Nature of business
- Give products or services to customers
o Satisfy somebody’s needs or wants
o NGOs
o Often to make profit
i.e. dog walking
capital: not much
enterprise:
land:
labour: (maybe run business but hire people) but dog walking you do yourself
Processes
Human resources: employees
Finance: how you pay for gas
Marketing: give out fliers to promote dog walking
Operations management:
Outputs:
Goods/servicing: walking dog
- Lots of businesses come out of wars (i.e. NGOs)
Functions of a business
1. Human resources
2. Finances
3. Operations management
4. Marketing
1.1 Reading Notes
Businesses are systems: systems are interconnected parts that work together to function and achieve a purpose
Systems have inputs, processes, outputs¸ and feedback
Inputs: what you need to create the product
- Physical, financial, and human. Financial resources can include medium/long-term financing (borrowing money)
- “Enterprise is the process of taking risks to combine the other resources to create a good or service.”
- 
Processes: how you combine your inputs in different ways to produce a product
HR management: makes sure employees are happy and correct skill to produce products. Deal with laws and stuff
Finance and accounting: making sure the business doesn’t go bankrupt in the future
Marketing: making sure that the business is selling “the right product, at the right price, at the right time, to the right customers.”
Operations: all businesses have a core activity (i.e. making shoes). Operations make sure the core activity is done to the correct quantity and presumably quality too.
Outputs
You can either make goods (i.e. cookies) or services (i.e. healthcare)
Feedback
output of a system becomes the input of the same system (i.e. product reviews are used to improve the product). Two types of feedback looks: positive and negative. Positive reinforces the process – so you keep on doing the same thing. Negative feedback loop changes the process – so you do something differently.
Sectors of businesses
Primary sector: involved in extraction, harvesting, conversion of natural resources
- i.e. farming, mining, extraction of raw materials
Secondary: manufacturing or construction
Tertiary sector: provides services to the general public (i.e. car dealerships who sell the car, Netflix, Disney+, barber, Pizza Pizza)
Quaternary sector: knowledge based activities that generate/share information. “Intellectual, knowledge-based activities that generate and share information”
Stack: a business which has primary, secondary, etc. sectors. But it’s expensive to have all three – instead you can outsource different people who can do the job better
i.e. making bread. Primary: making wheat. Secondary: making/baking the bread. Tertiary: Longos/NoFrills selling the product
The chain of production
Links all the production sectors
Extraction → manufacturing, → services → consumers
Value is added to item as it moves through each sector
Entrepreneurship
- an entrepreneur is someone who plans and organizes a business
- Common challenges with new businesses
Opportunities for starting a business: use the mnemonic GET CASH
Growth
- Reward for entrepreneur: capital growth
- “Appreciation in the value of the assets of the business (e.g. land and buildings)
- Capital growth yay – make more money than owner’s salary
Earnings: you can make more money since you are your own boss
Transference and Inheritance: entrepreneurs pass on their business to the next generation
Autonomy: entrepreneurs can do what they want and decide how they work
Security: self employed has more job security. Potentially easier to increase personal wealth and financial security for retirement.
1.2 Types of Business Entities
- Covers HRM, finance, marketing and operations management.
Distinction between private and public sectors
Private sector: businesses owned and operated by private people. Usually their aim is to make profit
- Operate independent of government but within rules/regulations of countries
Public sector: controlled by government (regional or national). These companies provide essential goods and services to the public. They can (not always though) directly charge customers for services.
- Infrastructure, housing, health care, education, national defence, emergency services
Types of for-profit organizations
Solar trader: commercial for-profit business that is owned by a single person. The sole trader can have many employees but is the only owner of the business
Advantages of sole traders/sole proprietors
- Quick and easy to set up.
- Owner gets all the profit.
- Sole traders are highly motivated owners
- Complete control of business decisions
- Quick decision making – no need to consult others
- Privacy à tax records only go to tax authorities and not the public
- Tax benefits
Disadvantages
- Start up costs must come from sole trader
- Risky business
- High workload
- Unincorporated business – unlimited liability and responsible for any debt owed to other individuals
- Business is screwed if owner is sick, goes on business or retires
- Small business, can’t get economy of scale
a) A sole trader is someone who is the only owner of a for profit business.
b) An advantage is that Cam does not have to conform to a schedule, so she can take time to raise her children as necessary. Disadvantage: since she runs the business, she has no backup if the business does poorly – so it cost her a lot during the coronavirus pandemic.
Partnership
- Owned by two or more people.
