Unit 1 Understanding Business N5 BUSINESS MANAGEMENT Unit 1 Understanding Business

ROLE OF BUSINESS IN SOCIETY how businesses satisfy human wants and create wealth Factors of production and creating wealth how businesses operate in different sectors of industry the different sectors of the economy CUSTOMER SATISFACTION how businesses maximise customer service why customer service is important to business success TYPES OF BUSINESS ORGANISATIONS Their differing aims, objectives, sources of finance, industrial and economic sectors they operate in sole trader partnerships private limited company social enterprises charities public organisations how enterprising skills and qualities help business development OBJECTIVES Profit, provision of a service, social responsibility, survival, customer satisfaction, market share, enterprise EXTERNAL FACTORS political economic social technological environmental competitive INTERNAL FACTORS How they affect the operation of and decisions made in the organisations listed above; the main ones being: employees/staff finance management technological systems STAKEHOLDERS owners shareholders employees banks customers suppliers local community pressure groups local and national government

Role of Business in Society Business provides us with most of the things we use on a daily basis.

Needs and Wants Needs are things we can not do with out Water Basic food Heat Shelter Wants can be few or endless – we can live without them but would rather not! Mobiles Tvs Internet Expensive foods and clothing

Goods and services A good is something you can see and touch A good is broken into Durable (like a washing machine) Non-durable (like a hamburger) Services are you can’t see, touch or pick up Hotels Airplane travel Holidays

Providing both Sometimes you just want a sandwich or pasty from a shop – that is a good Sometimes you want it heated, or to sit at a table – that is a service

Factors of production Resources required to produce goods and services can be divided into 4 main groups knows as the Factors of Production. LAND – site of factory/premises LABOUR – people employed to produce the goods CAPITAL – money required/machinery ENTERPRISE – idea provided by the owner

LAND Buildings – land needed for housing, businesses Water Farmland – crops,animals Buildings – land needed for housing, businesses Water Coal-mining to provide heat oil/gas-refineries

Labour is physical and mental effort. People who use mental effort include: Teachers Bankers People who use physical effort include: Assembly workers, eg a car production line A baker – mixing of ingredients to make bread and cakes

CAPITAL Capital is the money and the things that can be purchased with money to make and sell goods and services.

ENTERPRISE Enterprise means having an idea for a new business and taking risks with the other factors of production to make the business a success

CREATING WEALTH Creating wealth occurs at each stage of the production process. Value is added by each producer eg miller adds to the value of the wheat by processing it Baker adds to the value of the processed wheat by making it into cakes The total value of the cake is much more than the value of the raw materials used in its production Therefore each stage creates more total wealth than the previous stage

Wool prices are about 50 pence per kilogram and for most farmers the value of the wool does not cover the cost of shearing. Finished product - £55!

Sectors of the Economy The economy consists of 3 different sectors Private Public Third or Voluntary Sector

The Private Sector The Private sector is made up of businesses large and small that belong to individuals. These businesses are concerned with Increasing profit Increasing market share Adding value to their goods and services Increasing wealth

The Private Sector is made up of different types of business Sole Traders (eg David Graham Cycles) Partnerships (eg MacPhee and Partners) Private Limited Companies (eg M&Co) Public Limited Companies (eg Tesco plc)

The Public Sector The public sector is used to deliver services and goods to a wide number of people in a society. The public sector of the economy is owned and controlled by the government and local councils. It provides services such as schools, hospitals, the armed forces and social services. These organisations are funded by taxes, eg corporation tax, income tax, council tax

The Public Sector consists of: National Government This would include the British or UK government as well as the Scottish Government Local Government This would include both councils such as Argyll-Bute or Stirling and towns such as Oban

The Third Sector Non-Profit making Organisations Social Enterprise

The Third Sector This sector is about delivering goods and services that neither businesses nor the public sector covers This sector looks for sponsorship for its capital and volunteers for labour

The Third sector Non- profit organisations Social Enterprises Charities Voluntary organisations Social Enterprises have a main social aim rather than profit but are run in a business like way at least 50% of the profit must be invested into meeting the stated aim of the enterprise http://www.socialenterpriselive.com/se100/company-story/20100521/wrappers-delight

The 3 Sectors of Industry Primary Secondary Tertiary

The Primary Sector This is EXTRACTING RAW MATERIALS Extraction industries eg mining or quarrying Farming Oil and energy extraction Fishing Forestry Sometimes an economy based on this sector can be very successful – think of oil based economies. Sometimes the primary sector needs very few people and all the products are exported.

The Secondary Sector This is MANUFACTURING Wealth creation at each stage is very high This is taking materials from the primary sector and processing them White goods, clothing, cars, TV’s, yoghurt, bread When countries move from primary to secondary sectors the change in wealth can be huge

The Tertiary Sector This is the SERVICE SECTOR. Banking, medicine, travel, beauty, restaurants, government jobs, education are examples A country usually shifts to the tertiary sector when manufacturing is being carried out in a country where it is cheaper.

