N5 BUSINESS N5 BUSINESS MANAGEMENMANAGEMEN

TTUnit 1

Understanding Business

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 •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 economyCUSTOMER 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

Role of Business in Role of Business in SocietySociety

• Business provides us with most of the things we use on a daily basis.

Needs and WantsNeeds and Wants• Needs are things we can not do with out

o Watero Basic foodo Heato Shelter

• Wants can be few or endless – we can live without them but would rather not!o Mobileso Tvso Interneto Expensive foods and clothing

Goods and services 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 upo Hotelso Airplane travelo Holidays

Providing both 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

7

Factors of productionFactors of productionResources 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

8

LANDLAND Farmland – crops,animals

Buildings – land needed for housing, businesses

Water

Coal-mining to provide heat oil/gas-refineries

9

LABOURLABOURLabour 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

10

CAPITALCAPITALCapital is the money and the things that can be purchased with money to make and sell goods and services.

11

ENTERPRISEENTERPRISEEnterprise means having an idea for a new business and taking risks with the other factors of production to make the business a success

12

CREATING WEALTHCREATING WEALTHCreating 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 ito 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

13

• 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!

Sectors of the Sectors of the EconomyEconomy

• The economy consists of 3 different sectorso Privateo Publico Third or Voluntary Sector

The Private SectorThe Private Sector• The Private sector is made up of

businesses large and small that belong to individuals. These businesses are concerned with o Increasing profito Increasing market shareo Adding value to their goods and serviceso Increasing wealth

The Private Sector is The Private Sector is made up of different made up of different

types of businesstypes 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 SectorThe 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 The Public Sector consists of:consists of:

• National Governmento This would include the British or UK government as well as the Scottish

Government

• Local Governmento This would include both councils such as Argyll-Bute or Stirling and

towns such as Oban

The Third SectorThe Third Sector• Non-Profit making Organisations

• Social Enterprise

The Third SectorThe 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 sectorThe Third sector• Non- profit organisations

o Charitieso Voluntary organisations

• Social Enterpriseso have a main social aim rather than profit but are run in a business like

wayo at least 50% of the profit must be invested into meeting the stated aim

of the enterprise

http://www.socialenterpriselive.com/se100/company-story/20100521/wrappers-delight

The 3 Sectors of The 3 Sectors of IndustryIndustry

oPrimaryoSecondaryoTertiary

The Primary SectorThe Primary SectorThis is EXTRACTING RAW MATERIALSoExtraction industries eg mining or quarryingoFarming oOil and energy extractionoFishingoForestry

• 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 SectorThe Secondary Sector• This is MANUFACTURING

o Wealth creation at each stage is very higho This is taking materials from the primary sector and processing

themo 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 SectorThe Tertiary SectorThis 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 SatisfactionCustomer 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 customer- a customer that needs a steady supply of

the same or similar goods

Why is Customer Why is Customer Service Important?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 How businesses maximise Customer maximise Customer

Service: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 Types of Business OrganisationOrganisation

30

Private Sector Private Sector BusinessesBusinesses

31

Sole TraderSole TraderFEATURES OF 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: Small shops, Car mechanics, Flower shop

Can you name 3 sole trader businesses in Oban?

Auley’s Bar, David Graham Cycles.

32

Sole TraderSole TraderADVANTAGES:

• 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.

33

PartnershipPartnershipFEATURES 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 stateso States share of profito Which partner has most responsibility

• Partners may invest different amounts of money

• This will affect their share of profitExamples: Dentists, vets and lawyers.Can you name 3 partnership businesses in Oban?

Oban Chocolate, MacCamley and Laird, Stevenson Kennedy (lawyers)

34

PartnershipPartnershipADVANTAGES:

• 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.

35

What are Shares?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

36

Private Limited Private Limited CompanyCompany

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,

37

Private Limited Private Limited CompanyCompany

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.

38

Public Sector Public Sector OrganisationsOrganisations

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 Services

Can you give an example of a Public Ownership organisation in in Oban?

Local Government

39

Public Sector Public Sector OrganisationsOrganisations

ADVANTAGES:

• Less competition

DISADVANTAGES

• May have funding issues depending on the economy.

40

Third or Voluntary Third or Voluntary Sector OrganisationsSector Organisations

CHARITIESCharities 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

41

Third or Voluntary Third or Voluntary Sector OrganisationsSector Organisations SOCIAL ENTERPRISESocial 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 Enterpriseo Atlantis Leisureo Phoenix Cinema

42

Enterprise and Enterprise and OrganisationsOrganisations

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

43

Skills and qualities of an Skills and qualities of an

entrepreneurentrepreneur

An Entrepreneur needs the following skills and qualities:

44

Who are Who are entrepreneurs?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

Business ObjectivesBusiness ObjectivesSurvival This means to continue trading and it is often the first

objective a business has.

