Notes

Business: Aims to meet the needs and wants of individuals or organizations by combining human, physical, and financial resources.

Business activity: Resource inputs (human, physical, financial, enterprise) go through processes to add value (production) resulting in product outputs (goods and services).

Business functions: Human resources, finance and accounts, marketing, operation (production).

Role of Human resources: Ensure appropriate people are employed to make the product or service and that the people are suitably rewarded. Includes recruitment, training, dismissal, and determining compensation.

Role of Finance and accounts: Ensure appropriate funds are available. This involves forecasting requirements, keeping accurate records, procuring financial resources from various providers, and ensuring proper payment for operation.

Role of Marketing: Ensure the business offers a product/service that is desired by a sufficient number of people (operation is profitable). Involves appropriate strategies to promote, price, package, and distribute.

Role of Operations Management or Production: Ensure appropriate processes are used to make a product of desired quality. Includes controlling quantity and flow of stock, determining method of production, and looking for ways to produce more efficiently.

Chain of production: The steps through different sectors that must be made to turn raw materials into a consumer good that is marketed.

Corporate social responsibility: Business practice that involves participating in initiatives that benefit society.

Horizontal integration: A business acquiring or merging with another business engaged in a more or less the same activity, leading to increased market share.

Vertical integration: Involvement in earlier or later stages in the chain of production either through acquiring other businesses or internal growth.

Benefits of vertical integration (6): Lower transaction cost, reliable supply, avoid regulation, increasing market power (gain flexibility in pricing), better promotion, eliminate other businesses.

Sectoral change: The size of each sector changes, leading to a change in the composition of the economy due to social and technological factors (social context supporting certain sectors to grow).

Impact of sectoral change (5): Factor substitution, some businesses become obsolete, strain on human resources, reallocation of finance, demand for physical resources, environmental impacts.

Business plan: Set out how an organization will meet its objectives, applies to a specific period, includes long-term and short-term objectives, should be reviewed and updated, detailed budget planning.

Purpose of business plan (5): Support the launch of a new organization or business idea; attract finance; support strategic planning, provide a focus for development, work as a measure of business success.

Elements of business plan (6): Business idea, aims and objectives; business organization; HR; finance; marketing; operations.

Aspects of business types: The owner of the business, the runner of the business, no legal distinction/limited liability, close/less communication, access to finance, privacy and accountability, start-up paperwork and expense.

Benefits of sole trader (7): Complete control, flexible working hours and change, privacy, minimal formalities, close ties to customers, fast decision-making, responsive to change.

Disadvantages of sole trader (7): 100% liability, stress and responsibility, lack of continuity, limited growth, limited access to finance, challenging competition in the market, false decision-making.

Partnerships: Formed by 2-20 people, joint decision-making, owned and managed by more than one person, no legal distinction, more finance, sleeping partners, offer more varied service, greater accountability, may not share profit equally.

Advantages of partnership (5): Creativity and innovation, specialization and division of labor, expertise, stability and lower risk, continuity, more access to finance.

Disadvantages of partnership (4): Slower decision-making and conflicts, not enough access to finance, profit is shared, unlimited liability.

Why become a company? (5): Limited liability, enhanced status and recognition, sell shares to raise capital, stability and continuity, access to finance.

Advantages of owning a share: Share value may increase, receive a dividend, limited liability.

Disadvantages of owning a share: Share value may decrease, may not receive a dividend, shares can be diluted.

Company: Shareholders own, do not run; separate legal entity, business records are public (Memorandum of Association, Articles of Association), greater finance available, more accountability (Annual General Meeting, Extraordinary General Meeting).

Advantages of a company (6): Stability and continuity, access to finance, limited liability, enhanced status, possibility for growth, established organizational structure.

Disadvantages of a company: Set-up difficult and costly, selling shares may not be successful (risk), only partial control, loss of privacy, no control over stock market and buyer of shares, decision-making slow and unresponsive.

For-profit social enterprise: Business that has a social purpose, where profit is not the priority (not maximized), aims to improve human, social, or environmental well-being, without compromise.

Cooperative: A form of partnership whereby the business is owned and run by all the "members", with members participating actively.

