B OOK O NE W HAT IS A BUSINESS ?

A IMS & O BJECTIVES OF B OOK O NE Describe some common characteristics of businesses. Explore what makes businesses different from one another. Understand the main sociological, technological, economic, environmental and political forces that impact on businesses. Explain how organizational cultures emerge within businesses. Outlines different types of structures and how they might impact on how work is organized within a business. Identify the importance of business ethics Provide an introduction to business functions.

Session One What is a Business?

A IMS AND OBJECTIVES OF SESSION ONE Begin to address the question ‘ what is a business’; Offer some definitions of ‘business’; Explore some of the similarities and differences between businesses;

W HAT A BUSINESS DOES Identify some common characteristics of the following businesses: A branch of a national bank An electricity supply company A school A local medical centre A village post office A local car sales firm The United Nations A hairdresser’s

W HAT A BUSINESS DOES ( CONT ’ D ) Characteristics of Businesses: They consist of a number of people. The people who belong to them will share some values and views about the purpose of the business. They will have incomes and costs, profits and losses. They need different types of resources to produce different types of goods and services. They need to coordinate a number of different activities undertaken by different individuals.

W HAT A BUSINESS DOES (C ONT ’ D ) Businesses enable objectives to be achieved that could not be achieved by the efforts of individuals on their own. Businesses come in all shapes and sizes, but have three factors in common: people, objectives and structure. It is the interaction of people to achieve objectives that form the basis of a business. Some form of structure is needed within which people’s interaction and efforts are focused. The direction and control of the interactions form the role of the management.

W HAT A BUSINESS DOES (C ONT ’ D ) Businesses are often differentiated in terms of the sector of the economy to which they belong: public or private. Businesses are also differentiated according to whether their primary motive is profit: for profit or non-profit businesses.

W HAT A BUSINESS DOES (C ONT ’ D ) Type of Business DescriptionExamples Public Sector Any part of the nation’s economy that is controlled and operated by the state. Local authorities, schools, government departments, hospitals, armed forces. Private sector Businesses that are not controlled by the state. Sole traders, partnerships, For Profit The primary aim of such organizations is to make profit. Railways, airlines, restaurants. Not-for- Profit The primary aim of such organizations is expressed in terms other than financial profitability (not implying that its aim is to make a loss) Charities, voluntary organizations, clubs and societies, trade unions, pressure groups.

Session Two The External Environment

A IMS AND OBJECTIVES OF SESSION T WO Describe the different aspects of the external environment surrounding a business; Introduce the STEEP model as a means of describing and reflecting upon the external environment of the business; Analyze the different types of stakeholders that have to be considered by a business and understanding their contributions and concerns; Explain how a SWOT analysis may be useful for a business in understanding the strengths, weaknesses, opportunities and threats in the external environment.

T HE E XTERNAL ENVIRONMENT The external environment Is the world in which the business operates. It is a large and ever-changing place which is made up of other organizations, employees, suppliers, customers, and other stakeholders. Why are we studying the external environment? Analysis of what is happening in all facets of the external environment means that changes which impact on the business can be monitored, anticipated and dealt with appropriately.

T HE STEEP MODEL STEEP S : Sociological factor T : Technological factors E : Economic factors E : Environmental factors P : Political factors.

T HE STEEP MODEL (C ONT ’ D ) Sociological Factors: Demographic changes in the age and structure of populations, patterns of work, gender roles, patterns of consumptions and the ways in which the culture of a population or country changes and develops.

T HE STEEP MODEL (C ONT ’ D ) Technological Factors: The implications of technological change for businesses include: ICT is lowering barriers of time and place and opening up great global opportunities for businesses, which also means increased competition. ICT creates new industries, not only in areas of hardware, software and telecommunications, but also in start-ups, new businesses, and e-commerce (e.g. ICT enabled many banks and insurance companies to start by building their operations solely on the basis of electronic information and communication). Many individual jobs and internal service functions have been transformed and are now based on ICT systems (e.g. production planners and credit controllers). This has led to a massive shift in the skills needed for most jobs (e.g. computer literacy is now essential for many jobs)

T HE STEEP MODEL (C ONT ’ D ) Economic Factors Economic factors that affect businesses include:  the rate of economic growth,  Exchange rate  Interest rate  inflation,  energy prices, and  levels of employment.

T HE STEEP MODEL (C ONT ’ D ) Economic Factors (Cont’d) If businesses and individuals expect the economic growth to be high, business are likely to invest and expand and individuals to spend more. In contrast, if the economy is expected to contract, businesses invest less and individuals spend less.

T HE STEEP MODEL (C ONT ’ D ) Economic Factors (Cont’d) Exchange rate is the price of a particular currency and is based on the supply and demand of such currency; Exchange rates. Varying exchange rates cause the following problems for businesses: 1) If the domestic currency strengthens, exporting becomes more difficult because the price of goods exported is higher and foreign products are more competitive in the home market. 2) If the currency weakens, exports are easier and opportunities may open up for new markets, while imports become more expensive. o Governments change interest rate in an attempt to achieve short-term adjustment in the levels of demand, investment and spending.

