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

2. 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

3. 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
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4. Durable Goods
Things that will last a long time and will be used regularly.
Cars TV
Washing Machines
Cookers
Microwave Ovens
Refrigerators
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5. Non-Durable Goods Things that are “consumed” shortly after purchase.
Food
Drink
Clothing
Shoes
Newspapers
Magazines
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6. Inputs and Outputs Outputs Inputs Resources Goods Raw materials and
Labour
Machinery
‘Organisation’
Goods
and
Services
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7. 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

8. 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
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9. Cycle of Business WANTS IDENTIFICATION PRODUCTION CONSUMPTION WANTS
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10. 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
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11. Organisations Types of Organisation Private Sector Public Sector
Profit-making
Non-profit-making
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12. 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

13. 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
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14. 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
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15. 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
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16. 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
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17. Multinationals
Large businesses with outlets or production facilities in a number of different countries
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18. 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

19. 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
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20. 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

21. 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
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22. 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

23. 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
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24. Business Objectives Survival Maximising profits Growth Good reputation
Maximising sales
Satisficing
Providing a service
Managerial objectives
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25. 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
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26. Stakeholders
Individuals or groups of people who have an interest in, and stand to be affected by, the success or failure of an organisation
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27. 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

28. 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
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29. 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
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30. 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
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31. Skills of Managers Interpersonal – relationship with others
Informational – gathering, processing and communicating information
Decisional – solving problems and allocating resources
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32. 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
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33. 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
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34. 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
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35. 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’
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BM Unit 1 - L01A

36. 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
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37. 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
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38. 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

39. 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
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40. Internal Pressures to Change
New personnel or management
New technology (the internet)
Change in financial position
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41. 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 ( , internet)
Environmental
Competitive
BM Unit 1 - LO1