Unit 2: introduction to business

Sectors within business

Private Sector (known as "citizen sectors”)

Motivated by money, profit, revenue

Legally regulated by the laws within the country

Public Sector

Provide services to the public

Military, health cares police, utilities, roads and bridges, public transports
telecommunication, education
Funded by taxation, state owned or public owned

Provided for individuals who do not pay as well

Public-Private Sector

Contract - to build/main train

Private finance initiative

 Corporate Social Responsibility

CSR refers to the practices and policies undertaken by corporations that are
intended to have a positive influence on the wold. The key idea behind CSR is for
corporations to pursue pro social objectives in addition to maximising profit.

It is a view that business should act and govern themselves in a way that enhances
both society and the stakeholders in the business. Advocates of CSR believe that
businesses should be held accountable for any of their actions that affect
individual, communities, or the environment.

The United Nation Industrial Development Organization outlines the common

functions of corporate social responsibility, which include:

Responsible sourcing of materials and supplies

Employee, vendor, customer and community engagement relations
Conversation of resources such as water and energy in production
Adherence to labour standards
Anti-corruption measures
Environmental protection and management
Upholding social equity, gender equity and other human rights goals

There are many reasons why an However, there are so potential

Organization might adopt CSR limitations associated with CSR.
practices, including: The main ones are:
Positive impact on brand and brand Costs can increase, which can reduce
recognition profits, especially in the short term.
Increased sales as more customers are
attracted by good CSR practices Growth opportunities can be restricted

Increased financial performance as a result Stakeholders often find it difficult to

of increased sales agree on which practices and policies
the organization should adopt, and
Increased ability to attract/retain staff this can lead to conflict
Internal and External Stakeholders

Managers

Internal Employees

Shareholders

Stakeholder
Customers

Suppliers

External Competitors

Government

Special interest groups

Vocab for EE enterprise case study

Product capacity: volume of products that generated by a business enterprise in

a given period of time using current resources

Revenue streams: different sources of income that a firm may have. Often as
firms grow, they attempt to diversity revenue streams, to find sales growth in
saturated markets or to offset risk if sales revenue from one revenue stream
declines, perhaps be offset by sales growth in another revenue stream)

Organization brand: set of expectations / memories stories and relationships that

take together, for-a consumer's d decision to choose one product over service other

Profit margin: represent the percentage of salts that an Organization can turn into
profits.
Circular business model could be related to:

Sectors of business activity

The primary industry provides the raw materials that would be injected into the
circular economy. Fewer raw materials being required, or a change in the demand
for raw materials, would impact on businesses in this sector.

The secondary sector may have to, or want to, change their manufacturing
process to reuse, reproduce or recycle raw materials and reduce waste.

Social enterprise
For-profit and not-for-profit organizations may have a different approach to circular
business models.

In theory, the for-profit organizations would only apply a circular business model if it
would increase their profits. For example, buying fewer raw materials and reducing the
waste created could decrease production costs and increase profits for some
organizations.

However, not-for-profit organizations may aim to reduce, reuse and recycle, so they may
be more likely to adopt practices related to circular business models.

Vision and mission statements and business objectives

The vision and mission statements for the business would be included in the business
plan, specifically in the business description section, as this relates to the aims and
objectives of the business. Its business, strategical and tactical objectives could also be
included explicitly or could be implied.

Corporate social responsibility

Any planned CSR activities would be identified in a business plan to let stakeholders
understand the intent of the business in this area.
Business plan could be related to:

Public and private sectors

Private-sector organizations would use a business plan, not only to inform stakeholders
of the direction the business plans to take, but also to acquire funding or investment.

However, organizations in the public sector would have a different audience for their
business plans, as they will get funding from the government.

Types of organisation
As with public- and private-sector businesses, sole traders, partnerships, privately held
and publicly held companies would have slightly different purposes for their business
plans. The privately held and publicly held companies gain funding through the sale of
shares, so would include shareholders as one of the stakeholders groups the plan is
aimed at. On the other hand, sole traders and partnerships would potentially use this to
secure a loan from financial institutions such as banks.

The vision and and business objectives

The vision and mission statements for the business would be included in the business
plan, specifically in the business description section, as this relates to the aims and
objectives of the business. Its business, strategical and tactical objectives could also be
included explicitly or could be implied.

