Business Management Study Manuals Certificate in Business Management INTRODUCTION TO BUSINESS The Association of Business Executives 5th Floor, CI Tower St Georges Square High Street New Malden Surrey KT3 4TE United Kingdom Tel: + 44(0)20 8329 2930 Fax: + 44(0)20 8329 2945 E-mail: info@abeuk.com © Copyright, 2008 The Association of Business Executives (ABE) and RRC Business Training All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form, or by any means, electronic, electrostatic, mechanical, photocopied or otherwise, without the express permission in writing from The Association of Business Executives. Certificate in Business Management INTRODUCTION TO BUSINESS Contents Unit Title Page 1 Nature and Purpose of Business Activities 1 Introduction 2 The Economic Context of Business 2 The UK Economy 9 Population and the Labour Force 12 The Public and Private Sectors of the Economy 14 2 Structures of Business 19 Introduction 20 Basic Forms of Business Organisations 20 The Sole Trader 21 Partnerships 23 Companies 25 Public Sector Organisations 30 Not-For-Profit Organisations 33 Objectives of Organisations 34 3 Structures of Organisations 37 Introduction 38 Formal and Informal Structures 39 Infrastructure 39 The Functional Departments of a Business 43 4 Organisations in their Environment 47 Introduction 48 Analysing the Environment 48 Stakeholders 52 Responding to Change in the Environment 56 Services to Business 59 Location of Industry 62 5 Growth and Scale of Business Organisations 69 Introduction 70 Growth Strategies 71 How Do Organisations Grow? 73 Economies of Scale 77 Diseconomies of Scale 79 Globalisation 81 Unit Title Page 6 The Production Function 87 Introduction 88 Production Systems and Techniques 89 Control 92 Stocks 97 Quality 101 7 The Marketing Function 109 Introduction 111 The Nature of Marketing 112 Market Analysis and Research 116 Marketing Plans 122 Customers and Markets 123 The Product 127 Pricing 132 Promotion 134 Distribution 137 The Marketing Mix and the Product Life Cycle 138 8 The Finance and Accounting Function 141 Introduction 143 The Basics of Business Finance 144 Sources of Finance 146 The Finance Providers 151 The Structure of an Organisation's Finance 152 The Accounting Function 159 Financial Accounts 162 9 The Human Resources Function 171 Introduction 173 Concept and Scope of Human Resource Management 174 Human Resource Planning 176 Recruitment and Selection 182 Training and Development 189 Motivation 194 Remuneration 199 1 Study Unit 1 Nature and Purpose of Business Activities Contents Page Introduction 2 A. The Economic Context of Business 2 What Is Economics? 2 What Are Resources? 3 The Scarcity of Resources 4 Types of Economy 5 Some Features of Markets 8 B. The UK Economy 9 Classifying Productive Enterprise 9 UK Industry 10 Resources 11 Foreign Investment 11 C.
Population and the Labour Force 12 The Ageing Population of the UK 12 Optimum Population 12 The UK Labour Force 13 Productivity 13 D. The Public and Private Sectors of the Economy 14 The Public Sector 14 The Private Sector 15 Ownership and Control 16 Accountability 17 Stakeholders 17 © ABE and RRC 2 Nature and Purpose of Business Activities INTRODUCTION Business takes place within an economic structure. How the economy operates dictates how business in general functions and how individual business organisations work. The legal, political and social systems within which such organisations exist are geared to the requirements of a particular type of economy and the economic structure reflects the expectations of the political and social spheres.
They are all inter-related and influence each other. Modern economies have the same basic industrial divisions. How much of the economy is devoted to agriculture, industry and services depends on the stage of economic development, political decisions and pressures, and the relative success of enterprises in the sectors. The population structure is important to organisations.
For businesses it provides the labour force and the market for consumer goods and services. Other organisations are also vitally concerned with the make-up of the population. Local government has to provide the services appropriate to the local populace. The age structure of the population determines the present and future labour force.
The size of the working population depends on social factors, like married women working, and on government decisions on the school leaving age and the payment of pensions. One of the key divisions within the economy is that between the private and public sectors. We consider the issues involved in government intervention in economic activities, ownership and control and the accountability to the various stakeholders. Objectives When you have completed this study unit you will be able to: Describe the inputs required by business and how markets operate.
Describe the industrial sectors in a modern economy and outline recent changes in the British economy. Show the relationship between total population and the labour force and explain the effects of changes in the population on the labour force. Distinguish between the private and public sectors of the economy. Explain how different organisations are owned and controlled with reference to their stakeholders.
