BUSINESS AND MANAGEMENT

MODULE 1
Unit 1.1
INTRODUCTION TO ORGANISATIONS

Content
What is a Business?
Their purpose
The marketplace
Types of products
Adding value
Opportunity cost
Profit

Factors of production
Specialization
Business Functions

READING FOCUS

Business Studies Unit 1 pg: 1- 7

Key terms
Businesses, capital, division of labor, entrepreneurs, factors of production,
functional areas, industrialization, labor, land, opportunity cost, primary sector,
private sector, public sector, secondary sector, structural change, tertiary sector,
value added

Context
If you walk down any high street, you will notice that many of the shops
display their names for all to see. It may be Robinson the butcher,
Brown, Macy and Brown solicitors, as well as known chain stores
such as Marks and Spencer plc or Hodson's Limited. All are
businesses, but each with a different status in terms of how is
operated, what their product is, and how these products are made.
Basically. What businesses are, what they do, and why they do it.

What is a business?

A business is a decision making organization involved in the process of

using inputs to produce goods and/or provide services.
Inputs

Processes
Outputs

Ex. Raw materials,

components,
machinery,
equipment and labor

Ex. Turning the inputs into

the providing of services or
Manufacturing of goods.

TASK
From your assigned readings, identify the
features of inputs, processes, and outputs of
Eurocars.

The output or provision

Of final goods and services.

Why?
Needs and Wants
Business exist in order to satisfy the needs and wants of
people, organizations, and governments.
As businesses become larger, it becomes important to
have clearly designed functions. i.e. HRM, Production,
Marketing, and Finance.

Why? Continued

Businesses are also affected by external factors, those which it cannot

control.

Such as what?

Environment
Government
What else?

It is easy to open a business, but is much harder to keep it open.

The Marketplace

A place or process where buyers

(customers) and sellers (businesses)
meet to trade.

Can be physical or non physical.

Customers buy the product

Consumers use the product

They can be the same. i.e. someone who

buys and eats a burger meal. Or different,
birthday presents.

The Marketplace
Types of Products
Consumer goods

Products sold to the general

public. Durable vs. Nondurable.

Capital goods / Producer

goods

Products purchased by other

businesses.

Services

Intangible products provided

by businesses.

Adding Value

Value added is the difference between the value of the inputs (i.e. the costs of
production) and the value of the outputs (i.e. the goods and services sold to
customers.
Value added allows a business to sell its products for more than its production
costswhich results in what?
Suppose production costs for a car are $6000. If customers are willing to pay
$18000 for the car, then the value added is what?

Why are consumers willing to pay more?

Because theyre stupid obviously!

Speed and/or quality of service

Prestige
Feel-good
Value for money
Quality
Brand loyalty

Taste or design
Inability to purchase cheaper

Opportunity Cost

Businesses have to make decisions that affect their daily operations and long
term processes.
Opportunity cost is easily described as this: take the example of a student
deciding to go university pays two types of costs. Accounting costs would
be actual, i.e. tuition fees, dorm fees, etc. Opportunity costs would be
income that could have been earned had the person chosen to work instead
of studying. In this case, the opportunity cost is offset, but HOW?
i.e. mirrors, supermarkets

Opportunity cost
Why is it useful?
When assessing the true costs and benefits of different choices. i.e.
mirrors or no mirrors. Muzak or no muzak.

Question: it wasnt 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. However the
fines were insignificant compared to the revenues they were earning
by opening on Sundaysso they continued. Mcdonalds followed
suit.
Define Opportunity costs
Examine reasons why OC is an important concept in business decision making

PROFIT!
Profit is the positive difference between a firms total
revenues and its total costs, over time.
Revenues are inflows, usually from sales.
Costs are outflows, usually from production activities.

Profit acts as an incentive.

Reward for risk takers.
Encourages invention and innovation.
Indicator of growth or decline.
Source of finance for internal growth.

Factors of Production
Factor inputs: to produce any good, there are four vital
factors of production that are required always: land,
labor, capital, and enterprise (management,
organization, planning of the other three factors).

Land all natural resources on the planet

Labor physical and mental effort

Capital non-natural resources (money, buildings, equipment, machinery)

Enterprise planning of the whole process (must be creative, innovative,

and passionate.

Different products require different amounts of factor inputs.

TEACHING VS. CAR

MANUFACTURING

4 factors of financial return

Rent ------- reward for land
Interest ------ reward for capital (bank loans)
Wages and Salaries -------- reward for labor

Profit ------- reward for responsibilities

4 Returns are generally known as INCOME!

RETURNS

Factors of production

Enterprise
Land

Labor

Capital

Rent

Wages

Interest

INCOME

Profit

Specialization

Specialization means that a business

concentrates on the production of a
particular good or service or a small
range of similar products. Can also be
specialization in making one product,
with different specialists.

Italian Restaurants are specialized in

Pasta and Pizza, the specialists are
chefs, cleaners, drivers.
i.e. Coca Cola, Samsung,
Toyota

Specialization will tend to increase

employee efficiency because the
become better and better in their jobs.
A chef does not deliver, but a driver
does!

TO BE CONTINUED!

Business Inputs
Primary
oExtracts raw resources from planet Earth
oLumberjacks
oMining
oFisheries
oFarming
Secondary
oTransfers the primary goods into products
oManufacturing
oConstruction
oSlaughter house
Tertiary sectors service sector
oTruckers
oLandscaping
oCar sales
oMovies, TV, entertainment
oProducers, lighting, writers, caterers
oDigital computer computer repair
oPersonal trainers
oTanning salons
oNail salons
Processes
Outputs

Product
Good
Service

What is a Business?
Business & Its Purpose
Needs v. Wants
Clothes Want, Good
Starbucks Want, Good
Shooooz Need, Good
Timmies (ice cap) Need, Good
Micky Ds Want (had food at home as an alternative), Good
Game WANT, Good
People
Businesses
Wants better ads, more ads, newer parking lot or facilities, prime
location, new equipment
Needs Customers, facilities, labour, cash flow, management, the
ability to work within the law, inventory
Government
Wants Sidewalks, parks and recreation, tourism, growing population,
entertainment, facilities, libraries,
Needs electricity and other elements of infrastructure, tax revenue,
grants from highers levels of government, business in the private
sector, law enforcement, health,

Departments
Human Resources
Production
Marketing
Finance

External Factors
Social Changes
Technology Developments
Economic Activity
Environmental Issues
Government Legislation
Natural Disasters
Disease

Types of Products
Consumer Good
Example?
Capital Goods
Example?
Services
Example?

END OF UNIT