1.1 Introduction to Business Management

What are the contents of a typical business plan?

1. The business (name, address, cost, details about owners, type of organization, quantifiable goals) 2. The product ( pg 12--still must be finished

Define Business

A business is any organization/firm/entity that uses resources to meet the needs of customers by providing a product (good/service) that they demand

What is the importance of a business plan?

A business plan is a report detailing how a business sets out to achieve its goals and objectives. It is a useful planning tool as it requires the owner(s) to consider the marketing, financial and human resources of the business Important for the following reasons: -To obtain finance (get loans) -Sense of purpose -Financial and other forecast -Potential investors -Establishing long-term relation

What is the difference between functions of business in large vs small businesses?

A large organization is able to allocate resources to each of the four functional areas, making their roles easily identifiable. In a small business (eg. sole trader), all functions would have to be carried out by the same person. In practice, these functions are highly interrelated (production relies heavily on successful marketing).

What is a consumer service?

A non-tangible product

What is a consumer good?

A physical and tangible good (durable and non durable depending on how long it may last) to fulfill demand

Define Sectoral Change

A shift in the relative share of GDP and employment attributed to each business sector

Define Quaternary Sector

A subcategory of the tertiary sector where businesses are involved in intellectual, knowledge-based activities that generate and share information (eg. IT communications and research organizations)

What is a sectoral change? Discuss whether a sectoral change is beneficial to a country

Definition: A shift in the relative share of national output and employment that is attributed to each business sector over time When economies progress, their dependency on the primary sector reduces (shifts to secondary (industrialization), then tertiary and quaternary sectors(deindustrialization)) Advantages: Increased national income Increased standard of living Decreased imports (mostly) Employment increases Tax revenue increases Disadvantages: Over congestion Pollution Over-competition

What are the roles of entrepreneurship and intrapreneurship in overall business activity? +distinguish

Entrepreneurs: owners or operators of an organization who manage, organize and plan the other three factors of production. They are risk takers who exploit business opportunities in return for profits Intrapreneurs: employee behaving as an entrepreneur within a large business organization. They work in an entrepreneurial capacity, with authority to create innovative products or processes for the organization (Refer to table for differences)

What are the business inputs?

Factors of production are called economic resources/factor inputs 1) Land: natural resources found above or below the ground eg. extraction of minerals, water, fish, trees renewable (can be replaced-fish, trees, water) non-renewable (cannot be replaced-minerals, fossil fuels) 2) Labour: human resources (physical/mental effort) aka informally human capital <-investment increases by education and training, more skills, higher value 3) Capital: man-made/non-natural resources used in production eg. building, machinery, equipment, money ^initial investment cost is high, however over long period of time, average cost decreases, as it is divided over large number of output 4) Enterprise: combines and organizes all the factors of production to produce goods/services; willingness & ability to take risks (as they have invested savings/capital); creativity and innovation; have the reward/incentive of profit

What are the main functions of business? (list) 4

For a business to operate effectively, tasks must be carried out by functional areas (or departments). These interdependent functional areas are: human resources, finance and accounts, marketing, and operations management.

Define Secondary Sector

The section of the economy where business activity is concerned with the construction and manufacturing of products

Define Tertiary Sector

The section of the economy where business activity is concerned with the provision of services to the customers

What are the reasons for starting up a business?

GET CASH Growth: appreciation in the value of assets, such as property and land which tend to increase in value over time--this is called capital growth Earnings: potential returns from setting up your own business are high (compared to normal salaries), even though the risks are high Transference and Inheritance: many self-employed entrepreneurs view their business as something they can pass on (transference) to their children Challenge: some people might view setting up and running a business as a challenge that drives them and gives them personal satisfaction Autonomy: being self-employed means that there is autonomy (independence, freedom of choice & flexibility) in terms of how things are done within an organization Security: there is usually more job security for someone who is their own boss (self-employed) and it os potentially easier to accumulate personal wealth (perhaps secure retirement) despite higher risk Hobbies: some people try to pursue their passion or turn their hobby into a business--the nature of their work is directly related to their interests

What are some personal qualities of an innovator?

Innovative, doing things differently ( Not necessarily an inventor) Commitment and Self Motivation Multi-skilled Leadership Skills Belief in oneself Risk taker Leadership Belief in oneself

What is the difference between labour and capital intensive production?

More ____ than ____ used by a firm to produce goods and services

Define Entrepreneur

Owners/operators of an organization who manage, organize and plan the other three factors of production. They are risk takers who exploit business opportunities in return for profit.

What is a capital good?

Produced good used for further production

What are the 4Ps of marketing?

Product: ensuring goods/services meet consumer requirements (size, color, packaging, core functions) Price: using pricing strategies, depending on factors including level of demand, cost of production, number of substitutes available Place: ensuring goods/services are convenient for consumers to purchase, appropriate ways to distribute products to the marketplace eg. online purchases, retail outlets, vending machines Promotion: making sure that consumers know about the product, usually done though mass media eg. television or newspaper advertising or sales promotions, social networking and guerrilla marketing

Define Product

Refers to both goods and services. Goods=physical products, services =intangible products

Define Business Plan

Refers to the document that sets out the business idea, its goals and objectives and other details of how the business will operate (such as marketing, operations and finance). It is often a crucial part of an attempt to raise external sources of finance.