Types of cooperatives (5): Financial, housing, worker's, producer, consumer.

Financial cooperative: Social aim takes precedence over profit, offers lower interest rates, provides cheaper services, lowers the standard to give loans.

Housing cooperatives: Provide housing for members, surplus reinvested, promote social harmony, members follow rules.

Worker's cooperatives: No salary to managers, employment of workers is a priority, often no dividend.

Producer cooperatives: Collaborate in a stage of production, maximize the utilization of capital, enjoy economies of scale.

Consumer cooperatives: Consumers pay lower prices as members.

Public-Private Partnership (PPP): Collaboration between business and community, offering greater democracy and transparency, performs the same function, where profit is not the priority.

Advantages of PPP (3): Favorable legal status, strong communal identity, benefits to the stakeholder community.

Disadvantages of PPP (3): Decision-making is complex and slow, insufficient capital for growth, insufficient financial strength.

Non-profit social enterprise (NPO): Generates surplus; includes NGOs and charities.

Charities: Rely on donations, unclear ownership and control, are exempt from tax.

Advantages of NPOs (4): Foster CSR, foster philanthropic spirit in the community, foster informed discussion, innovation.

Disadvantages of NPOs (3): Lack of control but intense lobbying, employees may act inappropriately for good means, irregular funding.

Disadvantages of owning a share:

Share value may decrease.
No dividend.
Shares may be diluted.
Vision Statement: A forward-looking statement that speaks to long-term aims and highest aspirations, less specific, and acts as a guiding principle.

Mission Statement: More grounded in the aims of accomplishing objectives to achieve the mission.

Difference between Vision and Mission Statement: The concept, purpose (future or present), audience (inspire internally, bind external stakeholders), define accountability, measure success, and are not subject to frequent changes.

Three Types of Objectives:

Strategic Objective: Medium- and long-term objectives set by senior managers to guide the company.
Tactical Objective: Medium- and short-term objectives set by middle managers to achieve strategic objectives.
Operational Objective: Day-to-day objectives set by managers or workers to reach tactical objectives.
Hierarchy of Objectives: Objectives that become increasingly specific in content and increasing in quantity, following the organizational hierarchy.

SMART: Objectives that are specific, measurable, achievable, relevant, and time-specific.

Business Strategy: A plan to achieve a strategic objective in order to work towards the aims of the business, involving where, planning, implementation, and evaluation of the process.

Business Tactic: A plan to achieve a tactical objective to work towards the strategies of the business, short-term, changeable, and aimed at achieving a measurable target.

Reason to Change Objectives: Factors include internal elements such as leadership, HR, organization, product, finance, as well as external factors like social, technological, economic, environmental, political, legal, and ethical considerations (STEEPLE).

Why Set Ethical Objectives: To build up customer loyalty, create a positive image, foster a positive working environment, reduce the risk of legal redress, satisfy customer's ethical expectations, and increase profits (access to finance).

Impact of Implementing Ethical Objectives: Affects the business itself (reaction or resistance to change), competitors, suppliers, customers, local community, and government.

Why SWOT Analysis: Helps businesses set objectives through the identification of strengths, weaknesses, opportunities, and threats (SWOT).

4 Strategies Using SWOT:

S+O: Leveraging strengths to capitalize on opportunities.
W+T: Defensive strategies to protect against threats.
W+O: Re-orientation strategies to overcome weaknesses by taking advantage of opportunities.
S+T: Defusing strategies to use strengths to mitigate threats.
Why Ansoff Matrix: Helps businesses plan and set objectives through market penetration, product development, market development, and diversification strategies.

What Do Aims Do?: Direct, control, and review the business activities and strategies.

How to Enforce Aims: Utilize appropriate strategies, ensure resources are used correctly, and constantly review progress.

Common Objectives:

Profit maximization.
Growth.
Increasing market share.
Corporate Social Responsibility (CSR).
Maximizing shareholder value.
Market Penetration: Strategy aiming to increase market share through enhanced marketing efforts, using the 4Ps (product, price, place, promotion).

Key Factors to Succeed in Market Penetration:

Growth potential of the market.
Strength of customer loyalty.
Power and ability of competitors.
Market Development: Strategy to look for new markets for existing products, often utilizing e-commerce platforms.