Corporate social responsibility (CSR)

Any planned CSR activities would be identified in a business plan to let stakeholders
understand the intent of the business in this area.

Internal and external stakeholder

Internal and external stakeholders are the audience for a business plan. Examples of this
could be the internal stakeholder group of managers who need to implement the plan,
and the external stakeholder group of a financial institution, which may use the business
plan to decide whether or not to provide funding for the business.
SWOT Analysis

A SWOT analysis addresses both internal and external current factors which may
have an impact on a business.

A SWOT analysis categorizes current factors into positives (strengths and

opportunities) and negatives (weaknesses and threats).

A SWOT matrix is usually presented in a table like this

 STEEPLE Analysis

Social
Technological
Economical
Environmental
Political
Legal
Ethical

Social factors consider the demographics and cultural aspects of the market in which a business
organization is operating.
Examples include:

The size and growth of the population;

• A breakdown of the population by age, gender, ethnicity etc.;
• Lifestyle changes;
• Standard of education;
• Preferences, tastes or fashions.

Technological factors consider the advancement and trends of technology.

Examples include:

• Use of and access to the internet;

• New production methods that may be available;
• Automation;
• The rate of technological change.

Economic factors consider the current state of the economy and any recent or potential changes.
Examples include:

• Employment or unemployment rates;

• Inflation (how much prices are rising by) or deflation (how much prices are falling by);
• Income levels;
• Exchange rates.
Environmental factors consider the state of, and changes in, the physical environment.
Examples include:

• Climate change;
• Fossil fuels versus renewable energy;
• Carbon footprints;
• Recycling rates;
• The weather/weather events such as flooding.

Political factors are determined by government policies and their changes. Political changes can
impact on other external factors, including social, legal or economic factors.
Examples include:

• Changes to economic or environmental policies;

• Tax rates;
• International trade policies.

Legal factors consider the laws and regulations that an organization must abide by. It is important to
be aware of new or changing laws and regulations to ensure these are not being breached.
There may be legal, financial and reputational consequences of breaking the law or breaching a
regulation.
Examples include:

• Health and safety;

• Minimum wages;
• Employment and contract law.

Ethical factors are closely linked to corporate social responsibility (CSR), and the concept of ethics, which
we have already studied.
Ethical elements determine what is correct and what is not.
Examples include:

• Integrity and honesty;

• Intellectual property (closely linked to academic honesty);
• Corruption;
• Fair trade.
There are a number of advantages of using a STEEPLE analysis, including:
• It is relatively simple to use.
• It encourages reflective conversations within the management team.
• It allows the organization to anticipate future business threats and take action to
avoid or reduce their impact.
• It helps the organization identify potential opportunities.

However, there are also some limitations which need to be considered:

• Insufficient data might be used, meaning it becomes over-simplified.
• Excessive data might be gathered, which can be overwhelming.
• The pace of change may be faster than the analysis.
• Analysis has to be completed regularly for it to be effective.
There are a number of advantages of using a STEEPLE analysis, including:
• It is relatively simple to use.
• It encourages reflective conversations within the management team.
• It allows the organization to anticipate future business threats and take action to
avoid or reduce their impact.
• It helps the organization identify potential opportunities.

However, there are also some limitations which need to be considered:

• Insufficient data might be used, meaning it becomes over-simplified.
• Excessive data might be gathered, which can be overwhelming.
• The pace of change may be faster than the analysis.
• Analysis has to be completed regularly for it to be effective.
Benefits that growing businesses can enjoy:

Greater security
Larger firms are less likely to be bankrupt or be taken over by another organization.

Higher prestige
Larger firms often achieve a higher status than smaller firms, which can attract the best
employees industry.

Increased market share

Market share is a measure of consumer's preference product over other similar products.
A higher market share usually means greater shares.

The ability to become the market leader

As the dominant business in a market, an organization can influence in order to give a
competitive market. For example, McDonald's is the market in the fast-food industry.

Economies of scale
Economies of sales occur when a business is able to reduce their per-unit production cost
as it grows. Lower per-unit production costs usually result in higher profits. In other
words - the larger business , the more potential cost savings it can enjoy.