What are the steps in the process of starting up a business?

These steps will vary from one country to another. Nevertheless, the common steps in the process of starting up a business include: (list) 1. Identify market opportunities & write a business plan (determine a feasible idea and formulate it into a business plan including: goals, objectives and an outline plan) 2. Obtain start-up capital (sourcing finance can come from personal savings, friends/family, bank venture capitalists, grants) 3. Obtain business registration (the owner must register the legal status of the business, type of organization eg. partnership, private limited, etc) 4. Open a business bank account (owner needs to set up a bank account for the business to pay for its costs of operation and receive payments from customers) 5. Determining a location (keeping in mind the market potential and breakeven level of output) 6. Marketing (this is includes advertising and promotional materials to build a customer base and establish credibility)

What is the role of businesses?

To combine human, physical and financial resources to create goods and services in order to satisfy the needs and wants of people, organizations and the government

What are the functions of the human resources department?

a) Identifies workforce needs b) Recruits & selects c) Trains & motivates d) Redundancy & redeployment

What are the functions of the marketing department?

a) Identifying and satisfying the needs and wants of customers --> Ultimately, making sure the firm's products sell (done through market research, test marketing, advertising, branding) +the 4 Ps of marketing

What are the functions of the finance and accounts department?

a) Manages inflow and outflow of cash i) ensure accurate recording and reporting of financial documentation ii) comply with legal documentation (eg. tax) iii) inform those interested in financial position of business (shareholders and potential investors)

What are the functions of the operations department?

production (converting raw materials into finished goods) and maintaining quality levels

Define Customers

The people or organizations who buy the product

What are the roles of the entrepreneur?

Business Idea -> Capital -> Risk-taking -> Responsibility

What are the economic sectors? 4

Businesses can be classified according to the stage of production they are engaged in. All four business sections are interdependent because each sector relies on the others to remain in existence. 1. Primary sector (natural resources): businesses involved in the cultivation or extraction of natural resources so that they can be used and processed by other firms eg. agriculture, fishing, mining, forestry, oil extraction [primary sector activities tend to account for large percentages of output and employment in LEDCs, while primary sector in MEDCs uses mechanization and automation 2. Secondary sector (manufacturing): the section of the economy where business activity is concerned with the construction and manufacturing of products from natural resources eg. clothing manufacturers, publishing firms, breweries and bottlers, electronics manufacturers, energy production companies--value is added in the production process [developing countries usually have a dominant secondary sector, and it is a 'wealth-creating sector' because manufactured goods can be exported to earn a profit] 3. Tertiary sector (provide services): section of the economy where business activity is concerned with the provision of services to customers eg. retailing, banking, insurance, healthcare, leisure and tourism, entertainment [MEDCs have a substantial tertiary sector] 4. Quaternary sector (provide information): subcategory of tertiary sector involed in intellectual, knowledge-based activities that generate and share information; focused on IT and services such as research and development and business consultation

What are the problems faced by startups?

Results from around the world show that 20-25% of businesses fail in their first year. A new business is likely to face problems that must be dealt with immediately to prevent them from escalating and threatening its survival. This problems include: (list) 1. Lack of finance: finance is required to purchase fixed assets (premises, buildings, materials, machinery, equipment) New businesses often have to remortgage their homes to raise finance, offering the lender more collateral. Funds may be insufficient and interest rates too high. 2. Cash flow problems: financing working capital can also become a problem because customers may demand a lengthy credit period, while businesses still have to pay for their ongoing costs (wages, rent, utility, taxes) --for this reason, it is common for businesses to produce a cash flow forecast 3. Marketing problems: when businesses fail to meet customer needs, thereby resulting in poor sales. Small/new businesses may not know how to supply the right products at the right price. Often, businesses must identify a niche or gap in the market and then fill it in. 4. Unestablished customer base: it may become difficult to attract customers, especially when there are well established rivals that already operate in the market 5. People management problems: new businesses may lack experience hiring the right staff with all the necessary skills and be unaware of the ideal organizational structure 6. Legalities: the paperwork and legal requirements of starting up a new business can be tedious, confusing, time-consuming, and expensive. Any oversight may force the business to pay compensation or penalty fees (damaging the already vulnerable cash flow) 7. Production problems: can be difficult for business to accurately forecast demand, so they may either overproduce (stockpiling) or underproduce (dissatisfied consumers) 8. High production costs: likely due to large amount of money needed to pay for the cost of equipment, machinery, stocks, rent, advertising, insurance, etc. Small businesses are also at a disadvantage because they cannot benefit from economies of scale. 9. Poor location: busy areas often offer the highest number of potential customers, but often cost the most (opportunity cost)--so, many startups initially begin at entrepreneur's home 10. External influences: all businesses are prone to exogenous shocks that create a difficult training environment eg. oil crisis or economic recession--however, older & larger firms are usually more equipped to handle them and smaller, newer firms are more vulnerable to their effects

Define Intrapreneurship

The act of behaving as an entrepreneur but as an employee within a large business organization. Intrapreneurs work in an entrepreneurial capacity, with authority to create innovative products or new processes for the organization

Define Primary Sector

The business involved in the cultivation or extraction of natural resources (farming, mining, fish, oil exploration, forestry)

Define Consumers

The people or organizations who actually use a product