To Succeed in Market Development:

Conduct effective market research.
Utilize local knowledge.
Implement effective distribution strategies.
To Reduce the Risk of Product Development:

Engage in market research.
Maintain a strong R&D system.
Secure first-mover advantage.
Risk of Diversification:

Lack of familiarity in a new market.
Untestedness of new products.
To Succeed in Diversification:

Conduct thorough market research.
Perform diligent testing of both the market and cost of entry.
Gain recognition from existing business operations.
Explore possible strategic tie-ups.
Economies of Scale: The reduction in average unit cost as a business increases in size.

Diseconomies of Scale: The increase in average unit cost as a business grows beyond a certain point.

Internal Economies of Scale: Include technical, managerial, financial, marketing, purchasing, and risk-bearing advantages.

External Economies of Scale: Include benefits that arise from the firm's operating environment and affect all firms in the industry, such as improved infrastructure or skilled labor pool.

Internal Diseconomies of Scale: Arise from within the company and can include issues such as managerial inefficiencies and communication problems.

External Diseconomies of Scale: Occur when the industry grows so large that the resources become over-utilized, leading to higher costs.

Advantages of Being a Small Business:

Greater focus.
Greater cachet.
More motivation.
Competitive advantage through personalized service.
Less competition.
Advantages of Being a Big Business:

Better survival chances.
Benefit from economies of scale.
Higher status.
Market leader status.
Increased market share.
Entrepreneurship and Intrapreneurship:

Entrepreneurship: An individual demonstrates enterprise and initiatives to make a profit.
Intrapreneurship: An individual employed by a large organization demonstrates entrepreneurial thinking in the development of new products or services.
Innovation: Processes include market reading, need seeking, and technology driving.

Stakeholders: An individual or group that has an interest, often financial, in the activities and success of an organization.

Internal Stakeholders Include: Shareholders, CEO, senior managers, middle managers, foreman and supervisors, employees and unions.

External Stakeholders Include: Government, suppliers, customers, local community, financiers, pressure groups, media, and competitors.

Stakeholder Analysis: Considers the influence and interest of different stakeholder groups, ranging from owners and managers to the wider community and pressure groups.

Power-Interest Model: A tool to prioritize stakeholder management based on the level of interest and power they hold over the organization.

Micro-Financier: Concept by Muhammad Yunus to provide small amounts of finance to those who traditionally don't have access to banking services.

Vision Statement Definition: A statement that outlines a philosophy, vision, or set of principles which steers the direction and behavior of an organization.

Primary Sector: Engages in activities such as farming, fishing, oil extraction, and extraction of other natural resources for use and processing by other firms.

Secondary Sector: Firms that manufacture and process products from natural resources, including industries like computing, brewing, baking, clothing, and construction.

Tertiary Sector: Firms that provide services to consumers and other businesses, such as retailing, transport, insurance, banking, hotels, tourism, and telecommunications.

Quaternary Sector: A subsector of the tertiary sector, focused on information technology (IT) businesses and information service providers.

Reasons to Start Up a Business: Include seeking rewards, independence, necessity, challenge, interest, finding a gap in the market, and sharing an idea.

Steps of Starting Up a Business: Organize the basics, conduct market research, plan the business, establish legal requirements, raise finance, and test the market.

Problems That a New Business May Face: Include organizational issues like bad location or unsuitable structure, market research issues like inappropriate target market or too optimistic forecasts, poor business planning, vague goals, and financial constraints.

NGO: Social enterprises aiming to support socially desirable causes, not organized by the government.

Charity: A specific form of NGO whose aim is to provide relief for those in need, focusing on philanthropy.

Advantages of Charity:

Help people or causes in need.
Foster a philanthropic spirit in the community.
Foster informed discussions about resource allocation.
Foster innovation.
Disadvantages of Charity:

Unclear ownership.
Lack of control and intense lobbying.
Employees' passion and zeal can ill-serve the organization.
Irregular funding.
CSR: The concept that businesses have an obligation to operate in a way that has a positive impact on society.

