N5 BUSINESS MANAGEMENT Unit 1 Understanding Business
ROLE OF BUSINESS IN SOCIETY how businesses satisfy human wants and create wealth Factors of production and creating wealth how businesses operate in different sectors of industry the different sectors of the economy CUSTOMER SATISFACTION how businesses maximise customer service why customer service is important to business success TYPES OF BUSINESS ORGANISATIONS Their differing aims, objectives, sources of finance, industrial and economic sectors they operate in sole trader partnerships private limited company social enterprises charities public organisations how enterprising skills and qualities help business development OBJECTIVES Profit, provision of a service, social responsibility, survival, customer satisfaction, market share, enterprise EXTERNAL FACTORS political economic social technological environmental competitive INTERNAL FACTORS How they affect the operation of and decisions made in the organisations listed above; the main ones being: employees/staff finance management technological systems STAKEHOLDERS owners shareholders employees banks customers suppliers local community pressure groups local and national government
Role of Business in Society Business provides us with most of the things we use on a daily basis.
Needs and Wants Needs are things we can not do with out o o o o Water Basic food Heat Shelter Wants can be few or endless we can live without them but would rather not! o o o o Mobiles Tvs Internet Expensive foods and clothing
Goods and services A good is something you can see and touch A good is broken into o Durable (like a washing machine) o Non-durable (like a hamburger) Services are you can t see, touch or pick up o Hotels o Airplane travel o Holidays
Providing both Sometimes you just want a sandwich or pasty from a shop that is a good Sometimes you want it heated, or to sit at a table that is a service
Factors of production Resources required to produce goods and services can be divided into 4 main groups knows as the Factors of Production. LAND site of factory/premises LABOUR people employed to produce the goods CAPITAL money required/machinery ENTERPRISE idea provided by the owner 7
LAND Farmland crops,animals Buildings land needed for housing, businesses Water Coal-mining to provide heat oil/gas-refineries 8
LABOUR Labour is physical and mental effort. People who use mental effort include: Teachers Bankers People who use physical effort include: Assembly workers, eg a car production line A baker mixing of ingredients to make bread and cakes 9
CAPITAL Capital is the money and the things that can be purchased with money to make and sell goods and services. 10
ENTERPRISE Enterprise means having an idea for a new business and taking risks with the other factors of production to make the business a success 11
CREATING WEALTH Creating wealth occurs at each stage of the production process. Value is added by each producer eg o miller adds to the value of the wheat by processing it o Baker adds to the value of the processed wheat by making it into cakes The total value of the cake is much more than the value of the raw materials used in its production Therefore each stage creates more total wealth than the previous stage 12
Wool prices are about 50 pence per kilogram and for most farmers the value of the wool does not cover the cost of shearing. Finished product - 55! 13
Sectors of the Economy The economy consists of 3 different sectors o Private o Public o Third or Voluntary Sector
The Private Sector The Private sector is made up of businesses large and small that belong to individuals. These businesses are concerned with o Increasing profit o Increasing market share o Adding value to their goods and services o Increasing wealth
The Private Sector is made up of different types of business Sole Traders (eg David Graham Cycles) Partnerships (eg MacPhee and Partners) Private Limited Companies (eg M&Co) Public Limited Companies (eg Tesco plc)
The Public Sector The public sector is used to deliver services and goods to a wide number of people in a society. The public sector of the economy is owned and controlled by the government and local councils. It provides services such as schools, hospitals, the armed forces and social services. These organisations are funded by taxes, eg corporation tax, income tax, council tax
The Public Sector consists of: National Government o This would include the British or UK government as well as the Scottish Government Local Government o This would include both councils such as Argyll-Bute or Stirling and towns such as Oban
The Third Sector Non-Profit making Organisations Social Enterprise
The Third Sector This sector is about delivering goods and services that neither businesses nor the public sector covers This sector looks for sponsorship for its capital and volunteers for labour
The Third sector Non- profit organisations o o Charities Voluntary organisations Social Enterprises o o have a main social aim rather than profit but are run in a business like way at least 50% of the profit must be invested into meeting the stated aim of the enterprise http://www.socialenterpriselive.com/se100/companystory/20100521/wrappers-delight
The 3 Sectors of Industry oprimary osecondary otertiary
The Primary Sector This is EXTRACTING RAW MATERIALS o Extraction industries eg mining or quarrying o Farming o Oil and energy extraction o Fishing o Forestry Sometimes an economy based on this sector can be very successful think of oil based economies. Sometimes the primary sector needs very few people and all the products are exported.
The Secondary Sector This is MANUFACTURING o Wealth creation at each stage is very high o This is taking materials from the primary sector and processing them o White goods, clothing, cars, TV s, yoghurt, bread o When countries move from primary to secondary sectors the change in wealth can be huge
The Tertiary Sector This is the SERVICE SECTOR. Banking, medicine, travel, beauty, restaurants, government jobs, education are examples A country usually shifts to the tertiary sector when manufacturing is being carried out in a country where it is cheaper.