- Mostly unicorporated businesses – at least one of the company owners has unlimited liability
- Sign the Deed of Partnership
o States responsibility, voting rights, and how profit will be shared
Advantages
- Can raise more finance than sole traders. Silent partners can provide extra capital
- More ideas and different skills
- Shared workload
- Continuity – one can go on vacation
- Specialization and division of labour.
o “For example, a law firm might have partners who specialize in different specialisms, such as criminal law, civil law, business law and tax law.”
- Only tax authorities need to know about money stuff
Disadvantages
- Disagreements
- Slow decision making
- Profit must be shared.
- Unlimited liability
- Can raise finance through shareholder.
- What happens of a partner leaves the business or passes away
Privately Held Companies
- Commercial for-profit businesses owned by shareholders.
Features of privately held companies
- Shares cannot be advertised nor sold on stock exchange. Not available on the New York Stock Exchange
- Shares typically held by family, relatives, and friends
- Limited amount of shareholders. Some countries have a maximum
- No legal requirement to publish financial accounts (usually). Only needed for corporate tax
Advantages
- Control. Shares in privately held company cannot be bought or sold
- LOTS of start up finance
- Privacy compared to public companies
- Limited liability: usually cannot lose more than what they invest
- Enjoy continuity in the event “of the death of a major shareholder”
Disadvantages
- Can only sell shares with approval of other shareholders. Buying/selling shares in this type of company is difficult
- More expensive to operate
- Can be target of takeover by a larger company
Publicly Held Companies
- Also known as joint stock. Owned by shareholders but shares can be bought by the general public without approval of existing owners
- Shares can be bought through the stock exchange
- Sells its shares to become publically held. Puts in initial public offer IPO via stock exchange
- Publically held companies are regulated and publish financial accounts each year
- No limit on number of share holders
Advantages
- Additional finance: easy to obtain finance from stock exchange to fund growth
- Easy to borrow money
- Enjoy limited liability
- Operates at large scale (economies of scale, market share, market power)
- Enjoy continuity
Disadvantages:
- Lack of privacy – public can see finances
- Difficult and expensive to set up and run
- Potential threat rival company will make a takeover bid ??
- Diseconomies of scale. Being to large can be inefficient → higher average costs of production
- 
For profit s
Goal: make money and help people
- They exist o create a better world
- SPOs (social purpose organization) include charaties, cooperatives, and non-governmental organizations
- An organization that meets social objectives and not only creating max profit or max shareholder returns
- Businesses may do donations, but they’re primary goal is to still make money (they can’t donate money they don’t have)
Cooperatives
- Owners of
- Social purpose organizations is an umbrella term that includes charities and social enterprises
- In IB you’ll see FOR PROFIT SOCIAL ENTERPRISES (Private sector companies, public sector companies, cooperatives)
- NON PROFIT SOCIAL ENTERPRISES: NGOs
- In social enterprises, profit comes as a result of social and environmental goals.
- TIP: social enterprises need profit to survive. Charities rely on donations.
- Public sector social enterprises: i.e. electricity. Use the profit to improve life of everyone
o Often times through partnership with private sector
Advantages of public sector companies
- Fewer risks: product of company
- Can charge for services, so less money taxpayers need to pay
- Employ a lot af people
Limitations
- Limited budget, government has to choose which sector to fund
- Expensive to operate. Unpredictable rates of return.
- Difficult to persuade PPP (private company partnerships)
- Slow decision making (it’s the government so yeah)
Cooperatives:
- Owners of cooperatives are called members
- Members are not necessarily share holders (don’t invest money to make start the business ?)
- Coops exist mostly in farm industry
Advantages of cooperatives
- Incentives to work
- Dicision making power
- Social benefits
- Public support
Disadvantages
- Disincentive
- Finance
- Slow decision making
TODO finish cooperatives
Non profit social enterprises
- NGOs need profit to reinvest back into the company
- NGOs work in non profit way and don’t distribute money to owners or shareholders. Instead, they invest back into their business
Advantages
- Non profit exist to serve the public. Rewarding job for employee
- Don’t have to pay taxes
- Many NPOs qualify for government money
Disadvantages
- Strict guidelines and restrictions. Not all trading is permitted (to make sure public isn’t getting scammed)
- Depends on goodwill of general population. Smaller NGOs can die out easily
- Lack of financial and cost control since owners don’t get money
- Lower working wages. No bonuses
NGOs
- Non profit social enterprise that exists in the private sector
- Not government run
- Can be funded by:
1.1 True or false
1.3 Business Objectives
- Strategies businesses use to achieve their purpose
Vision and Mission Statements
Vision statement: a declaration of what a company strives to be, or wants to achieve in the distant future.