THE ECONOMIC CONTEXT OF BUSINESS What Is Economics? We shall start by carrying out a little experiment. Make a list of all the things you need or would like to have. Don't hold back on this – put everything down. It doesn't matter at this stage whether you can afford them or not.
Your list might start like this – food, shelter, clothing, transport, leisure, and so on. However, you can extend and refine this by going into detail, such as a BMW car (or even his and hers BMWs). It should quickly become clear that your list (in common with that of most people) is very extensive. Now think about the total weekly or monthly income that you have in the way of wages, salary or other income to buy items from your wanted list.
It doesn't take long to realise that your income is nowhere near large enough to enable you to buy all, or even most, of the © ABE and RRC Nature and Purpose of Business Activities 3 items on your list. This would still be true if you looked at your income over a year or even a lifetime. What is true for you is also true for virtually everyone else. The fact that we do not have enough income to buy ourselves a villa in the south of France, a yacht in the Bahamas or even one BMW will scarcely come as a surprise.
The question is why? The most obvious answer is that we don't earn enough, so one solution might be to simply double everyone's income. However, if we think that through, we can see that it is not really the answer at all. With twice the money, you might actually be able to afford a BMW, but so will a lot of other people. The problem then is that there are not enough BMWs for everyone to buy.
Without going into a lot of theory, the likely result of this flood of increased purchasing power into the economic system would be to push up the prices of all the things we want, meaning that our increased incomes would not buy us anything more than the lower level of income that we had before. So, the underlying problem of being not able to have everything we want is not lack of income itself. This merely seems to reflect something more fundamental – it would appear that it is the scarcity of the goods and services themselves which is the problem. But is it? If we look at our economic system, we can see that what we want from it is a stream of outputs of goods and services in order to satisfy our wants.
However, we don't get these outputs from nowhere. In order to have outputs, we have to have some inputs which can be transformed into those outputs. In economics, the inputs required to produce outputs in the form of goods and services are called economic resources (or sometimes factors of production). The ability to supply the goods and services that we want is dependent, therefore, upon the supply of the resources required to produce them.
(In advanced economies, the transformation of the inputs of resources into outputs of goods and services is usually done by business organisations.) Perhaps we can now see the real reason why we cannot have all the items on our list – the economy simply does not have enough resources to make all the outputs of goods and services we want from it. This gives us a definition of economics. It is concerned with how limited resources are used to produce outputs of goods and services. However, "use" can be an ambiguous term – economists are not concerned with the way in which metal and rubber are transformed in a factory to make a BMW.
They are, rather, concerned with the availability of metal and rubber, and why those scarce resources are used to produce a BMW as opposed to, say, a bus. In other words, economics is concerned with the way those resources are allocated between alternative uses – how limited resources are allocated in the production of goods and services. This is not our concern here – economics will be studied elsewhere in your course. We are interested in the way in which businesses transform resources into goods and services – the principles behind the way in which, for example, metal and rubber are transformed in a factory to make a BMW.
However, these basic economic principles provide the framework within which businesses operate and we need to understand them in a little more detail before we can come to a view as to what constitutes business. What Are Resources? Resources can be divided into three categories: labour; capital; and natural resources. © ABE and RRC 4 Nature and Purpose of Business Activities (a) Labour Every economy has a workforce – i. the total number of people who are available to work, for gain, to produce goods and services.
In the UK at present, this is approaching 28 million people. Another aspect of the supply of labour is the hours which workers are available to work. Some workers would be available full–time, while others would only be available on a part–time or temporary basis. (And, similarly, the jobs which workers do may be full– time, part–time or temporary, although not necessarily in accordance with the desired availability of the workers themselves.) We could arrive at a more precise figure of the available labour force by looking at person hours – i.
the number in the workforce multiplied by hours available. A further aspect of the supply of labour is the skills of the workforce. In order to produce particular goods and services, we invariably need resources with particular characteristics – not just any old resource. Labour is just the same.
The skills available within the workforce can be a significant factor in the goods and services the economy can produce. (b) Capital Capital refers to all those manufactured assets which exist to help in the production of goods and services. Capital assets include: buildings – factories, offices, etc.; plant, machinery and tools; office equipment; roads, railways and airports; docks and harbours. All economies have a stock of capital assets which have been accumulated over time.
(c) Natural resources This includes anything which comes from planet Earth and can be used as a resource. It includes unimproved land, minerals (oil, coal, etc.), water and so on. We can say that, in theory, natural resources cost us nothing to make (unlike capital). However, there will usually be some cost incurred in exploiting them – land may have to be drained or irrigated, minerals have to be mined or water put into reservoirs, etc.