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Chapter 1 - Business and its environment - Coggle Diagram
Chapter 1 - Business and its environment
Nature of business activity
Purpose of business activity
Transformation of inputs to outputs
Inputs are resources and factors of production
Incur financial costs, rent, wages, interest on loans, and payments to business owners
Outputs are physical products, or services represented by sales revenue or profits
Use of resources to supply goods and services to meet the needs and wants of customers and society
Could be private needs of individuals, households, or social needs like medial services, transport and education
Needs may be defined as those things essential to life, such as food water, shelter, clothing
Wants are those things that we would like to have, new phone, latest designer shoes
Factors of Production
Land: Natural resources
Agricultural goods
Fish
Minerals
Oil
Forests
Labour: People involved in businesses
Manual
Mentally
Capital: Machinery and equipment
Intellectual capital
Education
Qualifications
Enterprise: Quality and skills
Concept of creating or adding value
Transformation of inputs to outputs to produce goods and services
Number of stages
Each stage is more valuable than the one before, as work is done to inputs
Value will also be the added value that consumers place on a finished product
Nature of economic activity, the problem of choice, opportunity cost
Economic activity means taking decisions about the transformations of inputs to outputs, always involves choices
Resources are always limited in relation to needs and wants
Individuals, businesses and society generally want more than they can afford, so choices must be made
Opportunity cost is the real cost of making a decision about using resources
Real cost of something is what is given up when you choose it
Businesses need to be aware of the opportunity cost of any action, before they make the final decision
Business environment is dynamic
Businesses operate in an environment that includes: actions of other businesses, labour market, government economic and social policies, legal framework, political factors, changing technology
All factors change over time
Some changes take place slowly, ageing population, increasing incomes, better quality
Some changes take place quickly, economic shock, new competition law, competitor decreasing price
Businesses must monitor their environments, and be ready and willing to change what they do in order to adapt to changing markets
Lack of adaptation leads to failure
What a business needs to succeed
Enterprise
Ability to see possible opportunities for transforming inputs to outputs, gaining a reward taking into accournt the risks and choices involves
Organisation
Ability to choose the appropriate resources and combine them together profitably to produce products at a price the consumer is willing to pay
Financial monitoring
Keeping track of money flows so that the business can keep running and not have problems
Human Resource Manangement
Making sure the right number of appropriately skilled and trained people are hired
Marketing
Making sure that products meet the consumers needs in terms of design, price, availability, information and value
Objectives
Having appropriate organisation structure and strategy
Coordination
Making sure that all the functional areas work together to achieve corporate objectives
Why businesses might fail early on
60% of businesses fail in the first 2 years
Common reasons are: lack of well searched objectives, lack of market power, economic shocks, not enough cash, too much borrowing, unexpected growth, inefficient marketing
Difference between local, national, international and multinational businesses
Local businesses
Small area
Owned by 1 or 2 entrepreneurs
National businesses
One country
Branches or travel routs in many areas
International businesses
Based in one country
Sell and export to other countries
Multinational businesses
Bases abroad
Produce and sell in many countries
Well known brands
Role of Entrepreneurs and Intrapreneurs
Role of an Entrepreneur
Person willing to take a risk and start a new businesses by bringing together all the resources necessary for success
Barriers include difficulty raising finance, regulations in the home country, risks
Role of an Intrapreneur
Works within an established business
Companies encouraging intrapreneurship among their employees welcome new ideas that will keep the business moving foward
To avoid failure, it is essential to have skills and abilities, as well as business skills
Qualities of an entrepreneur or intrapreneur is likely to need for success
Determination, passions, leadership, low fear or failure, clear goal, good network forming skills, good organisational skills
Role of business enterprise in the development of a business and country
Business enterprise is essential for starting a business, than making it grow
Without vision or organising mechanisms, a business drifts and increaily poor decisions are made
Workers become demotivated, efficienty falls and costs rise, sales become harder to achieve
New businesses are usually small, supplying about 55% of jobs in the country, and creating 25% of wealth
Many countries encourage new businesses by offering tax incentives, providing infrastructures and advice, offering low cost finance or development loans
Enterprise generates new ideas, seeds for future growth, competition, employment opportunities and training opportunities.
Business Plans
A business plan is an outline of its aims and objectives, and how it proposes to achieve these
Main sections are: an introduction, mission statements, business products, marketing and promotional methods, financial projections, human resources
Benefits of a business plan
Gives a sense of focus, and direction
Owners can check progress
Show to potential investors or lenders to persuade
Limitations of business plans
Doesn't guarantee success
Regular updating
External factors that make the plan and objectives irrelevant