Nature of Business Activity

A Business

Decision-making organization

OutputsInputs

OUTPUTS

Products

Goods Services

Could you list clear differences between goods

and services? Give examples

What is a customer?

• Peter Drucker said:

“The only purpose of a business is to create

customers”

Businesses exist to satisfy

Needs Wants

Needs: Basic neccesities a person must have in order to survive.

Wants: Desires that people have, i.e. things they would like to have. Wants are said to be infinite since people always want more than they need.

What happens if the business gets larger?

Specialist Departments

HR Marketing Finance Production

• “It is easy to open a business but much more difficult to keep it open”

-Chinese proverb

Analyze why this statement would be

true.|

The Marketplace

A market is…

Buyers (customers)

Sellers (businesses)

Customer vs. Consumer

Describe the process by which this

products get to your hands.

RIM

Claro

Distributor

You

Types of products

Nestlé

IBMNuevo Mundo

Consumer goods

Capital/producer goodsServices

Which one is more expensive? Determine why.

Value Added

Value of inputs – value of outputs

Profit•Speed

•Prestige

•Feel-good factor

•Percieved value

•Quality

•Taste/design

•Unavailability

Opportunity Cost

• It wasn't until the mid 1990s that supermarket went against advice and began to trade on sundays. Supermarkets in the UK realized the opportunity cost of being closed on sundays. They were fined for such actions, as licensing to trade on sundays had not been enacted, but the fines were so insignificant compared to the revenues they were earning by openning on sundays that the supermarkets continued with this practice. McDonald's Corporation has followed by opening some 24-hours stores around the world. Some banks in Hong Kong have openened on sundays since 2006.

• Define the term opportunity cost.

The role of profit

Profit refers to the positive difference between a firm’s total revenues and its total costs per period of time.

Revenues: inflows of money, usually from the sale of products.

Costs: Outflows of money, to finance production activities.

Functions of profit

Incentive to produce

Reward for risk takers

Encourages innovation and invention

Indicator of growth

Source of finance

Incentive to produce

Reward for risk takers

Encourages innovation and invention

Indicator of growth

All businesses must make profits in order to survive in the long run, even NGOs

Factors of production

Enterprise

Capital

Labor

Land

Factors of production and their returnsFactors of prodution

Profit

Labor Capital Enterprise

Rent Wages Interest

Land

Income

Specialization

Think of a pizzeria. What do they produce? How do they do it? Who makes it?

It means that a business concentrates on the production of a particular good or service or a small range of similar products

Specialization

It ocurrs at different levels:• Individuals: people specialize in a profession,

e.g. laywers, doctors.• Departamental: within an organization, e.g.

marketing, finance.• Corporate: in a limited range of products, e.g.

Dell, Hilton, Sony• Regional: London and NY specialize in financial

services.• National: Japan and Germany are known for

their manufacturing.

DIVISION OF LABOR

Specialization

ADVANTAGES

Increased productivity

Increased efficiency

Standarization

Higher profit margins

Specialization

DISADVANTAGES

Boredom

Inflexibility (overspecialization)

Lack of autonomy (interdependence)

Capital costs

BUSINESS FUNCTIONS

• To operate efficiently a business must be organized in areas/departments or functional areas:

Production

Marketing

Finance

HR

Main functional areas

Business Functions:ProductionConverting raw materials into finished goods ready for

delivery; services to customers.

• Determine how the good will be manufactured.• Decide on resources needed• Plan timescale of production• Stock management and control• QC and inspections• Arrange for delivery to customers• Meet production targtets and deadlines• Carry out R&D

Business Functions:MarketingTo identify and satisfy consumer wants and needs.

Ultimately, they ensure the products sell.

This is done using tools: market research, test marketing, packaging and advertising.

To sum up, the four P’s of Marketing are:• Product• Price• Promotion• Place

Business Functions:FinanceThis dept. is in charge of managing the

firm’s money. The fnance manager must ensure that accurate recording and reporting of financial documentation takes place. This is to comply with legal requirements* and to inform those interested in the financial position of the business.

Business Functions:Human Resources (Personnel)

This dept. is responsible for managing personnel: workforce planning, training, appraisal, pay and benefits, equal opportunities, health and safety matters, and fostering working relations.