Unit 1.1

What do Businesses Do?

Unit 1.1 What Do Businesses Do? When people work together

to achieve something they all want, this is called an organisation. For example, a swimming club is an organisation.

A business is a particular type of organisation - one which involves people and resources in the making of an item or the providing of a service.

5 things businesses have in common:

a name aims (or things they want

to achieve) a set of rules or

procedures the resources they need

to achieve their aims (including people)

an image

School – 5 things in common

Name: Braes High School

Aims: to provide the best possible education for every pupil in the school to give every pupil the chance to do the best he/she can

Image: ie how the school is viewed by pupils, parents and the local community (is it a good school and if so why?)

Resources: buildings, desks, computers, books, office staff, teachers, janitors, cleaners etc

Rules: school rules, timetables etc

Braes High

School

Business – 5 things in common

Name: JJB SportsAims: to provide a wide range of good value products throughout many areas of the country (and some overseas)

Image: ie reliable, good quality

Resources: buildings used as stores and offices, display units, shelves, computers, people etc

Rules: staff have agreed ‘start’ and ‘stop’ times; people doing the same work get paid on the same wages scale etc

JJB Sports

What is Business Activity all About?

Making GOODS eg shirt factory, shoe

factory, furniture maker, jeans factory, computer manufacturer, boat builder, dairy farmer;

Providing SERVICES eg banks, building

societies, dentists, police, hospitals, insurance companies, charities, shops.

Any business is involved in doing one of two things. These are:

Many organisations sell goods or services in exchange for payment. However, others, such as charities provide their goods and services free of charge.

Influence by Businesses

Although we don’t often think about it, we work with, and are influenced by, business throughout our lives - day in, day out.

•Think about a television

•the TV is made by a company (business or organisation)•the programmes are provided by a TV company;•companies advertise on the TV

Classification of Goods/Services

Durable Goods: Last of a long time eg

stapler

Non-Durable Goods: Used up quite quickly

eg. staples

Goods are tangible: they can be seen and touched

Services are intangible: they cannot be seen and touched

Businesses Vary in Size Business can range from those which are very large

to others which are very small (eg a man working on his own).

Some businesses start out being small and never really grow too much and others can grow to become very big.

Although not all businesses want to become bigger, those which wish to do so will need to be very good at what they do.

Therefore Businesses can be classed as:

Small Medium Large

SMALL BUSINESS Often owned and run by one person - a sole trader Or they may be run as a partnership - between 2 and

20 people They employ less than 50 people They usually sell their good and services locally

• Opticians, solicitors, accountants

• Tradespeople - plumbers, electricians, hairdressers

• Small shops

Examples of small businesses ...

MEDIUM BUSINESS Usually owned and run by a group of people - these

may be partners, directors or shareholders They employ between 50 and 250 people May have branches and sell goods nationally

Examples of Medium-size businesses ...

• Manufacturers of clothing, furniture

• Car hire companies

• Theatres

• Insurance Companies

LARGE BUSINESS Usually owned by a large number of people - the

shareholders - and run on their behalf by directors They employ more than 250 people May produce and sell goods internationally

Examples of Large Businesses • Car manufacturers eg Ford, Nissan

• Chainstores eg Marks & Spencers

• Finance companies eg Bank of Scotland

• Oil companies eg Esso

Since different businesses attempt to do different things, different types of people are responsible for starting them in the first place.

In all, 3 main types of businesses (organisations) need to be considered. These are:

Public Sector Organisations

Private Sector Organisations

Voluntary Sector Organisations (eg Charities)

Who is involved in Business Activity

Private Sector Business

Ownership: Owned by one or more owners

Purpose: Started in order to provide good or services

Survival: A private business must earn more than it spends (i.e. MAKE A PROFIT!)

Public Services

Ownership: Funded by government (central and local). Tends to supply public services rather than produce goods

Purpose: The public sector provides a large range of services, for example:

Central Government - national health, police and defence

Local Government - education, libraries and roads

Voluntary Groups (Charities) Ownership: Not owned by any individual people. Someone will be responsible for ensuring

targets and budgets are set and it does what it says

Purpose : They try to help particular people eg, guide dogs for the blind and Oxfam

Survival: They normally must at least break even (i.e. spend no more than they take in through fundraising, grants and donations)

WHO IS INVOLVED

Public Sector – is owned and run by the state (Government) for the people. People pay taxes to the Government and this money is used to finance most of the public sector.

AIMS:-

To provide essential public services

To use resources well for the benefit of the community

Public Sector

The 2 most important parts of the State are:-

Central Government Local Government

CENTRAL GOVERNMENT (London/Parliament)

Defence

National Health Service

Social Security

Prisons

Police

Roads

Universities

LOCAL GOVERNMENT

(eg Falkirk)

Primary & Secondary Education

Refuse Collection

Libraries

Social Services

Council Housing

Roads

Parks and Sports Facilities

PUBLIC CORPORATIONS

These are companies that are owned by central government. A government minister appoints a chairperson and board of directors to run the company on the governments behalf.

Public corporations include the BBC and Royal Mail.

Public corporations receive grants from the government and also raise finance from the public. The BBC charges the public for a TV licence.

Private Sector Businesses are owned and run by private individuals. Examples of Private Sector businesses are:• Sole Traders

• Partnerships

• Companies (Private and Public)

• FranchisesAIMS:

Profit Increased market share

Growth Maximise Sales

Private Sector

Where can private sector businesses get finance?