Franchise: A business model where an original business (franchisor) sells the right to offer its business concept and sell its product to other businesses (franchisees).

In Franchising, Franchisors Provide: Stock, fittings, uniforms, staff training, legal and financial help, as well as global advertising and promotions.

In Franchising, Franchisees: Employ staff, set prices, set wages, pay royalties, create local promotions, sell franchisor's products, and advertise locally.

Advantages of Franchise for Franchisees:

Established brand and product.
Established format of selling.
Reduced set-up costs.
Secure supply of stock.
Legal, financial, and technical help.
Disadvantages of Franchise for Franchisees:

Unlimited liability.
Pay royalties.
No control over the product.
No control over the supply.
No global decision-making authority.
Advantages of Franchise for Franchisors:

Quick access to a larger market.
Makes use of local knowledge.
No risk/liability.
More profit from royalties.
Disadvantages of Franchise for Franchisors:

Lose some control.
The image may suffer if a franchise store fails.
Impact of Globalization:

Increased competition.
Greater brand awareness.
Skill transfer.
Closer collaboration.
Reasons for the Growth of Multinational Companies:

Improved information and communication technology (ICT).
Dismantled trade barriers.
Deregulated global financial market.
Increasing economic and political power of multinational companies.
MNC's Positive Impact on Host Countries:

Economic growth.
Introduction of new ideas.
Skill transfer.
Product variety.
Short-term infrastructure projects.
MNC's Negative Impact on Host Countries:

Avoiding local tax.
Loss of cultural identity.
Loss of domestic talent to MNCs in other countries.
Domestic companies lose market share.
MNCs may quickly shift overseas for cheaper resources.
Types of Growth:

Internal (Organic): Occurs slowly and steadily from within the existing operations of the business.
External (Inorganic, Fast-Track): Quick and riskier, involving arrangements with other businesses.
Internal Growth: Lower risk, slower, self-financed using retained profits, selling more products or developing product range.

External Growth: Entering into an arrangement with another business for a specific goal, quick and riskier.

Types of External Growth:

Mergers and Acquisitions (M&A).
Joint ventures.
Strategic alliances.
Franchising.
Merger: Two businesses integrate by joining together to form a larger entity.

Acquisition: One business takes over another.

Takeover/Hostile Takeover: An unwanted acquisition by the company being acquired.

M&A Integration:

Horizontal integration.
Backward and forward vertical integration.
Conglomeration (diversification).
Conglomeration: Businesses diversify to reduce overall corporate risk and may have complementary seasonal activity.

Advantages of Integration:

Economies of scale.
Innovation of combined human resources.
Control up or down the chain of production.
Complementary activities.
Disadvantages of M&A:

Costly due to legal fees.
Potential culture clash.
Associated risks.
Joint Venture: Two businesses combine resources for a specific goal over a finite period, creating a separate entity.

Advantages of Joint Venture:

Increased sales.
Shared skills and expertise.
Does not lose legal existence or identity.
Disadvantages of Joint Venture:

Shared profit.
Potential for conflict.
Strategic Alliance: Businesses collaborate for a specific goal, can involve two or more businesses, no new entity is created, and businesses remain independent.

Disadvantages of Strategic Alliance:

Coordination may be more difficult with more businesses involved.
Lack of legal existence means less forceful agreements.
No economies of scale.
Lacks stability.
Internal Stakeholders Include: Shareholders, CEO, senior managers, middle managers, foreman and supervisors, employees, and unions.

External Stakeholders Include: Government, suppliers, customers, local community, financiers, pressure groups, media, and competitors.

Power-Interest Model: Categorizes stakeholders based on their level of interest and power, determining the effort needed to manage them.

Decision Tree: A diagram used to decide the most effective course of action, considering various options; useful for strategic planning.

Advantages of Decision Tree:

Clear and logical layout of problems.
Visualization of all potential options.
More scientific and objective decision-making.
Disadvantages of Decision Tree:

Probabilities used may not be accurate forecasts.
Focuses only on quantitative data, ignoring qualitative impacts.
Biases may affect the presentation of probabilities.
Sole Trader: An individual entrepreneur who owns and operates a business, receiving all profits and bearing all risks.