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Higher Business Management

Higher Business Management. Unit 1 Learning Outcome 1 Business in Contemporary Society. What is Business Activity?. Using “resources” to produce goods and services which people require in order to satisfy their “wants”.

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Higher Business Management

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  1. Higher Business Management Unit 1 Learning Outcome 1 Business in Contemporary Society BM Unit 1 - LO1

  2. What is Business Activity? • Using “resources” to produce goods and services which people require in order to satisfy their “wants”. • Any kind of activity that results in the provision of goods and services which satisfy human “wants”. BM Unit 1 - LO1

  3. Goods Food Clothing Houses Cars TVs Computers Furniture CD players Services Hairdressers Insurance Gas and Electricity Hotels Leisure Clubs Lawyers Banking Education Goods and Services BM Unit 1 - LO1

  4. Durable Goods Things that will last a long time and will be used regularly. • Cars • TV • Washing Machines • Cookers • Microwave Ovens • Refrigerators BM Unit 1 - LO1

  5. Non-Durable Goods Things that are “consumed” shortly after purchase. • Food • Drink • Clothing • Shoes • Newspapers • Magazines BM Unit 1 - LO1

  6. Inputs and Outputs Outputs Inputs Resources Raw materials Labour Machinery ‘Organisation’ Goods and Services BM Unit 1 - LO1

  7. Business Activity External Influences eg Government Policy Marketing Finance Inputs Land Labour Capital Enterprise The Organisation (Internal) Output Goods and Services People (Human Resources) Production (Operations) External Influences eg Competition BM Unit 1 - LO1

  8. Factors of Production • Land - raw materials, factory site • Labour - people with required skills • Capital - finance to buy equipment, machinery, computers, etc • Enterprise - organisation of the above factors, risk-taking, ideas BM Unit 1 - LO1

  9. Cycle of Business WANTS IDENTIFICATION PRODUCTION CONSUMPTION WANTS BM Unit 1 - LO1

  10. Sectors of Industry(Business Activity) PRIMARY (Extractive) Mining Fishing Farming Oil SECONDARY (Making goods) Manufacturing Construction Durables Non-durables TERTIARY (Services) Banking Insurance Tourism Distribution BM Unit 1 - LO1

  11. Organisations Types of Organisation Private Sector Public Sector Profit-making Non-profit-making BM Unit 1 - LO1

  12. Private SectorOrganisations Profit-making • Sole Traders (1) • Partnerships (2 - 20) • Private Limited Companies (50) • Public Limited Companies (no limit) • Franchises • Co-operatives Non Profit-making • Charities and Clubs BM Unit 1 - LO1

  13. Public SectorOrganisations • Public Corporations BBC and Royal Mail • Bank of England • Local Authority Services Education, Housing, Police, Social Services • Central Government Departments Treasury, Defence, Health, Employment, Social Services, Environment, Transport, etc BM Unit 1 - LO1

  14. Business Objectives • Survival • Maximising profits • Growth • Good reputation • Maximising sales • Satisficing • Providing a service • Managerial objectives BM Unit 1 - LO1

  15. Enterprise and the Entrepreneur • Having and developing a business idea • Acquiring the necessary resources • Raising the finance to acquire resources • Risking losing the money invested Anita Roddick, Richard Branson, James Dyson, Marth Lane Fox BM Unit 1 - LO1

  16. Internal Shareholders/ Owners Managers Employees External Suppliers Customers Banks/lenders Society/Local Community National Government Local Government Taxpayers Donors (Charities) Stakeholders BM Unit 1 - LO1

  17. Stakeholders’ Interests • Shareholders - dividends, capital growth • Managers - job security, fringe benefits • Employees - job security, pay and conditions • Suppliers - regular orders, prompt payment • Customers - low prices, high quality, good service • Banks - ability to make payments for loans • Government - payment of taxes, compliance with laws • Community - corporate responsibility BM Unit 1 - LO1

  18. Stakeholders’ Influence • Shareholders - voting rights at AGM • Managers - day-to-day decisions • Employees - possible industrial action • Suppliers - period of credit, level of discounts • Customers - taking their business elsewhere • Banks - granting of loans and rate of interest • Government - legislation, equal pay, minimum wage, etc • Community - protest movements, direct action BM Unit 1 - LO1

  19. Long-term Capital Mortgages Debentures Sale and Leaseback Venture Sources of Finance Medium-term • Bank Loans Short-term • Overdrafts • Factoring • Trade Credit BM Unit 1 - LO1

  20. Government Help for Businesses • Local Enterprise Companies • Education/Business Partnerships • Business Start-up Scheme • Loan Guarantee Scheme • Reduced rate of Corporation Tax • Zero Rating (VAT) on Exports • Dept of Trade and Industry - advice, Trade Fairs • Export Credit Guarantee Department • EU - Regional Development Funds BM Unit 1 - LO1

  21. Other Sources of Help • The Prince’s Youth Trust - help for young people to set up in business • Local Authorities - ‘small business advisers’ • Trade Associations - ‘Association of Small Businesses’, ‘Scottish Motor Trade Association’, ‘ABTA’, etc • Local Chambers of Commerce BM Unit 1 - LO1

  22. Methods of Growth • Integration - 2 firms combining to become bigger • Merger - integration on equal terms • Take-over - one firm’s identity is lost in the take-over. Can be ‘friendly or hostile’ BM Unit 1 - LO1

  23. Integration • Horizontal - firms at the same stage of production • Vertical - forwards towards the customer and backwards towards the raw materials • Lateral - firms with related goods not in competition with each other • Conglomerate/Diversifying - firms operating in completely different markets BM Unit 1 - LO1

  24. Reasons for Growth • Eliminate competition/increase market share • Achieving greater economies of scale • Security from hostile take-over - more assets • Cutting out “middlemen” • Securing sources of raw materials • Controlling distribution of products • Spreading risks - ‘not having all eggs in one basket’ • Smoothing seasonal fluctuations in sales BM Unit 1 - LO1

  25. De-integration • De-integration - conglomerate selling off firms to concentrate on “core” business • De-merger - subsidiary companies splitting away from the parent company and operating on their own • Divestment - selling off companies • Contracting out/out-sourcing - getting other companies to do work on your behalf • Management buy-out/buy-in - usually a struggling company sold to a management team BM Unit 1 - LO1

  26. Business as a “System” • Inputs - raw materials and other resources • Processes - transformation into goods • Outputs - the finished product/service to be marketed • Feedback - the reaction of the market A system is made up of 4 inter-dependent parts:- Any system is affected by the environment in which it operates BM Unit 1 - LO1

  27. Internal Pressures to Change • New personnel or management • New technology (the internet) • Change in financial position BM Unit 1 - LO1

  28. External Pressures to Change(the ‘PEST’ analysis) • Political/legal (legislation, planning, devolved Parliament, etc) • Economic (interest rates, foreign exchange rates, the Euro, etc) • Social (ageing population, role of women, greater general prosperity) • Technological (e-mail, internet) BM Unit 1 - LO1

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