Sole Traders & Partnerships

• Personal Savings

• Bank Loans

• Government Grants

• Trade Credit

• Sole Traders could form a partnership

Companies

• Sell Shares in the company

OWNERSHIPVoluntary groups are not owned by any individual people. However, someone will be responsible for ensuring that it sets targets and budgets and does what it is set up to do.

Voluntary Groups

PURPOSEIn most instances they try to help particular types of people, eg guide dogs for the blind, Oxfam etc

SURVIVALIn order to survive they normally must at least break-even (ie spend no more than they take in through fundraising, grants and donations

Primary Production Companies Companies which harvest the raw materials provided by nature for example an oil extraction company such as Esso.

Secondary Production Companies

Companies who buy the output of primary producers and covert it into different products, in other words they manufacture goods. For example, businesses which process oil to produce petrol, chemicals and gas. These companies are involved in doing something to the output of the primary producers.

Service Providers Businesses which provide a service to their customers are known as service providers and are involved in tertiary production, for example a petrol station. They don’t produce an item which we can see or pick up, instead they provide us with important services.

Types of Business Activity

PRIMARY SECTOR

oil fishing forestry agriculture quarrying mining

This is the first stage of the production process where raw materials and natural resources are farmed or extracted from the land or sea.

SECONDARY SECTORDeals with manufacturing goods – turning the raw materials into finished products

car manufacturers engineering shipbuilding “white goods” manufacturers (including fridges, freezers, dishwashers etc) housebuilding

TERTIARY SECTOR

Offers services rather than goods insurance banking education hairdressing tourism & leisure armed forces

Needs and Wants

Needs – What we need to survive

Food Clothing Shelter Water

Wants – Once we have met our basic needs we always want more

Television Dvd’s X Box Porsche

PRODUCT-LED AND MARKET-LED

Product-led - businesses make/produce goods and provide services, basically because they are good at doing this.

Market-led - businesses make/produce goods and provide services to meet consumers’ needs which have been identified.

When thinking about “What do Businesses do?” we must examine the production function:

INPUT Raw Materials

Information

Money Premises People

Management

Customers

OUTPUT Finished Goods

PROCESS Manufacturing stage

Consumption involves the purchasing of goods and services. In many cases it also involves using them up, e.g. services and non-durable goods (fresh food)

Production is the process of making goods so they can either be consumed or go on to another stage of production

Mrs White’s daughter, Sue consumes the cake

The retailer sells the cake to Mrs White

The baker produces the cakes and adds the cream

The miller produces flour

The Farmer produces wheat

Individuals and Organisations

Consume

Businesses Produce

Production and Consumption

Wealth is not money BUT money is obtained by creating wealth.

At each stage of production value is added to a product. Each stage in the production of paper has a cost or price. Value is added to each cost or price which creates wealth. Seed Tree Logs Wood

Pulp

Newspapers

Wallpapers

Books Toilet Rolls!

Creating Wealth

HOW IS WEALTH CREATED? At every stage in business activity value is added to a

product. Concept of adding value (house example):

extraction industry quarry £ manufacturer bricks ££ wholesaler builders’ merchant sells bricks £££ building company builds brick house on site ££££ estate agent sells the house which

has been built £££££

WHY IS IT IMPORTANT FOR BUSINESSES TO BE EFFICIENT? In today’s competitive

market, all firms must be as efficient as possible to ensure they meet their aims and objectives and survive.

You must now be aware that business is dynamic (always changing) and in a number of ways can become very challenging.

HOW DO WE KNOW IF A BUSINESS IS BEING EFFICIENT? it is satisfying its

customers wants and needs

it is achieving its aims and objectives

The main functions upon which most companies depend are:

Marketing – identifying, anticipating and satisfying consumer needs

Operations – designing, producing and distributing goods

Human Resources – recruiting, training and managing staff

Finance – raising finance, budgeting and keeping company accounts

Administration – deal with enquiries, communicate messages and produce paperwork

Research & Development – develop, and adapt, new products or technology

How do Businesses Function

HOW DO BUSINESSES FUNCTION?

All businesses need to carry out a number of basic functions in order for them to produce goods or provide services. Since these functions rely on staff with particular knowledge and skills and the use of specialist equipment, each one tends to be done by specialist teams.

The main functions upon which most companies depend are:

Marketing Operations Human Resources Finance Administration Research and

Development

Marketing & Operations

Marketing involves collecting information on customers’ preferences for particular goods or services; collecting information on competing good; finding out what influences the public when deciding to buy a particular thing.

Operations is the name given to describe how a business changes the raw materials it requires to make its product into the finished articles which it sells to customers.

In other words operations is the term given to all of the processes which are actually involved directly in making something.

Human Resources & Finance

Human resources is the term used to describe the people who work in a business, ie the managers, the office staff, the engineers, the accountants, the labourers, cleaners, etc.

The Human Resource function is to look after all the personnel of the firm.

Finance: All businesses, large and small, need money to finance their operations. Money is needed to pay for:

premises to work in; machinery to make their

goods; wages for their staff; electricity; rates etc The Finance function is to

control the money of the business.

Administration & R&D

Administration: All businesses need to have an efficient flow of information to help them operate effectively.

The administration function manages this flow of information by for example dealing with enquiries, communicating messages, producing paperwork.

Research and Development (R&D) can be very expensive and therefore many businesses do not have their own R&D department but instead adapt new products or technology produced by other companies.

Unit 1.1 Memory Map

Unit 1.1

Small, Medium Large Businesses

5 things businesses have in common

Local, National, Multi-national

Primary, Secondary, Tertiary

Needs and Wants

Functions of a business

Goods and services

Product Led/Market Led

Chain of production

Creating Wealth