1.1 business management

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BUSINESS AND MANAGEMENT

MODULE 1

Unit 1.1

INTRODUCTION TO ORGANISATIONS


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ContentWhat is a Business?

Their purpose

The marketplace

Types of products

Adding value

Opportunity cost

Profit

Factors of production

Specialization

Business Functions


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READING FOCUS

Business Studies Unit 1 pg: 1- 7

Key terms Businesses, capital, division of labor, entrepreneurs, factors of production,

functional areas, industrialization, labor, land, opportunity cost, primary sector,

private sector, public sector, secondary sector, structural change, tertiary sector,

value added


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What is a business?

A business is a decision making organization involved in the process ofusing inputs to produce goods and/or provide services.

Inputs

Ex. Raw materials,

components,

machinery,

equipment and labor

Processes

Ex. Turning the inputs into

the providing of services or

Manufacturing of goods.

Outputs

The output or provision

Of final goods and services.

TASK

From your assigned readings, identify thefeatures of inputs, processes, and outputs of

Eurocars.


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Why?

Needs and Wants

Business exist in order to satisfy the needs and wants of

people, organizations, and governments.

As businesses become larger, it becomes important tohave clearly designed functions. i.e. HRM, Production,

Marketing, and Finance.


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Why? Continued

Businesses are also affected by external factors, those which it cannotcontrol. Such as what?

Environment

Government

What else?

It is easy to open a business, but is much harder to keep it open.


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The Marketplace

A place or process where buyers(customers)and sellers (businesses)meet to trade.

Can be physical or non physical.

Customers buy the product

Consumers use the product

They can be the same. i.e. someone whobuys and eats a burger meal. Or different,birthday presents.


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The Marketplace

Types of Products

Consumer goods Products sold to the general

public. Durable vs. Non-

durable.

Capital goods / Producergoods

Products purchased by otherbusinesses.

Services Intangible products provided

by businesses.


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Adding Value

Value added is the difference between the value of the inputs (i.e. the costs ofproduction) and the value of the outputs (i.e. the goods and services sold tocustomers.

Value added allows a business to sell its products for more than its productioncostswhich results in what?

Suppose production costs for a car are $6000. If customers are willing to pay$18000 for the car, then the value added is what?


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Why are consumers willing to pay more?

Because theyre stupid obviously!

Speed and/or quality of service Taste or design Prestige Inability to purchase cheaper

Feel-good

Value for money

Quality

Brand loyalty


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Opportunity Cost

Businesses have to make decisions that affect their daily operations and longterm processes.

Opportunity cost is easily described as this: take the example of a studentdeciding to go university pays two types of costs. Accounting costs wouldbe actual, i.e. tuition fees, dorm fees, etc. Opportunity costs would beincome that could have been earned had the person chosen to work insteadof studying. In this case, the opportunity cost is offset, but HOW?

i.e. mirrors, supermarkets


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Opportunity cost

Why is it useful?

When assessing the true costs and benefits of different choices. i.e.mirrors or no mirrors. Muzak or no muzak.

Question: it wasnt until the mid 1990s that supermarkets wentagainst government advice and began to trade on Sundays.Supermarkets in the UK realized the opportunity cost of beingclosed on Sundays. They were fined for such actions. However the

fines were insignificant compared to the revenues they were earningby opening on Sundaysso they continued. Mcdonalds followedsuit.

Define Opportunity costs

Examine reasons why OC is an important concept in business decision making


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PROFIT!

Profit is the positive difference between a firms totalrevenues and its total costs, over time.

Revenues are inflows, usually from sales.

Costs are outflows, usually from production activities.

Profit acts as an incentive.

Reward for risk takers.

Encourages invention and innovation.

Indicator of growth or decline.

Source of finance for internal growth.


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Factors of Production

Factor inputs: to produce any good, there are four vitalfactors of production that are required always: land,labor, capital, and enterprise (management,organization, planning of the other three factors).

Landall natural resources on the planet

Laborphysical and mental effort

Capitalnon-natural resources (money, buildings, equipment, machinery)

Enterpriseplanning of the whole process (must be creative, innovative,and passionate.

Different products require different amounts of factor inputs.


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TEACHING VS. CAR

MANUFACTURING


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4 factors of financial return

Rent ------- reward for land

Interest ------ reward for capital (bank loans)

Wages and Salaries -------- reward for labor

Profit ------- reward for responsibilities

4 Returns are generally known as INCOME!


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RETURNS

Factors of production

LandLabor

CapitalEnterprise

Rent Wages Interest Profit

INCOME


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Specialization

Specialization means that a businessconcentrates on the production of aparticular good or service or a smallrange of similar products. Can also bespecialization in making one product,with different specialists.

Italian Restaurants are specialized inPasta and Pizza, the specialists arechefs, cleaners, drivers.

i.e. Coca Cola, Samsung,Toyota

Specialization will tend to increaseemployee efficiency because thebecome better and better in their jobs.

A chef does not deliver, but a driverdoes!


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TO BE CONTINUED!

Business


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Business -Inputs

PrimaryoExtracts raw resources from planet EarthoLumberjacksoMining

oFisheriesoFarming

SecondaryoTransfers the primary goods into productsoManufacturingoConstructionoSlaughter house

Tertiary sectorsservice sectoroTruckersoLandscapingoCar salesoMovies, TV, entertainmentoProducers, lighting, writers, caterers

oDigitalcomputercomputer repairoPersonal trainersoTanning salonsoNail salons

Processes

Outputs


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ProductGoodService


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DepartmentsHuman ResourcesProductionMarketing

Finance


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External FactorsSocial ChangesTechnology Developments

Economic ActivityEnvironmental IssuesGovernment LegislationNatural DisastersDisease


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Types of ProductsConsumer Good

Example?Capital Goods

Example?Services

Example?


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1.1 business management

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