Customer Satisfaction Customers give a business money in return for goods and services provided in a way that makes the customer happy One off or single customer - a customer that may need a single item and will never appear again Repeat customera customer that needs a steady supply of the same or similar goods
Why is Customer Service Important? You will gain customer loyalty customers will keep returning and tell other people free advertising Increased sales and profits A good reputation your customers say positive things about you Increased competitiveness can compete better with other organisations Staff morale is better they are happy at work if they don t have to constantly deal with unhappy customers
How businesses maximise Customer Service: Providing the highest possible quality product Making sure employees are trained they should know about products they are selling. Can be expensive Having a customer care strategy letting customers know the level of service they should expect Having a customer complaints procedure - aims to make sure customer complaints are handled in the best possible way Having an after-sales service - opportunity to ask questions about their purchase after it has been bought Provide guarantees eg replacement parts within a year of purchase Refund and exchange policy all staff should know about the policy
Types of Business Organisation Private Sector Third or Voluntary Sector Sectors of the Economy Public Sector
Private Sector Businesses Sole Trader Types of Business Organisation Private Limited Company Partnership 30
FEATURES OF SOLE TRADER Sole Trader Aims is to make a profit Business owned and often run by one person May employ other people in the business Tend to be small businesses Examples: Can Small you name shops, 3 sole trader Car businesses mechanics, in Oban? Flower shop Auley s Bar, David Graham Cycles. 31
Sole Trader ADVANTAGES: Owner keeps all the profits Owner controls all the decisions Easy to set up the business. DISADVANTAGES: Owner bears all the responsibilities If owner cannot work the business may suffer lack of cash Owner may have difficulty obtaining finance Owner has unlimited liability. 32
Partnership FEATURES OF PARTNERSHIP Aim is to make a profit Business between two and twenty partners Partners usually enter into a legal agreement called a Partnership Agreement which states o States share of profit o Which partner has most responsibility Partners may invest different amounts of money This will affect their share of profit Examples: Dentists, vets and lawyers. Can you name 3 partnership businesses in Oban? Oban Chocolate, MacCamley and Laird, Stevenson Kennedy (lawyers) 33
Partnership ADVANTAGES: Partners can share workload according to skills Partnerships find it easier to raise finance than sole trader Risks are shared between partners risk of poor profit DISADVANTAGES: Profits shared between the partners therefore smaller share More people to run business risks of disagreement Partners usually has unlimited liability Legal agreement needs to be set up. 34
What are Shares? Companies are owned by people who are shareholders Anyone over 18 can buy shares Shareholders are given a share of any company profits The share of profits is called a dividend and is payable once or twice yearly 35
Private Limited Company FEATURES OF PRIVATE LIMITED COMPANY Aim is to make a profit Name of the business will end with Ltd Owned by shareholders minimum of one Shares in the company are owned privately Run by a Board of Directors Such companies are often family businesses. Examples: MacQueen Bros had recently become a Private Ltd Company Can you name 3 private limited companies in Oban? M&Co, MacQueen Ltd, Beaver Timber Ltd, 36
Private Limited Company ADVANTAGES: Owner keeps control of the business Private limited company can raise more finance that a smaller business Shareholders have limited liability. DISADVANTAGES Profits shared between more people A legal agreement must be set up Shares cannot be sold to the public, so raising finance can be more difficult than for a public limited company. 37
Public Sector Organisations FEATURES OF A PUBLICLY OWNED ORGANISATION Main aim is to provide a service Funded by taxpayers Controlled by government Provide essential services for the whole population Non profit making Examples: BBC, National Health Service, Education Can Services you give an example of a Public Ownership organisation in in Oban? Local Government 38
Public Sector Organisations ADVANTAGES: DISADVANTAGES Less competition May have funding issues depending on the economy. 39
Third or Voluntary Sector Organisations CHARITIES Charities exist for a variety of different causes. They aim to raise money to fund research or help support those in need. Use donations from the public Raise funds in other ways Do not make a profit Examples include Oxfam, RSPCA, and Save the Children 40
Third or Voluntary Sector Organisations SOCIAL ENTERPRISE Social Enterprises are businesses that trade to tackle social problems and improve life for the community. They make their money from selling goods and services but reinvest a large portion of their profits back into the business or local community. Examples of Social Enterprise o Atlantis Leisure o Phoenix Cinema 41
Enterprise and Organisations All organisations exist because someone had an idea and enterprising skills and attitudes! An Entrepreneur is someone who Has an idea for a business venture Is prepared to take another s idea and develop it Is prepared to provide finance to develop an idea Is prepared to take a risk which will in turn result in a new produce or service 42
Skills and qualities of an entrepreneur Self confidence An Entrepreneur needs the following skills and qualities: Risk taking Leadership Determination Entrepreneur Skills Organised Creativity Enthusiastic Problem solving 43
Who are entrepreneurs? Richard Branson Linda Bennett Michelle Mone Alan Sugar Fraser Docherty Dragon s Den team: Deborah Meaden Duncan Bannatyne Peter Jones Kelly Hoppen Piers Linney 44
