Higher Business Management Business in Contemporary Society BM Unit 1 - LO1 BM Unit 1 - L01A

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”. BM Unit 1 - LO1

Goods and Services Goods Services Food Hairdressers Insurance Clothing Houses Cars TVs Computers Furniture CD players Services Hairdressers Insurance Gas and Electricity Hotels Leisure Clubs Lawyers Banking Education BM Unit 1 - LO1

Durable Goods Things that will last a long time and will be used regularly. Cars TV Washing Machines Cookers Microwave Ovens Refrigerators BM Unit 1 - LO1

Non-Durable Goods Things that are “consumed” shortly after purchase. Food Drink Clothing Shoes Newspapers Magazines BM Unit 1 - LO1

Inputs and Outputs Outputs Inputs Resources Goods Raw materials and Labour Machinery ‘Organisation’ Goods and Services BM Unit 1 - LO1

Business Activity Marketing Finance The Organisation (Internal) People External Influences eg Government Policy Marketing Finance Inputs Land Labour Capital Enterprise The Organisation (Internal) Output Goods and Services People (Human Resources) Production (Operations) External Influences eg Competition BM Unit 1 - LO1

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 BM Unit 1 - LO1

Cycle of Business WANTS IDENTIFICATION PRODUCTION CONSUMPTION WANTS BM Unit 1 - LO1

Sectors of Industry (Business Activity) PRIMARY (Extractive) Mining Fishing Farming Oil SECONDARY (Making goods) Manufacturing Construction Durables Non-durables TERTIARY (Services) Banking Insurance Tourism Distribution BM Unit 1 - LO1

Organisations Types of Organisation Private Sector Public Sector Profit-making Non-profit-making BM Unit 1 - LO1

Private Sector Organisations 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 BM Unit 1 - LO1

Sole Trader Advantages Keep all profits Complete Control Choose Hours of Work Personal Service Easy Set-up Disadvantages Unlimited Liability Finance (restricted) No shared ideas/problem solving Illness/Holidays BM Unit 1 - LO1

Partnerships Advantages Different Expertise Increased Capital Shared Workload Stronger Position to raise Finance ( Disadvantages Unlimited Liability Profits Shared (not necessarily 50/50) Disagreements Partnership Agreement BM Unit 1 - LO1

Limited Company (Ltd) Advantages Shareholders – Limited Liability Control Retained (eg family) Finance from new shareholders/ lenders Disadvantages Sharing of Profits Legal Procedures Can’t sell shares to the public Companies Act Copy of Annual Accounts to Companies House BM Unit 1 - LO1

Public Limited Company Advantages Large amount of capital available Domination of market Easy to borrow money Shares can be resold easily Disadvantages Set-up Costs – eg prospectuses and underwriting Companies Act May become too large (efficiency) No Control over Shareholders Annual Accounts published BM Unit 1 - LO1

Multinationals Large businesses with outlets or production facilities in a number of different countries BM Unit 1 - LO1

Multinationals (Benefits) Taxation or Grant incentives Lower wage rates Higher skilled workforce Legislation (relaxed) Rate of Corporation Tax Can operate competitively (locally) Increased Market Share Save on costs of transportation Avoiding Trade Barriers Selling Globally (without licenses) BM Unit 1 - LO1

Multinationals (Costs) Legislation may be too restrictive Local currency may be weak (converting profits back) Lack of technical expertise Poor infrastructure Cultural difficulties Political Instability Exploitation (eg low wages) Forcing local businesses out Major functions remain at HQ usually – close a subsidiary BM Unit 1 - LO1

Franchise A business run by one firm under the name of another The franchisee’s licence permits them to use the franchiser’s name, publicity materials, décor and uniforms etc. BM Unit 1 - LO1

Franchise Advantages Entering new markets quickly Keep a % of profits Protection from competition Established reputation Brand name and back-up services Ideas shared and all benefit Disadvantages Reliant on franchiser to maintain image Profits shared Strict rules Reputation depends on the franchiser and other franchisees BM Unit 1 - LO1

Public Sector Organisations Public Corporations BBC and Royal Mail Bank of England Local Authority Services Education, Housing, Police, Social Services Central Government Departments Treasury, Defence, Health, Employment, Social Services, Environment, Transport, etc BM Unit 1 - LO1

Voluntary Organisations To be recognised as a charity must have one of the following as an aim: To relieve poverty Advance education Advance religion Activities beneficial to community Charities are exempt from paying certain taxes eg VAT BM Unit 1 - LO1

Business Objectives Survival Maximising profits Growth Good reputation Maximising sales Satisficing Providing a service Managerial objectives BM Unit 1 - LO1

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, Martha Lane Fox BM Unit 1 - LO1

Stakeholders Individuals or groups of people who have an interest in, and stand to be affected by, the success or failure of an organisation BM Unit 1 - LO1

Stakeholders External Internal Suppliers Shareholders/ Customers Banks/lenders Society/Local Community National Government Local Government Taxpayers Donors (Charities) Internal Shareholders/ Owners Managers Employees BM Unit 1 - LO1

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 BM Unit 1 - LO1

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 BM Unit 1 - LO1

Functions of Managers Planning – action plan Organising – arranging resources Commanding – delegation of tasks Co-ordinating – staff and resources organised to meet plans Controlling – keeping plans on track BM Unit 1 - LO1

Skills of Managers Interpersonal – relationship with others Informational – gathering, processing and communicating information Decisional – solving problems and allocating resources BM Unit 1 - LO1

Sources of Finance Long-term Capital Share Issue Mortgages Debentures Sale and Leaseback Venture Medium-term Bank Loans Hire Purchase Short-term Overdrafts Factoring Trade Credit Grant BM Unit 1 - LO1

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 BM Unit 1 - LO1

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 BM Unit 1 - LO1

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’ BM Unit 1 - LO1 BM Unit 1 - L01A

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 BM Unit 1 - LO1

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 BM Unit 1 - LO1

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 BM Unit 1 - LO1

Business as a “System” A system is made up of 4 inter-dependent parts:- Inputs - raw materials and other resources Processes - transformation into goods Outputs - the finished product/service to be marketed Feedback - the reaction of the market Any system is affected by the environment in which it operates BM Unit 1 - LO1

Internal Pressures to Change New personnel or management New technology (the internet) Change in financial position BM Unit 1 - LO1

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) Environmental Competitive BM Unit 1 - LO1