Mission statement: “succinct and motivating declaration of an organization’s core purpose” à why they exist, and what they do. Typically remains unchanged
Vision statement is broad, mission statement is specific
- Vision and mission statements are meant for business stakeholders and employees. It guides them with a purpose and direction
- Motivates employees, especially if the company values align with the employee values
Vision statements are important for businesses to have the motivation (because they know what they are working towards)
Mission statement
Problems with vision/mission statements
- Company doesn’t actually follow them!!!
- Done only to make the company look good
- Long term and may never actually happen (especially with vision terms)
Distinguish between a vision statement and a mission statement
A mission statement is a declaration of the purpose and beliefs of a company. A mission statement serves as the day-to-day motivation for employees and stakeholders. A vision statement is the long-term goals of a company. It is what the company wishes to become or achieve. The difference between a vision statement and a mission statement is that a vision statement is meant to be long-term – the goal a company can achieve some day. A mission statement, however, is meant to be achieved every day – the people in a business strive to fulfill the company’s mission statement every day.
Common Business Objectives
“Unless you dream, you’re not going to achieve anything” ~ Sir Richard Branson
- Business objectives are “clearly defined and measurable targets of an organization”
o Used to achieve their overall goals (i.e. mission and vision)
- Important for businesses so employees know what they are working towards
- Often based on the SMART acronym
- Specific Measurable Agreed Realistic Time specific
o i.e. “to achieve sales of $10 million in European markets by 2023”
Business Objectives
1. Growth
- Increase in the size of a business
- Benefits
o Higher sales revenue and profit (buy more bulk material, and sell more)
o Economies of scale (buy more at a discounted price)
o Reduced risk (big corporations are able less vulnerable to recessions)
Internal growth: organization expands without external help (such as a partner). Uses its own finances and resources to grow
External growth: people put money into your business so you grow
How to measure growth
1. Sales revenue
2. Sales volume (how much you sell)
3. Profit (financial surplus)
4. Customers
5. Number of employees
6. Market share
PROFIT
- Incentive for business owners to take risks (because reward is money)
- Internal source of finance to invest in expanding your business EMPIRE.
- It’s what keeps in motivated and IN THE BUSINESS
PROTECTING SHAREHOLDER VALUE
- “CEO is responsible for protecting shareholder value”
- Companies are owned by shareholders.
- “Protecting shareholder value” means to keep shareholders interestd in the company
- Responsibility of the CEO and board of directors
ETHICAL OBJECTIVES
- Being nice in business operations
- Workers are paid fairly, no exploitation, do nothing mean, don’t damage the environment
- Disadvantages:
o Compliance costs (i.e. buying organic rather than GMO produce)
o Higher prices (being nice is costly to businesses)
o Lower profits (it’s cheaper to burn coal)
o Subjectivity (ambiguity in what is considered ethical)
o Stakeholder conflict (some stakeholder only care about money, not the environment or people, so they are less likely to invest in your business)
Define the term ethical objectives
An ethical objective is a clearly stated target of a business that is
STRATEGIC AND TACTICAL OBJECTIVES
- Strategic objective: long term goal that the business strives to achieve. Used to achieve a strategic/mission/vision of business.
- Requires more financial and human investment than tactical objectives
- Strategic objectives can include growth, profit maximization, protecting shareholder value, or ethical objectives
- Tactical objective: short term or specific goals of a business. Has definite timelines and tactical objectives are delegated to lower downs in an organizational hierarchy.
Strategies
- The actions that a business plans to do to reach long term organizational aims or corporate-wide objectives
- Strategies are decided by senior leaders or the board of directors
Tactics
- Short term approaches to achieving an objective
- Used by organization to meet specific and measurable goals
Using relevant examples, distinguish between tactical objectives and strategic objectives. [4 marks]
Tactical objectives are the short-term goals of a business. Typically, tactical objectives are set and carried out by lower downs in the hierarchy of business leadership. Since tactical objectives are short-term, they typically are within a time frame of less than a year. An example of a tactical objective could be to improve labour productivity or to reduce operational waste. A strategic objective is a long term task of a business. In contrast to tactical objectives which are managed and set by lower downs, a strategic objective is initiated by the board of directors or leaders of a business. An example of a strategic objective could be profit maximization or protecting shareholder value.
Corporate social responsibility
- The value, decisions, and actions that business makes that impact society in a good way.
- Moral obligation to stakeholder (difference between stakeholder and shareholder)
- i.e. giving discounts to teachers
- Can be costly
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- High production costs which may make stakeholders upset
TRIPLE BOTTOM LINE: ecological, social, and economic sustainability