Business Structures Quiz

Introduction to Business Management

• A business aims to meet the needs and wants of individuals or organizations.
• Resource inputs include human, physical (land/materials/machinery), financial, and enterprise (innovative/risk-taking).
• Production processes can be capital-intensive or labor-intensive.
• Capital-intensive processes rely heavily on machinery; labor-intensive processes heavily rely on labor relative to machinery.
• Key business functions are operations, marketing, human resources, and finance.
• Business activity sectors include primary (raw materials), secondary (processed goods), tertiary (services), and quaternary (knowledge-based services).

Sectors of the Economy

• The economy consists of different sectors; these sectors are: primary, secondary, tertiary, and quaternary.
• Each sector is associated with specific activities as follows: primary sector are activities involving extraction of raw materials (mining, farming). Secondary sector involves manufacturing and processing of raw materials. Tertiary sector involves services. The quaternary sector focuses on knowledge-based services (research and development).

Sectors and Integration

• Reasons for sector integration include lower costs, ensuring supply, avoiding government regulations, increasing market power, and weakening competitors.
• Backwards vertical integration involves acquiring suppliers.
• Forward vertical integration involves acquiring distributors.
• Horizontal integration involves acquiring companies in the same industry.

Entrepreneurship and Qualities

• Entrepreneurs are individuals who demonstrate enterprise and initiative to make a profit, often self-employed.
• Intrapreneurs are those employed by a company who show entrepreneurial thinking.
• Qualities of entrepreneurs include being innovative, committed to self-motivation, multi-skilled, and risk-takers.
• A startup is a company in the initial stages of business. Common characteristics of a startup company include being innovative, having a strong company culture, being good at problem solving, being relatively young compared to other companies, and often being funded by outside investors.

Impact on Enterprise and Business Creation

• Increased employment opportunities, economic growth, and technological innovation are major impacts of business creation and enterprise.
• The concept of "creative destruction" is the process through which markets progress, driven by entrepreneurship, innovation, and invention. It leads to new opportunities but destroys old ones.

Identifying Market Opportunities

• Identifying market opportunities can involve utilizing one's skills or hobbies, previous employment experiences, franchising conferences, and small-budget market research.

Startup Ideas and Process

• Examples of startup ideas include social media groups, ghostwriting services, online custom-made product sales, drop-shipping, and online coaching.
• The process of starting a business typically involves the business idea stage and planning stages. Stages of the business-idea stage include organizing the basics, refining the business idea through researching the market, and planning the business (a written plan with objectives, strategies, financial forecasts and how the business will achieve goals).

Business Plan Importance and Purpose

• A business plan is a very important document required when setting up a new business as it helps obtain financing from investors.
• The plan should include every detail of the business and is used as a guide by the business through the planning process.

Users of Business Plans

• Stakeholder benefits from a business plan can include helping to make judgement about the viability of an idea, providing financial forecasts, attracting additional partners, identifying specific objectives/targets, and determining if a long-term trading relationship is worthwhile.

Private Vs. Public Sector

• The public sector refers to portions of the economy controlled and owned by the government (e.g., government services, public schools).
• The private sector refers to portions of the economy that are not controlled or owned by the government.

Profit-based Organizations

• The focus is to generate profits; these may include sole traders, partnerships, privately held companies, and publicly held companies.

Sole Trades/Partnerships/Companies

• Features and advantages of a sole trade, partnership, and company: types of organizations, ownership structure, liability, finance, and profit share.

Shareholders

• Shareholders are owners of the company and have the right to receive a share of profits (dividends).
• The value of the share may increase or decrease depending on how well the company is performing. Shareholder liability is limited to the amount invested.
• Shareholders may not have a say in the daily operations of the company.

Why become a company

• Reasons to become a company include separate legal existence (limited liability), enhanced status (recognition), good source of financing, improved changes of getting further finance (increased stability).

Public vs. Private

• Going public through an IPO
• Process of offering shares in a private company to the public; this translates into a private company becoming a public company.
• Privatization — a process of selling public sector companies to private interests.

Company Features and Advantages

• Companies have a separate legal existence from their owners.
• Companies have unlimited liability, and shareholders are protected from responsibility.
• Companies have access to more finance (easier than for sole traders or partnerships).
• Companies have continuity (higher chance of business survival than other organizational structures).
• Companies have a positive public image.

Disadvantages of Companies

• Setting up a company takes time and money
• Selling shares doesn't guarantee the desired finance.
• Owners of a company lose control over the businesses' stock market.

For-Profit Social Enterprises

• Going beyond profits for social purposes, with human, social, environmental well-being in mind.

Cooperatives

• An organization owned and operated by its members who share in profits
• Many members have an active role in running the business.

Common Features of Cooperatives

• Profit is important, but not priority; social aims take precedence.
• High degree of collaboration; a strong relationship exists between business and the local community.
• More democratic; more democratic than for-profit companies.

