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  • IB Business Management
    • 01 Business Organization and the Environment >
      • 1.1 Introduction to Business Management
      • 1.2 Types of business organizations
      • 1.3 Organizational objectives
      • 1.4 Stakeholders
      • 1.5 External Environment
      • 1.6 Growth and Evolution
      • 1.7 Organizational planning tools
    • 02 Human Resources >
      • 2.1 Human Resource Planning
      • 2.2 Organizational Structure
      • 2.3 Leadership and Management
      • 2.4 Motivation
      • 2.5 Organizational and corporate cultures
      • 2.6 Employer and employee relations
    • 03 Finance and Accounting >
      • 3.1 Sources of finance
      • 3.2 Costs and revenues
      • 3.3 Break-even analysis
      • 3.4 Financial Accounts
      • 3.5 & 3.6 Ratio Analysis
      • 3.7 Cash flow
      • 3.8 Investment appraisal
      • 3.9 Budgets
    • 04 Marketing >
      • 4.1 The Role Marketing
      • 4.2 Marketing Planning
      • 4.3 Sales Forcasting
      • 4.4 Market Research
      • 4.5 Product >
        • 4.5 Price
        • 4.5 Promotion
        • 4.5 Place
      • 4.7 International Marketing and Globalization
    • The Exam
  • IB Economics
    • 01 Microeconomics >
      • 1. The Foundations of Economics
      • 1.1 Demand and Supply
      • 1.2 Elasticities
      • 1.3 Government Intervention
      • 1.4 Market Failure
    • 02 Macroeconomics >
      • 01 Level of Economic Activity
      • 2.2 Aggregate Demand
      • 2.3 Aggregate Supply
      • 2.4 Macroeconomic Equlibruim
      • 2.5 Unemployment
      • 2.6 Inflation
      • 2.7 Economic Growth
      • 2.8 Equity in the distribution of income
    • 03 International Economics >
      • 3.1 Free Trade
      • 3.2 Protectionism
      • 3.3 Exchange Rates
      • 3.4 Balance of Payments
      • 3.5 Economic Integration
    • 04 Development Economics >
      • 4.1 Economic Development
      • 4.2 Measuring Development
  • Individuals & Societies 8
    • 01 What is Japan like?
    • 02 How are societies governed?
    • 03 Japan: Patterns of Interaction
    • 04 Japan's Economic Miracle
  • Individuals & Societies 7
    • 01 The Individuals and Societies Toolbox
    • Economic Growth and Development
    • 03 Demography
    • 04 Global Interactions
  • AP World History
    • Free Response Questions
    • 10,000 BCE - 600CE
    • 600 - 1450
    • 1450 - 1750
  • AP Human Geo
    • 01 Geography its nature and perspectives
    • 02 Population and Migration
    • 03 Cultural Geography
    • 04 Political Geography
    • 05 Urban Geography
    • 06 Economic Geography
    • 07 Agricultural Geography
    • Exam Review
  • Previously Taught Courses
    • G12 Economics >
      • Basic Economic Ideas
      • Producing and Consuming
      • Financial Capability
      • Managing the Economy
    • G10 World History >
      • 01 Exploration, Scientific Revolution and the Enlightenment
      • 02 The American Revolution
      • 03 France: Absolute Monarchy & Revolution
      • 04 The Industrial Revolution
      • 05 Imperialism and Nationalism
      • 06 WW1
      • 07 Inter-War Period
      • 08 WW2
    • G9 World History >
      • 01 Human beginnings and early civilizations
      • 02 Mediterranean Classical Civilizations (Greece) >
        • Mediterranean Classical Civilizations (Rome)
      • 03 Classical China
      • 04 The Muslim World
      • 05 Interregional Networks and Contacts 500 - 1450
      • 06 The Renaissance and Reformation >
        • Oral Presentations
    • G9 Social Studies >
      • History >
        • Analyzing Sources
      • Geography
    • G7 Social Studies >
      • Introduction to Empowerment
      • Economic Empowerment
      • Political Empowerment
      • Cultural Empowerment
      • National Empowerment
      • 04 Resources and the environment
      • Finance and Accounting >
        • 3.1 Sources of finance
        • 3.2 Investment appraisal
        • 3.3 Working capital
        • 3.4 Budgeting
        • 3.5 Financial Accounts
        • 3.6 Ratio Analysis
  • Learning Tech
  • Writing Skills
  • Critical Reading

Unit 1.1: Introduction to Business Management

What we will study?

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By the end of this unit you should be able to:
  • Explain the role of organizations in combining human, physical and financial resources to create a product.
  • Understand  the main business functions: human resources, finance and accounts, marketing and operations.
  • Explain the nature of business activity in the primary, secondary, tertiaryand quaternary sectors. 
  • Examine the role of entrepreneurship and intrapreneurship in business activity.
  • Identify the reasons for starting a business, the common steps involved and likely problems a new business may face.
  • Analyse the elements of a business plan

What is a business?

A business is any organisation that makes goods or provides services. These range from small firms owned and run by just one self employed person, through to large companies which employ thousands of staff all over the world. Businesses exist to provide goods or services that satisfy a consumers' needs or wants, usually with the aim of making a profit . Goods are physical products - such as burgers or cars and can be classified as either consumer goods  Services are non-physical products such as hotel accommodation, insurance services or internet service providers. 
  • Consumer goods (durable) = washing machines, cars, televisions.
  • Consumer goods (non-durable) = food, drinks and sweets that can only be used once.
  • Consumer services = hairdressing, train journeys.
  • Capital goods = physical goods that are used in industry to make other goods and services, such as machines or if you are a hairdresser, a pair of scissors. 