T HE STEEP MODEL (C ONT ’ D ) Environmental Factors Business need to consider a number of environmental factors: Legislation: rules and regulations put to control pollution and waste disposal. Information: Larger businesses may carry out regular environmental audits and publish them in their annual reports. Employees: employees are concerned about environmental credentials of their employers.

T HE STEEP MODEL (C ONT ’ D ) Environmental Factors (Cont’d) Shareholders: A category of ethical, or ‘green’, investors is emerging, and businesses may wish to consider whether they should present themselves as eligible for such investments. Pressure groups: became a permanent part of the political scene (e.g. consumer groups have fought to get the levels of salt and fat in foods lowered). Customers: opportunities for businesses operating to high environmental standards to gain market advantage.

T HE STEEP MODEL (C ONT ’ D ) Political Factors: Rules and regulations imposed by government, Influences of such organizations as chambers of commerce, and trade unions.

T HE STEEP MODEL (C ONT ’ D ) Political Factors (Cont’d) Legislation affects many aspects of business life, such as health and safety at work, equal opportunities and employee protection. Trading relationships are influenced by political factors such as the World Trade Organization (WTO) and the European Union (EU). Government is a major party to many transactions. Government is one of the largest employers and the largest purchaser of goods and services. The level and nature of public services (e.g. health services, education) are determined on political grounds. Governments determine levels of taxation – on the individual, on businesses, on property and goods and services.

SWOT ANALYSIS SWOT S: Strengths W: Weaknesses O: Opportunities T: Threats

SWOT ANALYSIS ( CONT ’ D ) The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. SWOT analysis groups key pieces of information into two main categories: Internal factors – The strengths and weaknesses of a business arise from its internal environment; that is, resources and their use, structure, culture, and the different business functions. External factors – The opportunities and threats presented by the external environment to the organization.

SWOT ANALYSIS ( CONT ’ D ) In SWOT, strengths and weaknesses are internal factors. A strength could be: Your specialist marketing expertise. A new, innovative product or service. Location of your business. Quality processes and procedures. Any other aspect of your business that adds value to your product or service. A weakness could be: Lack of marketing expertise. Undifferentiated products or services (i.e. in relation to your competitors). Location of your business. Poor quality goods or services. Damaged reputation.

SWOT ANALYSIS ( CONT ’ D ) In SWOT, opportunities and threats are external. An opportunity could be: A developing market such as the Internet. Moving into new market segments that offer improved profits. A new international market. A market vacated by an ineffective competitor. A threat could be: A new competitor in your home market. Price wars with competitors. A competitor has a new, innovative product or service. Competitors have superior access to channels of distribution. Taxation is introduced on your product or service.

SWOT ANALYSIS ( CONT ’ D )

SWOT analysis relating to business functions One method of undertaking a SWOT analysis is to consider strengths, weaknesses, opportunities and threats in relation to four key business functions: marketing, operations, human resources and finance. (Review table 2.2 page 29 in your textbook)

S TAKEHOLDERS Characteristics of Stakeholders: Stakeholders are people, or groups, who have a legitimate interest in the activities of businesses and other organizations in their society. All businesses have internal stakeholders: shareholders, employees, managers. They also have stakeholders external to the business but strongly linked to and affected by it. These include customers, suppliers, funders and competitors. Different stakeholders have different interests, and these interests maybe in conflict. Some stakeholders are protected by law but not all. Owners and shareholders are protected by property and company law, where as the interests of other stakeholders are protected only by regulation or management discretion.

S TAKEHOLDERS AND THEIR EXPECTATIONS StakeholderPrimary ExpectationsSecondary Expectations OwnersFinancial ReturnCapital growth EmployeesPayWork satisfaction, training, social integration. CustomersSupply of goods/servicesQuality CreditorsCreditworthinessSecurity SuppliersPaymentLong-term relationships CommunitySafety & securityContribution to the community GovernmentComplianceImproved competitiveness

C ONFLICT B ETWEEN S TAKEHOLDERS StakeholdersConflict Shareholders & customersCustomers want high quality and low prices, while shareholders are interested in minimizing costs and maximizing profits. Managers & shareholdersAttitudes towards salaries and business risk are likely to be different, but the interests of shareholders are usually dominant.

B USINESS & S OCIETY The role of business is primarily economic; Businesses exist to produce goods and provide services that society wants and needs, at a profit, and they can’t take on additional responsibilities unless they perform these tasks successfully. Society provides business with the resources, which it needs to operate profitably, such as people, raw materials, services and infrastructure. Society also provides other, less tangible, inputs to businesses. These include: a means of exchange (money); a legal system that is effectively policed and enforced; and defense and trade arrangements

B USINESS & S OCIETY (C ONT ’ D ) How do businesses in practice reconcile the demand for greater profit, lower costs with the interests of society to secure employment, protect the environment, and tax income? The degree of conflict between maximizing profit and serving the interests of the community depends on the type of business and its relationship with the community. If it is a major employer in the area, or a major customer of local suppliers, then its actions are going to have a substantial impact on the community. The community is a major stakeholder, and there are correspondingly serious obligations on the business to consider the interests and views of the local community when making decisions. The relationship between business and society is covered in a new area of business literature under the title corporate social responsibility CSR. Many businesses have CSR policies, and these are sometimes stated on the business website.