Business Objectives Survival Profit Provision of a Service Customer Satisfaction Enterprise Social Responsibility Market Share This means to continue trading and it is often the first objective a business has. This means to have more income than costs. It is the main objective of any business in the private sector. To provide people with a service they want. An example could be a government hospital with the aim of providing health care. To make customers happy and encourage them to make repeat purchases. This means to combine resources to produce a prodcut that customers want. It might involove a business developing a new idea and trying to satisfy the wants of customers in a different way- maybe by providing a new product. To be seen as helping society, by improving the environment, creating jobs, promoting education. This can mean two things Increase market share Become a market leader
Business Influences There are a number of factors which influence how a business operates External Factors things outside the business Internal Factors things inside the business
External Factors (PESTEC) POLITICAL COMPETITIVE ECONOMIC External ENVIRONMENTAL SOCIAL TECHNOLOGICAL
Political The Government can introduce laws that affect every business or just some businesses. Examples o Minimum wage this can cost an organisation money o Smoking ban affected particularly pubs, causing many to close
Economic This refers to changes to the economy during periods of boom and slump which can affect busiensses Example o o During a boom, business do well and make their biggest profits During a slump or recession, the opposite happens. Customers cannot afford to spend so much money
Social This refers to the structure of the population, peoples tastes and different working practices Example o o Changes in attitudes to working women has meant more women in the workforce than, for example, 50 years ago Changes in fashion what people want to buy can change very quickly
Technological Businesses must keep up with changes in technology. The introduction of the internet and e- commerce has revolutionised shopping in this country. Example o o Increase in the number of on-line retailers like Amazon Has also changed the way people in businesses communicate with each other can be expensive for organisations to keep up with developments
Environmental This can refer to businesses making changes to their practices to ensure they are more environmentally friendly or it could refer to the fact that changes in the weather can affect what we buy or sell Example o o o Poor weather can lead to crop damage Extremely hot summers can increase demand for certain products eg ice cream Businesses, like everyone else, must ensure they increase the amount they recycle
Competition All businesses face competition from other businesses this can greatly influence the success or otherwise of an organisation Example o If a competitor lowers prices, other may have to do so in order to maintain sales eg petrol prices
Internal Factors Internal factors are events or situations within the business that affect its overall performance. These can be positive or negative Financial Management Internal Factors Human Resources Technological
Finance This refers to the availability or lack of finance or money Example o If there is no finance, a new machine cannot be bought o An organisation can t run an advertising campaign for their new products o They may have to take out an expensive loan
Technology Businesses can fail if they do not have access to upto-date technology or if their staff are not trained properly in the use of the technology. Example o o Business who invest in new technology to carry out processes or communicate with customers have the competitive edge over other organisations IT such as computers, mobile devices allow organisations to keep in touch effectively with customers and employees
Human Resources This refers to the staff in the organisation. Welltrained staff are more productive and have better relations with customers Example o o Staff who feel they have been poorly treated may take industrial action which will adversely affect the organisation Well-trained staff can produce high quality products and deal properly with customers which will give the organisation a good reputation.
Management Managers are very important members of staff. As they are the ones who make most of the decisions, they can greatly influence the success or otherwise of the organisation. Example o Good managers will motivate the staff and make them work hard
STAKEHOLDERS A stakeholder is an individual or group of people who have an interest in an organisation and can influence it in different ways
Stakeholders Interest and Influence Stakeholder Customer Owner Employees Inland Revenue Interest Want good service/quality goods reasonable prices Successful business Healthy profits Want job security, good pay and conditions Makes sure tax laws are followed Influence Can buy or not buy Can complain Make the main decisions Can work hard or not. Can take action or leave Can change amount of tax due 60
Stakeholders Interest and Influence Stakeholder Managers Shareholders Suppliers Banks Interest Want job security, good salary and promotion Want to receive good dividends. Want repeat orders Want to be paid on time Want to be repaid loans Influence Make decisions affecting how well business performs Can vote at AGM Can buy or sell shares Can decide not to supply. Can change prices Can alter interest rates Can lend or not lend 61
Stakeholders Interest and Influence Stakeholder Local Community Pressure Groups Local government National government Interest Want jobs in the local area Want businesses to be socially responsible Support and promote a cause eg maintain green belt Want jobs in the local area Want businesses to invest in the local area Want taxes to be paid Want laws to be followed Influence Can complain to local council or protest eg write to newspaper Can hold demonstrations to raise awareness Can refuse or grant planning permission Close down businesses Can change tax rate Can change the law 62