Growth is often an objective that many stakeholder groups support -

Greater sales lead to greater profits making the firm more attractive to shareholders

Large businesses can usually afford to charge lower prices than smaller firms, which benefits
consumers.

Growing firms who achieve success are likely increase salaries and/or pay managers.

Larger firms are more likely to survive , so employee's jobs would be more stable

Bigger businesses are likely to need more stock or raw materials, which benefit suppliers
Reasons for businesses staying small:

The factors that business owners have little control over and that may limit of
the the size in organization include:
The market for the product is small
The market is dominated by a large business or multiple large businesses
The availability of finance to fund growth

No matter why a business remains small, there and still benefits to be reaped:

Lower overheads
Small businesses are less expensive to run because they require less space and fewer resources.
For example, the fewer staff are employed, the lower the wages bill; and the smaller the business
premises, the lower the rent is likely to be.
If costs are lower, fewer products or services need to be sold to cover these costs, which means
profits can increase.

Flexibility and adaptability

One of the greatest strengths of smaller businesses is that they can respond to change quickly.
With fewer owners and managers, decisions can be taken, processes can be changed and
production methods altered far more quickly than in larger businesses.
For example, if something doesn’t work, a small business can fix it, change it or cut it without a
lot of managerial discussion or paperwork.

Personal service
Smaller businesses can more easily tailor their products and/or services to meet the needs and
demands of their customers. This leads to stronger relationships between these two stakeholder
groups (owners and customers).
Customers who feel that they are getting personalized and good-quality service are likely to be
loyal to the business, recommend this business to others and become repeat customers.
Employees who have a professional relationship with customers are likely to provide a better
service as they feel connected to the customers and feel a responsibility to meet their needs.
This links to the benefit of flexibility and adaptability, as the business can take its customers’
needs into consideration and quickly make changes.

Reduced risk
There is an element of risk associated with all businesses, but staying small can help owners
manage that risk. There are fewer levels of management to reach agreement with, lower sums of
money are being invested and businesses are less likely to accrue large debts than businesses
that are trying to grow.
Freedom and control
Many people start a business because they want to be their own boss, have the freedom to make their
own decisions and achieve goals they have set for themselves and their business. By staying small,
owners can maintain this ownership and control, which would be lost if the business expanded to
become a privately or publicly held organization.

Communication
With fewer owners, managers, employees and other stakeholders, communication within a small
business should be more effective. As discussed earlier, decisions and changes can be made more
quickly. Messaging is likely to be clearer and more accurate, as it is being transferred between the
owner and employees directly and employees are more likely to be able to communicate directly
with the owner. Not only does this communication aid decision-making, it also builds positive
professional relationships between internal stakeholders
Economies of scale

Reduction in per-unit production cost as a business grows

Occurs when a business experiences a decrease in their average cost as it
increase in size

Internal economies of scale

Internal economies of scale are based on management decisions.
There are six types of internal economies of scale:

1 Technical: these are achieved through improvements and optimizations within the
production process.
2 Managerial: these are achieved through the employment of a specialized workforce.
3 Marketing: these are achieved as larger businesses can have more effective
advertising and marketing campaigns.
4 Financial: larger businesses are often offered lower interest rates and more
investment than smaller businesses.
5 Purchasing: by buying in bulk, larger businesses can purchase more raw materials
at a lower unit cost.
6 Risk bearing: larger businesses can afford to have a wider range of products or
services, which reduces risks.

External economies of scale

External economies of scale are based on outside factors beyond the control of an
individual business.
The main types of external economies of scale are linked to economies of concentration.
Here are three examples:

1 Infrastructure: when businesses within the same industry cluster together, they
can take advantage of existing infrastructure and supply networks.
2 Employees: skilled workers tend to shift close to such clusters for work, thereby
giving firms easy access to workers.
3 Consumers: customers tend to go where there are multiple businesses in close
proximity, such as shopping malls, business parks, trading estates, etc.
 Week 8
Internal and External Growth

Internal growth
Often referred to as “organic growth” and generally takes place slowly and steadily
over a period of time. It occurs when a business gets larger by using its own resources;
it reinvents its profits into new products, new sales channels or more stores and so on,
in order to increase sales.

Internal growth relies on the resources an skills that exist within the business and
generally involves:
• Increasing sells
• Investing in new products or services
• Developing new sales channels

Internal growth, organic growth, occurs when a business decides to expand its own
activities in order to increase the number of customers they have and/or increase
revenue and profits.