Customer Satisfaction Customers give a business money in return for goods and services provided in a way that makes the customer happy Repeat customer- a customer that needs a steady supply of the same or similar goods One off or single customer - a customer that may need a single item and will never appear again

Why is Customer Service Important? You will gain customer loyalty – customers will keep returning and tell other people – free advertising Increased sales and profits A good reputation – your customers say positive things about you Increased competitiveness – can compete better with other organisations Staff morale is better – they are happy at work if they don’t have to constantly deal with unhappy customers

How businesses maximise Customer Service: Providing the highest possible quality product Making sure employees are trained – they should know about products they are selling. Can be expensive Having a customer care strategy – letting customers know the level of service they should expect Having a customer complaints procedure - aims to make sure customer complaints are handled in the best possible way Having an after-sales service - opportunity to ask questions about their purchase after it has been bought Provide guarantees – eg replacement parts within a year of purchase Refund and exchange policy – all staff should know about the policy

Types of Business Organisation Sectors of the Economy Private Sector Public Sector Third or Voluntary Sector

Private Sector Businesses Types of Business Organisation Sole Trader Partnership Private Limited Company

Sole Trader FEATURES OF SOLE TRADER Aims is to make a profit Business owned and often run by one person May employ other people in the business Tend to be small businesses Examples: Small shops, Car mechanics, Flower shop Can you name 3 sole trader businesses in Oban? Auley’s Bar, David Graham Cycles.

Sole Trader ADVANTAGES: Owner keeps all the profits Owner controls all the decisions Easy to set up the business. DISADVANTAGES: Owner bears all the responsibilities If owner cannot work the business may suffer – lack of cash Owner may have difficulty obtaining finance Owner has unlimited liability.

Partnership FEATURES OF PARTNERSHIP Aim is to make a profit Business between two and twenty partners Partners usually enter into a legal agreement called a Partnership Agreement which states States share of profit Which partner has most responsibility Partners may invest different amounts of money This will affect their share of profit Examples: Dentists, vets and lawyers. Can you name 3 partnership businesses in Oban? Oban Chocolate, MacCamley and Laird, Stevenson Kennedy (lawyers)

Partnership ADVANTAGES: Partners can share workload according to skills Partnerships find it easier to raise finance than sole trader Risks are shared between partners – risk of poor profit DISADVANTAGES: Profits shared between the partners – therefore smaller share More people to run business – risks of disagreement Partners usually has unlimited liability Legal agreement needs to be set up.

What are Shares? Companies are owned by people who are shareholders Anyone over 18 can buy shares Shareholders are given a share of any company profits The share of profits is called a dividend and is payable once or twice yearly

Private Limited Company FEATURES OF PRIVATE LIMITED COMPANY Aim is to make a profit Name of the business will end with Ltd Owned by shareholders – minimum of one Shares in the company are owned privately Run by a Board of Directors Such companies are often family businesses. Examples: MacQueen Bros had recently become a Private Ltd Company Can you name 3 private limited companies in Oban? M&Co, MacQueen Ltd, Beaver Timber Ltd,

Private Limited Company ADVANTAGES: Owner keeps control of the business Private limited company can raise more finance that a smaller business Shareholders have limited liability. DISADVANTAGES Profits shared between more people A legal agreement must be set up Shares cannot be sold to the public, so raising finance can be more difficult than for a public limited company.

Public Sector Organisations FEATURES OF A PUBLICLY OWNED ORGANISATION Main aim is to provide a service Funded by taxpayers Controlled by government Provide essential services for the whole population Non profit making Examples: BBC , National Health Service, Education Services Can you give an example of a Public Ownership organisation in in Oban? Local Government

Public Sector Organisations ADVANTAGES: Less competition DISADVANTAGES May have funding issues depending on the economy.

Third or Voluntary Sector Organisations CHARITIES Charities exist for a variety of different causes. They aim to raise money to fund research or help support those in need. Use donations from the public Raise funds in other ways Do not make a profit Examples include Oxfam, RSPCA, and Save the Children

Third or Voluntary Sector Organisations SOCIAL ENTERPRISE Social Enterprises are businesses that trade to tackle social problems and improve life for the community. They make their money from selling goods and services but reinvest a large portion of their profits back into the business or local community. Examples of Social Enterprise Atlantis Leisure Phoenix Cinema

Enterprise and Organisations All organisations exist because someone had an idea and enterprising skills and attitudes! An Entrepreneur is someone who Has an idea for a business venture Is prepared to take another’s idea and develop it Is prepared to provide finance to develop an idea Is prepared to take a risk which will in turn result in a new produce or service

