Higher Business Management - Deans Community High School

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Nov 20, 2013 (3 years and 28 days ago)

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Higher Business
Management

Business in Contemporary Society

What is Business Activity


Everyone in our society has needs and
wants


To satisfy these wants we consume
goods and services


Business activity is any kind of activity
which provides goods and services to
satisfy consumer wants and needs

Basic Needs


Basic needs are the things we need to
survive


Food


Shelter


Clothing


Warmth


Drink


Needs in Modern Society


Living in a modern day society what
we consider to be needs different


You may say I need a new flat screen
TV, a new car


In Underdeveloped nations


they still
have basic needs

Wants


In poorer countries they may still want
to have the basic needs


Our wants can be distinguished as
being Wants and Advanced Wants


wants may be a new X box


Advanced Wants are luxury items that
we may never have or have to save up
for eg a Ferrari etc

Goods


Goods are tangible


we can see and
touch them eg table, chair, washing
powder


They can be split into different
categories


Goods cont


Durable goods


those that last a long
time eg more than a couple of years


cars, washing machines, TVs, etc


Non
-
Durable goods


those which last
a short period of time eg washing
powder, cornflakes

Goods cont ….


Consumer goods


(we are all
consumers


we “consume”


use
goods and services)


the goods we
use everyday and want to have


Capital goods


used by organisations
to produce other goods and services


Services


Services are intangible


can’t see or
touch them and once they are used
they are gone eg a holiday once the
holiday is over it is just a memory


Services are provided by organisations
and we pay them to provide those
services either directly or indirectly

Services …..


Consumer services


those we use and
want everyday eg holidays, window
cleaner, buses, taxis etc


Capital services


those used by
organisations to ensure the smooth
running of their company eg computer
maintenance, cleaners etc

Resources


Natural Resources


are extracted from
nature eg trees, oil, gas etc


Man
-
made Resources


are made by people
to make other products eg machinery,
computers, glass


Human Resources


people and the
activities they carry out within an
organisation


teachers, nurses, factory
workers

Factors of Production


When resources are brought together
into a productive situation they
become known as Factors of
Production and they change their
name

4 Factors of Production


Natural resources become known as LAND


this is
all natural resources that a business may use


Man
-
Made Resources become known as CAPITAL


this is equipment, materials eg plastics that a
business may use to provide a product


Human Resources become known as LABOUR


all
workers in an organisation


ENTERPRISE


it is the initiative and the risk taking
of bringing together the other factors of production
to produce a product or provide a service


the
entrepreneur is the risk taker

Wealth Creation


If we consider a natural resource and
follow it through all the different
stages of production we will see that
value is added at each stage and this
is what creates wealth


all the
different phases of business activity
create wealth.

Cycle Of Business


Businesses Identify Wants


Produce goods and services


Consumption and Satisfaction of
Wants


Wants

Business Objectives
31/08/10


A definition of an organisation is “a group of
people working together to achieve the
same aims and objectives”.


Without aims and objectives no
-
one would
know what they should be doing or even
why they may be doing something


they
would be disorganised.

Maximising Profit


Businesses aiming to make as big a
profit as possible


which is true in the
long run eg 5 or 6 years. Some firms
may not even strive for this is the
short run. There are other important
objectives for firms.

Satisficing


The business is not aiming to
maximise profits but make enough
profit to keep their shareholders happy


they are keeping some of the profits
back to invest in the company in the
future.

Growth


An organisation may aim to expand its
business, through expansion it may
hope to benefit from economies of
scale and so cut its costs of
production. A large organisation may
also achieve some monopoly power
and so be able to charge higher prices.

Survival


For some firms this is the most
important goal especially small firms
who are always at risk of going under.
We must remember that this may be
the objective for larger organisations
too who are going through difficult
times.

Creating a good reputation


corporate or social
responsibility


Firms aim to create a good public
image through eg being green,
sponsoring local football teams,
creating a good image, being
committed to sound working practices


as consumers are very aware of how
companies act a bad image may mean
a loss of customers.

Maximising Sales


This objective can occur when ownership
and control are separated eg when
managers are not shareholders


the
managers salaries will depend upon the
amount of sales and so the more sales there
are the higher the amount of salary they will
gain


so this may well become an objective
of the managers within an organisation

Managerial Objectives


Again occurs when ownership and control
are separated with managers not having
ownership of the firm. These objectives will
vary from manager to manager depending
upon what each individual manager wishes
to achieve eg one manager may insist that
members of staff report to him/her at all
times or one manager may set aside their
budget for perks of the job eg company cars
or expense accounts

Provision of a service


Organisations


particularly those in
the public sector may have the
provision of a service as their main
objective


this means they aim to
provide a service in the best way
possible to meet customer needs eg a
hospital or school may have this as
their main objective.

Raising Finance 2/09/10


Long term sources of finance


can
take up to 30 years to pay back.


Increasing the owners capital


usually
applies to sole traders and
partnerships


the owner will use their
own funds to invest in the business.


Business Mortgages


borrowing
money for the sole purpose of buying
business premises


interest is added
on and a payment is made at regular
intervals to pay off the mortgage, the
building is collateral


so if payments
are not met then the building can be
repossessed


can be paid off over 25,
30 years.