Here are some ways business can grow organically:

• Opening new stores - nationally or internationally
• E-commerce

Advantages of internal growth Disadvantages of internal growth

• Low risk • Slow growth - time delays between and

• Business can maintain its own values investment and return on investment
• Higher production - business can • Growth may be limited as it is dependent
benefit from economies of scale and on customers buying the product or
lower average cost service

External growth
Occurs when a business expands by relying on
external resources, typically by acquiring or The risk associated with external
forming some kind of relationship with growth can reap rewards:
another organisation.

External growth is quicker than internal • Economies of scale

growth but involves more risk. Te risk comes • Increased market share
from the fact that the growth strategy • Reduced competition
involves another Organization that the
business has no control over, and the fact that
external growth usually requires a large
financial investment.
The integration of two businesses
Mergers: take place when two existing businesses join to form one new company

Acquisitions: takes place when one business buys more than 50 per cent of the
shares in another company to become the majority shareholder.

Therefore, merger occurs when two companies legally consolidate into one company;
an acquisition occurs when one company purchases the shares of another company.
Thus, a legal distinction exists between a merger and an acquisition, though in
practice, the two have very similar aims; the combination of the resources of the two
companies.

Takeover: take place in the same way as acquisitions, and are a form of acquisition.
With an acquisition, both parties agree to the transaction. With a takeover, the
transaction is typically hostile, meaning the company being aqueduct does not want
to be taken over.

Business collaboration to achieve a specific goal

Joint venture: takes place when two organisations agree to pool their resources for
the purpose of accomplishing a specific task for a limited period. A new business is
created for duration of the entire and will often be dissolved at the end of the
venture. In simple terms, this is when two businesses create, own and operate a third
Organization.

Strategic alliances: occur when one or more business agree to some form of
operational cooperation that enhances the value of all parties.

Franchise

Type of business organisation in which a business (franchiser) develops a product or

service and its band, and then sells the right to use the brand and its related product or
service to other businesses (franchises). To operate as a franchise, the franchisee
typically pays, in addition to an original fee, some percentage of revenue and agrees to
comply with operating and quality specifications set by the franchisor.

The franchisor is the original business. It sells the right to use its name and idea. The
franchise buys he right to sell the franchisor’s good or services with an existing business
model, branding and knowledge.
 Multinational Companies

Business that either operates in, or is legally registered as a business in, more than one
country

There is an increasing number of MNCs in the world, and this can be attributed to a
number of factors, including:
• The growth of the internet, allowing for global communication
• Improved transport links around the world
• A reduction in barriers to international trade and the growth of the international
grade agreements
• Increasing economic strengths of MNCs

Potential advantages for the host country

Introducing innovation:
Multinationals can bring in new production, marketing or business methods which domestic
businesses can replicate. Introduce different ways of interacting socially, how employees meet,
how customers interact, etc.

Increased skills:
Multinationals are likely to train their local workforce to develop the skills required to operate
the business. This upskilling of the local workforce may help domestic businesses as well as
allowing the trained staff to gain better position and higher wages.

More choice:
By selling in a domestic market, a multinational will increase choice of products or services
available within that market.

Building infrastructure:
Multinationals will often invest in infrastructure projects in the host country.

Economic benefits:
Provide job opportunities to the host country, pay taxes to the domestic government and
invest in the local economy.
Possible disadvantages for the host country:

• Most profits will be redirected back to the MNCs home country, rather than being invested
in the host country
• Once trained, some local staff will seek employment internationally, meaning the skills
gained leave the host country
• The MNCs created significant competition for domestic companies
• Host country becomes too reliant
• Negative impact on the cultural density
 Ansoff Matrix

There are two variables to consider:

1. The market in which the business operates
2. The product or products intended for sale

In terms of the market, there are two options for

growth:
1. To remain in the existing market
2. To enter new materials

In terms of the product, there are two options for

growth:
1. To sell existing products
2. To develop new products
Market penetration: The business attempts to sell a greater quantity of an existing products to
consumers in an existing market.

Product development: The business sells new products to existing customers

Market development: The business sells an existing product to new customers

Diversification: This is the process selling new products to new consumers.