Business objectives

All businesses have objectives or aims to achieve. Their objectives may vary depending on the type of business and the situation the business is in. The most common objectives are:

  1. Profit: Profit is what keeps a company going and is the main objective of most businesses. Normally a business will try to obtain a satisfactory level of profits so they do not have to work long hours to pay too much tax.
  2. Increase added value: Value added is the difference between the price and material costs of a product. E.g.: If the price when selling a pen is $3 and it costs $1 in material, the value added would be $2. However, this does not take in account overheads and taxes. Added value could be increased by working on products so that they become more expensive finished products. One easy example of this is a mobile phone with a camera would sell for much more than one without it. Of course, you will need to pay for the extra camera but as long as prices rise more than costs, you get more profit. 
  3. Growth: Growth can only be achieved when customers are satisfied with a business. When businesses grow they create more jobs and make them more secure when a business is larger. The status and salary of managers are increased. Growth also means that a business is able to spread risks by moving to other markets, or it is gaining a larger market share. Bigger businesses also gain cost advantages, called economies of scale.
  4. Survival: If a business does not survive, its owners lose everything. Therefore, businesses need to focus on his objective the most when they are: starting up, competing with other businesses, or in an economic recession.
  5. Service to the community: This is the primary goal for most government owned businesses. They plan to produce essential products to everybody who need them. 
These business objectives or aims can conflict because different people in a business want different things at different times

Business activity / Factors of production

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Investopedia explains 'Factors Of Production'
In essence, land, labor, capital and entrepreneurship encompass all of the inputs needed to produce a good or service. Land represents all natural resources, such as timber and gold, used in the production of a good. Labor is all of the work that laborers and workers perform at all levels of an organization, except for the entrepreneur. The entrepreneur is the individual who takes an idea and attempts to make an economic profit from it by combining all other factors of production. The entrepreneur also takes on all of the risks and rewards of the business. The capital is all of the tools and machinery used to produce a good or service. 

Business functions

Once a business has been properly established and has taken on a reasonable number of employees, the organisational structure will involve the business being splits into number of different departments, each of which has a specific job or task to do - these are called 'functions'.

The main functional areas of a business are outlined briefly below:

The growth of firms and Economies of scale

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Reasons why firms may wish to grow in size

  • To diversify and spread risk
  • To take advantage of higher levels of demand that exist
  • To tap into emerging markets
  • To take advantage of changing market conditions
  • To take advantage of economies of scale
  • To take advantage of globalisation and expand into overseas markets
  • To increase market share and develop greater monopoly power

Type of Merger

Horizontal Merger






Vertical Merger




Potential benefits to the firm

  • Increase market share
  • Reduces competition
  • Increased output means greater economies of scale
  • Can rationalise- take the best bits from the two companies

  • Can take control of the distribution network
  • May contribute to a degree of monopoly power by acting as a barrier to entry for rivals
  • Can take control of suppliers- ensure that they get resources/inputs at cost price
  • Can prevent rivals from having access to resources
Type of Economies of Scale

Financial Economies of Scale




Purchasing Economies of Scale


Technical Economies of Scale



Managerial Economies of Scale



Risk Bearing Economies of Scale

Explanation

  • Large firms can benefit from cheaper loans and wider sources of cheap finance (investment from shareholders). Large firms have stability that allows them to access more cheaper sources of finance than smaller firms

  • Big firms benefit significantly from being able to “buy in bulk”

  • These are the advantages that large firms have when it comes to the production process.  Large firms can employ specialist labour and capital which stimulates productivity and reduces average costs

  • Large firms have the money/resources to attract the most productive/efficient/specialist managers who make the most effective business decisions and increase efficiency over time

  • Apple, for example offers a range of different products so that if there is a crash in the mobile phone market the company will not to affected in an devastating manner. 

What is an entrepreneur? 

STARTING A BUSINESS: ROLE OF THE ENTREPRENEUR
An entrepreneur is someone who takes the financial risk (and reaps the rewards!) of starting and managing a new venture. These people have:
  • Had an idea for a new business
  • Invested some of their own savings and capital
  • Accepted the responsibility of managing the business
  • Accepted the possible risks of failure
QUALITIES OF THE ENTREPRENEUR:
  • Innovative
  • Commitment and self-motivation
  • Multi-skilled
  • Leadership skills
  • Belief in oneself
  • Risk taker
ARE YOU AN ENTREPRENEUR? CLICK HERE
PROBLEMS FACED BY START-UPS

Even if an entrepreneur has all of the right qualities, success with a new business can never be guaranteed. Many businesses fail during the first year of operation, because of:
  • Competition
  • Building a customer base
  • Lack of record keeping
  • Lack of working capital
  • Poor management skills
  • Changes in the business environment


CLICK HERE FOR A STARTING YOUR OWN BUSINESS QUIZ

What is an intrapreneur?

An intrapreneur takes an existing idea or develops a new one, and through all of the obstacles that exist, drive it forward.
Click here to read about a teacher intrapreneur!!

Opportunity cost

In 1936 the German Nazi leader Hermann Goering said “We have no butter…but I ask you, would you rather have butter or guns…preparedness makes us powerful. Butter merely makes us fat.” The important word of course is or. Goering suggested that Germany had a choice guns or butter. Opportunity cost - is the benefit that is lost in making a choice. 
Examples
* Coca Cola decide to spend $50 billion on advertising
* The government decides to spend $100 billion on hospitals
* An individual allocates their time to study rather than playing football
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DEFINITION of 'Capital Goods'

1. Any tangible assets that an organization uses to produce goods or services such as office buildings, equipment and machinery. Consumer goods are the end result of this production process.

Read more: Capital Goods Definition | Investopedia http://www.investopedia.com/terms/c/capitalgoods.asp#ixzz3k4Z6GWKQ 

Key terms review