Debentures


similar to an IOU


a company
can sell debenture certificates to other
organisations or individuals with the promise
that in eg 25 years time the money will be
repaid with interest. The debenture can be
sold on and whoever holds the certificate on
the payment date receives the money. The
org receiving the money may receive a large
amount which they do not have to pay back
until the due date.


Sale and leaseback agreements


a
firm may sell its assets eg computers
to a leasing company and receive a
certain amount of cash for them


then they lease the equipment


paying a certain sum of money each
month


the contract may include
upgrades, maintenance and training.


Venture capital


this is where venture
capitalists lend money to businesses
which are considered to be too risky
by banks but are judged to be viable
by specialist organisations. The
venture capitalist may ask for a share
in the business in return for the
investment.

Medium
-
term sources of
finance


Bank Loans


apply to the bank for a
loan


you can receive a large amount
of money, which you can pay off in
fixed instalments, you have to pay
back plus interest, the money can be
used as the business wishes, whatever
the company buys belongs to them
right away.


Hire Purchase Agreements


this is money
loaned to an organisation to buy a specific
item eg cars, equipment. Monthly
payments are made with interest added on,
the agreement is for that specific item and
company does not own it until the last
payment is made. Hire purchase payments
can be cheaper than bank loans because
the item purchased is collateral and can be
repossess if payments are not met.

Short
-
term sources of
finance


Overdraft


are short term


can be
expensive as you are charged interest
daily, you have to arrange an
overdraft


you cannot just take out
more than you have in your account


this is very expensive. You will have
an overdraft limit and the bank can
call in your overdraft at any time.


Debt factoring


firms can sell on any
debts owed to them to debt factoring
firms eg £10,000 worth of debt, they
sell on for £7,500


they don’t have
the problem of collecting the debt (it
may save them money), they have
cash in hand to buy equipment etc or
tide them over difficult times.


Trade Credit


receiving a period of
time between buying something from
your supplier and then paying for it,
sometimes longer periods of payment
time can be negotiated before
payment is made.

METHODS OF GROWTH
6/09/10


Integration


firms combining to
become larger and more powerful. If
firms are joining together on equal
terms this is called a
merger


HBOS
(Halifax and Bank of Scotland).


If one of the organisations loses its
identity then it is a takeover


eg
Morrisons and Safeway.


There can be friendly takeovers


where the organisation being taken
over agrees to be taken over eg it may
be struggling to survive. Or they may
be hostile takeovers where the
company and its shareholders try to
resist being taken over.


Sometimes an organisation may take
over another organisation purely to
gain its assets


this is known as asset
stripping


the company doing the
taking over may sell the assets for a
profit (or may keep them), they will
also have got rid of a competitor and
gain their market share.


Horizontal Integration


Vertical Integration


backwards,
forwards


Conglomerate Integration


De
-
integration


the opposite of
integration


cutting back in the areas
they operate in and focus on their core
competence


this is the area in which
they have most skills


they can then
grow and expand in this area


may
also happen when a company sells off
less profitable parts of the
organisation.

De
-
merger


This involves splitting up a
conglomerate


all the subsidiaries of
the conglomerate become separate
and new companies in their own right

Divestment


A conglomerate selling off its
subsidiaries to another company


eg
British Aerospace selling off Rover to
BMW.

Contracting
out/outsourcing


A firm may use other companies to
carry out certain activities for them eg
cleaning, catering etc and allows them
to focus on what they do best and so
grow and expand in this area.

Management buy out/buy
in


Team of managers getting together to buy a
stake in a company can happen when a
subsidiary is being sold off


can happen
when a subsidiary might be getting shut
down.


Buy out is a team of managers within the
company buy the stake.


Buy in is when a team of managers from
outwith the company buy the stake.

Question Examples


Compare three different types of
business organisations in the UK, in
terms of ownership, control and
finance. You should ensure that you
include at least one publicly funded
and at least one privately funded
organisation in your answer.


9 marks


A type of business organisation is a sole trader, a
sole trader is owned by one person, the control of
the business is by the sole owner, a sole trader may
raise finance through the owner investing their own
money in the business.


Whereas the NHS is a publicly funded organisation
and its ownership is the government on behalf of
the public, the control is through NHS trusts, their
finance comes from taxation levied by the
government


On the other hand a Public Limited
Company (Plc), is owned by
shareholders and is controlled by a
Board of Directors who are voted on
by the other shareholders, a Plc may
raise finance in many ways for
example a bank loan.


Explain the objectives each of these
organisations may have. You should include
at least 3 different objectives for each
organisation


Identify 3 stakeholders for 2 different types
of organisations. For each organisation
discuss the different levels of influence
these stakeholders may have on the
organisation.

The role of enterprise and
the entrepreneur


The entrepreneur brings together and
combines the other factors of
production to provide goods and
services. No enterprising people or
enterprising activities


nothing would
happen.

Entrepreneur sets things
in motion by:


Having and developing a business idea


Ensuring the necessary resources are
available to put the idea into practice


Using their own or borrowed money to
finance the idea.


People who are willing to take the risk
of losing their own money and
possessions.