Skills and qualities of an entrepreneur Entrepreneur Skills Self confidence Leadership Organised Enthusiastic Problem solving Creativity Determination Risk taking An Entrepreneur needs the following skills and qualities:

Who are entrepreneurs? Richard Branson Linda Bennett Michelle Mone Alan Sugar Fraser Docherty Dragon’s Den team: Deborah Meaden Duncan Bannatyne Peter Jones Kelly Hoppen Piers Linney

Business Objectives Survival This means to continue trading and it is often the first objective a business has. Profit This means to have more income than costs. It is the main objective of any business in the private sector. Provision of a Service To provide people with a service they want. An example could be a government hospital with the aim of providing health care. Customer Satisfaction To make customers happy and encourage them to make repeat purchases. Enterprise This means to combine resources to produce a prodcut that customers want. It might involove a business developing a new idea and trying to satisfy the wants of customers in a different way- maybe by providing a new product. Social Responsibility To be seen as helping society, by improving the environment, creating jobs, promoting education. Market Share This can mean two things Increase market share Become a market leader

Business Influences There are a number of factors which influence how a business operates External Factors – things outside the business Internal Factors – things inside the business

External Factors (PESTEC) POLITICAL ECONOMIC SOCIAL TECHNOLOGICAL ENVIRONMENTAL COMPETITIVE

Political The Government can introduce laws that affect every business or just some businesses. Examples Minimum wage – this can cost an organisation money Smoking ban – affected particularly pubs, causing many to close

Economic This refers to changes to the economy during periods of boom and slump which can affect busiensses Example During a boom, business do well and make their biggest profits During a slump or recession, the opposite happens. Customers cannot afford to spend so much money

Social This refers to the structure of the population, peoples tastes and different working practices Example Changes in attitudes to working women – has meant more women in the workforce than, for example, 50 years ago Changes in fashion – what people want to buy can change very quickly

Technological Businesses must keep up with changes in technology. The introduction of the internet and e-commerce has revolutionised shopping in this country. Example Increase in the number of on-line retailers like Amazon Has also changed the way people in businesses communicate with each other – can be expensive for organisations to keep up with developments

Environmental This can refer to businesses making changes to their practices to ensure they are more environmentally friendly or it could refer to the fact that changes in the weather can affect what we buy or sell Example Poor weather can lead to crop damage Extremely hot summers can increase demand for certain products eg ice cream Businesses, like everyone else, must ensure they increase the amount they recycle

Competition All businesses face competition from other businesses – this can greatly influence the success or otherwise of an organisation Example If a competitor lowers prices, other may have to do so in order to maintain sales eg petrol prices

Internal Factors Internal factors are events or situations within the business that affect its overall performance. These can be positive or negative Internal Factors Financial Human Resources Technological Management

Finance This refers to the availability or lack of finance or money Example If there is no finance, a new machine cannot be bought An organisation can’t run an advertising campaign for their new products They may have to take out an expensive loan

Technology Businesses can fail if they do not have access to up-to-date technology or if their staff are not trained properly in the use of the technology. Example Business who invest in new technology to carry out processes or communicate with customers have the competitive edge over other organisations IT such as computers, mobile devices allow organisations to keep in touch effectively with customers and employees

Human Resources This refers to the staff in the organisation. Well-trained staff are more productive and have better relations with customers Example Staff who feel they have been poorly treated may take industrial action which will adversely affect the organisation Well-trained staff can produce high quality products and deal properly with customers which will give the organisation a good reputation.

Management Managers are very important members of staff. As they are the ones who make most of the decisions, they can greatly influence the success or otherwise of the organisation. Example Good managers will motivate the staff and make them work hard

STAKEHOLDERS A stakeholder is an individual or group of people who have an interest in an organisation and can influence it in different ways

Stakeholders – Interest and Influence Customer Want good service/quality goods reasonable prices Can buy or not buy Can complain Owner Successful business Healthy profits Make the main decisions Employees Want job security, good pay and conditions Can work hard or not. Can take action or leave Inland Revenue Makes sure tax laws are followed Can change amount of tax due

Stakeholders – Interest and Influence Managers Want job security, good salary and promotion Make decisions affecting how well business performs Shareholders Want to receive good dividends. Can vote at AGM Can buy or sell shares Suppliers Want repeat orders Want to be paid on time Can decide not to supply. Can change prices Banks Want to be repaid loans Can alter interest rates Can lend or not lend

Stakeholders – Interest and Influence Local Community Want jobs in the local area Want businesses to be socially responsible Can complain to local council or protest eg write to newspaper Pressure Groups Support and promote a cause eg maintain green belt Can hold demonstrations to raise awareness Local government Want jobs in the local area Want businesses to invest in the local area Can refuse or grant planning permission Close down businesses National government Want taxes to be paid Want laws to be followed Can change tax rate Can change the law