The Nature of Business Module 1: Chapter 1.1

What is a Business? A business is an organization using inputs & processes to provide outputs for customers or consumers.

Business Activity cont’d Inputs 4 factors of production Processes 4 functional areas of business Output either a good or service. Goods Services

Needs Wants Purpose of a Business Satisfy the needs and wants of people, organizations, and governments. Needs: basic necessities a person must have in order to survive Examples? Wants: desires or what people would like to have

Customer vs Consumer Marketplace Business Activity Customer vs Consumer Marketplace Value Added A customer buys the product. A consumer uses the product. Market: a place where or process whereby buyers (customers) and sellers (businesses) meet to trade. Value Added: product’s price-total cost of inputs

Opportunity Cost It wasn’t until the mid 1990s that supermarkets went against government advice and began to trade on Sundays. Supermarkets in the UK realized the opportunity cost of being closed on Sundays. They were fined for such actions, as licensing to trade on Sundays had not been enacted, but the fines were so insignificant compared to the revenues that they were earning by opening on Sundays that the supermarkets continued with this practice. McDonald’s Corporation have followed by opening some 24-hours stores around the world. Banks in Hong Kong are currently contemplating opening on Sundays. Define the term opportunity cost Use the case study to examine the reasons why opportunity cost is an important concept in business decision-making. Opportunity cost is defined as the best alternative that is forgone when making a decision

Opportunity Cost Opportunity cost is defined as the best alternative that is forgone when making a decision

Inputs (resources) necessary for the production process Land Labor Capital Enterprise Factors of Production Inputs (resources) necessary for the production process Land: natural resources that can be found on the planet, including renewable and nonrenewable natural resources Labour: physical and mental human effort Capital: all non-natural resources used in the production process Enterprise: management, organization and planning of the other 3 factors.

Returns for Factor Inputs Factors of Production LAND LABOR CAPITAL ENTERPRISE RENT WAGES INTEREST PROFIT Rent: reward for use of land Salaries: remuneration for labour Interest: return for use of capital Profit = INCOME INCOME

Specialization SPECIALIZATION DIVISION OF LABOR a concentration on the production of a particular output or a small range of similar products DIVISION OF LABOR Specialization of workers in the provision of outputs DoL: Specialization of workers in the provision of outputs by breaking a job down into particular roles or components that are repeated by the same workers.

Adv. & Disadv. productivity efficiency Standardization Higher profit margins Boredom Inflexibility Lack of autonomy Capital costs

Production Finance Functions of Business converting raw materials into finished goods coordinated and monitored by the production manager Quality Control Finance Managing the organization’s money Finance manager Informs those interested in the financial position of the business Production: Responsible for the process of converting raw materials into finished goods, ready for delivery to customers. Process of providing service to customers Functions coordinated and monitored by the production manager Operations manager has vital role in ensuring that production plans are carefully planned out to ensure there is efficient production Finance: Managing the organization’s money Finance manager – ensures accurate recording and reporting of financial documentation Complies with legal requirements Prevents deliberate understating of profit figures Informs those interested in the financial position of the business

Functions of Business Human Resources Marketing Responsible for managing the personnel of the organization Likely to deal with: Workforce planning Recruitment Training Appraisal Pay and benefits Equal opportunities Health and safety matters Fostering working relations Marketing Responsible for identifying and satisfying consumer wants and needs Four P’s of marketing: Product Price Promotion Place HR: Responsible for managing the personnel of the organization Likely to deal with certain issues: Workforce planning Recruitment Training Appraisal Pay and benefits Equal opportunities Health and safety matters Fostering working relations Marketing: Responsible for identifying and satisfying consumer wants and needs Four P’s of marketing: Product: G & S meet customer’s requirements Price: various pricing methods to sell products Promotion: customers know about firm’s products Place: convenience

Sectors of the Economy Tertiary Secondary Primary Primary sector - the extraction of raw materials which are then used in the secondary sector. Secondary sector - This sector produces tangible items using raw materials and other resources in the manufacturing and construction. Tertiary sector – known as the service sector because nothing is actually produced. Services can be classified as personal or commercial.

Chain of Production Consumer Tertiary Production Manufacturing Primary Production Manufacturing Tertiary Production Consumer