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
Definition of Business Process 5 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 Resources Process Suppliers Inputs Outputs Customers 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 protectionhealth/safety, redundancy pay, discrimination, minimum wage Consumer protectiontruth in advertising, high-pressure sales tactics, sales agreements Competition protectionunfair 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