Profit This means to have more income than costs. It is the main objective of any business in the private sector.

Provision of a Service

To provide people with a service they want. An example could be a government hospital with the aim of providing health care.

Customer Satisfaction

To make customers happy and encourage them to make repeat purchases.

Enterprise 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.

Social Responsibility

To be seen as helping society, by improving the environment, creating jobs, promoting education.

Market Share This can mean two things• Increase market share• Become a market leader

Business InfluencesBusiness 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 External Factors (PESTEC)(PESTEC)

PoliticalPolitical• The Government can introduce laws that affect

every business or just some businesses.

• Exampleso Minimum wage – this can cost an organisation moneyo Smoking ban – affected particularly pubs, causing many to close

EconomicEconomic• This refers to changes to the economy during

periods of boom and slump which can affect busiensses

• Exampleo During a boom, business do well and make their biggest profitso During a slump or recession, the opposite happens. Customers cannot

afford to spend so much money

SocialSocial• This refers to the structure of the population,

peoples tastes and different working practices

• Exampleo Changes in attitudes to working women – has meant more women in

the workforce than, for example, 50 years agoo Changes in fashion – what people want to buy can change very quickly

TechnologicalTechnological• Businesses must keep up with changes in

technology. The introduction of the internet and e-commerce has revolutionised shopping in this country.

• Exampleo Increase in the number of on-line retailers like Amazono Has also changed the way people in businesses communicate with

each other – can be expensive for organisations to keep up with developments

EnvironmentalEnvironmental• 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

• Exampleo Poor weather can lead to crop damageo Extremely hot summers can increase demand for certain products eg

ice creamo Businesses, like everyone else, must ensure they increase the amount

they recycle

CompetitionCompetition• All businesses face competition from other

businesses – this can greatly influence the success or otherwise of an organisation

• Exampleo If a competitor lowers prices, other may have to do so in order to

maintain sales eg petrol prices

Internal FactorsInternal Factors• Internal factors are events or situations within the

business that affect its overall performance. These can be positive or negative

FinanceFinance• This refers to the availability or lack of finance or

money

• Exampleo If there is no finance, a new machine cannot be boughto An organisation can’t run an advertising campaign for their new

productso They may have to take out an expensive loan

TechnologyTechnology• Businesses can fail if they do not have access to

up-to-date technology or if their staff are not trained properly in the use of the technology.

• Exampleo Business who invest in new technology to carry out processes or

communicate with customers have the competitive edge over other organisations

o IT such as computers, mobile devices allow organisations to keep in touch effectively with customers and employees

Human ResourcesHuman Resources• This refers to the staff in the organisation. Well-

trained staff are more productive and have better relations with customers

• Exampleo Staff who feel they have been poorly treated may take industrial action

which will adversely affect the organisationo Well-trained staff can produce high quality products and deal properly

with customers which will give the organisation a good reputation.

ManagementManagement• 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.

• Exampleo Good managers will motivate the staff and make them work hard

STAKEHOLDERSSTAKEHOLDERS• A stakeholder is an individual or group of people

who have an interest in an organisation and can influence it in different ways

60

Stakeholders – Stakeholders –

Interest and InfluenceInterest and Influence

Can change amount of tax due

Makes sure tax laws are followed

Inland Revenue

Can work hard or not. Can take action or leave

Want job security, good pay and conditions

Employees

Make the main decisions

Successful businessHealthy profits

Owner

Can buy or not buyCan complain

Want good service/quality goods reasonable prices

Customer

Influence InterestStakeholder

61

Stakeholders – Stakeholders –

Interest and InfluenceInterest and Influence

Can alter interest ratesCan lend or not lend

Want to be repaid loansBanks

Can decide not to supply. Can change prices

Want repeat ordersWant to be paid on time

Suppliers

Can vote at AGMCan buy or sell shares

Want to receive good dividends.

Shareholders

Make decisions affecting how well business performs

Want job security, good salary and promotion

Managers

Influence InterestStakeholder

62

Stakeholders – Stakeholders –

Interest and InfluenceInterest and Influence

Can change tax rateCan change the law

Want taxes to be paidWant laws to be followed

National government

Can refuse or grant planning permissionClose down businesses

Want jobs in the local areaWant businesses to invest in the local area

Local government

Can hold demonstrations to raise awareness

Support and promote a cause eg maintain green belt

Pressure Groups

Can complain to local council or protest eg write to newspaper

Want jobs in the local areaWant businesses to be socially responsible

Local Community

Influence InterestStakeholder