handle them.
Services
Q: Think about the money that you have spent recently. Did you buy a good or pay for a service?
There are some important differences in the skills required to run a business making goods compared with services.
Requires a production location – factory
The output from production is stock – which can be transported and/or stored for future sale
Production costs will include the costs or raw materials and other inputs into the production process
GOODS
Requires close liaison with suppliers
Quality can built-in to the product through good design and production processes designed to ensure the right quality is achieved
Quite costly to set up. The production process needs to be in place and working before goods can be produced.
GOODS
The location is where the service is provided – either physically (e.g. a builder) or virtually (e.g. telesales or via a website)
Service is delivered at a point in time – it cannot be stored! A shop has to be open to sell. A hairdresser has to be there to cut hair
The main cost of a service business is the people involved
SERVICES
Require high levels of customer satisfaction
Quality is measured by the quality of customer service. Harder to manage
SERVICES
Businesses provide goods and services.
To be able to do this, they need to be able to turn inputs into outputs.
This is known as the production process.
Production Process
A good way to think of a business is to imagine inputs entering an imaginary black box.
What come out of the box are outputs.
The black box is the business – what is does how it does it and so on.
Production & operations: The transformation process
A business needs resources in order to trade.
The activities of a new business should be designed to turn those resources into products and services that customers are willing to pay for.
This process is known as the “transformation process”.
Labour Land Capital Equipment Raw materials Enterprise Suppliers
Inputs into the production process include:
Labour: employees providing their time, effort and skills
Land: the natural resources that are used by the business – e.g.
actual land, energy, and other natural resources
Capital: capital includes physical assets such as machinery and
computers. Capital can also include finance – the investment that is
required in order for the business activities to take place.
Equipment: machinery, buildings, computers and all the other
Raw materials: Physical substances used as inputs (e.g. steel, energy,
ingredients)
Enterprise: The creative energy and force that gets a business
started and drives it forward. The entrepreneur takes the decisions about how much
capital, what kind of labour and how & when they are needed in the business.
Many of the inputs into the production process are provided by suppliers.
Suppliers provide the goods and services that a business needs in order for it operate.
The outputs of business activities are reflected in the products and services sold to customers.
Traditionally, the outputs from the transformation process will fall into these three groups:
PrimarySecondaryTertiary
What about outputs, then?
Primary Extraction of natural resources (e.g. oil, gas) and farming
activities
Secondary Production of finished goods and components (e.g. flat-screen
TVs, computer memory chips, games consoles, industrial equipment, motor vehicles.
The secondary sector is also often referred to as the “manufacturing sector”.
Tertiary Providing a service of some kind. E.g. health, travel, legal,
finance, building, security. Think of this as any business activity that involves people doing
things for you!
It is possible for a single business to be operating in more than one sector.
For example, many farms in Britain (farming = primary sector) also offer holiday accommodation (tertiary sector) and produce processed foods such as cheese and ice-cream from farm supplies (secondary sector).
The outputs from the production process are the finished goods and services.
Outputs are bought by customers – the people who pay. Customers are often, but not always the same as consumers.
Consumers are the actual users of the goods or service. For example, a parent might buy a PlayStation 3 console game for a child. The parent is the customer; the child is the likely consumer.
Outputs from production process
21 MCQ Complete it individually.
DIP 14/01 Exercise