Non-profit Social Enterprises

• Focus is on social purpose and surplus revenue is used to further this purpose.

Non-Governmental Organizations

• Organizations that promote social causes and help those in need.

Vision and Mission Statements

• Vision statements are philosophies, visions, or sets of principles, and they steer the direction and behavior of the organization.
• Mission statements state the purpose of the company and explains why the business exists; they generally include business aims.

Common Business Objectives

• Articulated and measurable targets to achieve aims; business must be specific and measurable.
• Long-term goals of a business that indicates how the business intends to fulfill its mission; also include performance goals (market share, or improving profitability).

Effectiveness of Vision and Mission Statements

• Advantages: statements quickly inform outside groups of the business's central aim/vision. They motivate employees, especially if positive qualities are emphasized. Vision/mission statements help employees behave ethically.
• Disadvantages: Statements can be vague and general. Businesses may use them as public relations exercises to make stakeholder groups feel good about the organization. Statements can be overly 'woolly' and lacking, allowing for very dissimilar businesses to have similar statements.

Aims vs. Objectives

• Aims: are long-term goals of the business—identifying what the business intends to achieve over the long term.
• Objectives: short to medium-term goals which clarify how the business will achieve its aims and reach its vision.

Hierarchy of Objectives

• The link or relationship between objectives is called a hierarchy. Objectives follow the hierarchical mode of presentation. Different modes of presentation are possible.

Objectives should be SMART

• Specific: clearly stated objective.
• Measurable: quantifiable; objective can be measured.
• Achievable: attainable given existing resources.
• Relevant: direct link to the company's overall goals.
• Time-bound: deadline or timeframe is set to achieve the objective.

Measuring efficiency

• Fixed cost: cost that does not change, regardless of production volume.
• Variable cost: adjust according to the level of production (goods, services).
• Internal economies of scale: efficiency often increase as a business grows (e.g. bigger units, specialized managers, lower risk).
• Internal diseconomies of scale: inefficiency often increases as the business grows beyond the optimum production point (e.g. managerial issues, difficulty of management, poor investments).
• External economies of scale: efficiency of other businesses in the market (e.g. business clusters, infrastructure, labour concentrations).
• External diseconomies of scale: when other business is negatively affected.

Need for Change

• Internal/external factors cause objectives and strategies to change.

Change in the Internal Environment

• Changes in leadership, organizational structure, and organizational culture can result from internal changes.

Change in the External Environment

• External changes include but are not limited to policy changes, legal changes, and technological changes.

Corporate Social Responsibility (CSR)

• A philosophy of business—concerned with how business goes beyond making profits—business should contribute to the economic, social, and environmental well-being of society.
• Factors which may influence how organizations set ethical objectives include: positive work environment, customer loyalty, positive image, reducing risk of legal redress, satisfying customer expectations for ethical behavior, increasing profitability and ethical/moral rules.

Impact of Ethical Objectives

• A business's response to ethical objectives will have implications for cost implications, increased competition, improved customer relationships, and positive government relations.

Strategic Alternatives

• Best achieved by combining business strengths with market opportunities.
• Defensive strategies, re-orientation strategies, and defusing strategies are used to mitigate vulnerabilities.
• The Ansoff Matrix (product/market expansion grid) is helpful for growth planning (considering both existing and new markets/products).

Combined Tool

• Combining frameworks (STEEPLE, SWOT, Porter's Five Forces) provide a holistic view of situations and effective business solutions.

Mergers and Acquisitions

• Mergers and acquisitions combined businesses, creating bigger companies with new divisions.
• Horizontal/vertical integrations occur when companies in different parts of the same production system combine.

Types of Growth

• Internal growth: self-financed growth which may take a long time to become big and successful.
• External growth: expansion from mergers and acquisitions.

Globalization

• The process of integrated global economies becoming one global unit.
• Globalization has a significant impact on business growth (increased competition, brand awareness, skills transfer, collaboration, and new business opportunities).
• MNCs face impacts on host countries (positive/negative impacts include economic growth and/or new ideas/loss of cultural identity, repatriations of profits, and loss of market competitiveness.

Decision Trees

• A visual tool used to represent complex decisions with multiple outcomes, with probabilities and values.

Franchises

• A very attractive form of global expansion where the business sells the right to operate a business concept/product to other businesses without having to operate it from scratch.

Globalisation and Multinational Companies

• Globalisation is the process by which the world's regional economies integrate into one global unit.
• Multinational companies are businesses that operate in more than one country, usually with direct operations and subsidiaries in diverse geographic locations.
• Reasons behind such operations include proximity to markets, lower costs of production, avoidance of import restrictions, availability of local resources, access to local markets.
• Positive impacts for countries hosting MNCs include economic growth, and positive introduction of new ideas.
• Negative impacts for countries hosting MNCs include possible repatriation of profits and loss of cultural identity.