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Business Studies: The Business Environment

• The main questions to consider about a business are: What is it? What role does it play? What impact does it have? How important is it to the economy?

Business Definition

• A business is defined as an organization or economic system where goods and services are exchanged for one another or for money.

The Role of Business in Australia

• SMEs(small to medium enterprises) make up roughly 98% of all Australian businesses.
• A common feature of all businesses is producing a product (goods or service) for sale in a market where buyers and sellers meet.
• The Australian business world includes approximately 1.98 million separate business enterprises.
• These businesses cater to the needs and wants of around 22 million Australian customers and millions of overseas customers.

Value-Adding

• Businesses combine inputs and raw materials using human skill and equipment to add value.
• Value addition involves taking resources and combining them into a product that holds more importance to the consumer than the individual resources' original value.
• Value-adding turns products that have value (like sugar, milk, cream, and flavoring) into a product has greater worth than the individual inputs, using machinery and human skills,
• Example: Ice cream is worth more to consumers than the individual inputs of sugar, milk, etc.

Example of Value Adding

• A jeweler can value-add by transforming beads, string/lace, and clasps into bracelets, necklaces, and earrings.
• If the inputs hypothetically cost $12 and the bracelet sells for $20, the contribution margin (profit per product) is $8.00.

Transformation vs. Value-Adding

• Value-adding: It is the process of creating additional value by transforming/changing inputs.
• Example: A bakery transforms ingredients into a cake, where the ingredients are worth less than the transformed final product.
• Both terms involve creating value, but transformation refers to the process, while value-adding refers to the resulting value.
• Value-adding becomes a contribution margin through stirring, cooking, and decorating.

Value Adding Products

• Tyre = Raw Materials(Rubber) + Human Skill(Workers/trained factory persons) + Equipment(Factory machinery) => Tyre Wheel
• Cake = Flour, milk, eggs, sugar, chocolate + Stirring, beating, pouring (into tray), temperature control, timing+ Hand-held beaters, Bowl, spoon, baking dish => Chocolate Cake

Value-Adding Question Example

• Value-adding is the transformation of raw inputs using human skill, machinery, property, plant, and equipment.
• A baker uses flour, eggs, milk, and sugar to make a cake and are ingredients (inputs) that will have a lower value than the cooked cake.

Benefits of Studying Business

• Studying business helps individuals become informed consumers, savvy investors, successful business owners, and productive employees.

Business Impact on Society

• Businesses impact society and help the community in several key areas.

Functions of Business Impact on Society

• The key roles of business include profit, employment, income, choice, innovation, wealth, entrepreneurship and risk, and quality of life.

Entrepreneurship

• Businesses offer individuals chances to turn ideas into livelihoods, with the possibility of huge profits if successful.
• Entrepreneurs must be prepared to take risks by starting/operating a business venture and turn their dreams into a livelihood
• Entrepreneurs explore untapped markets which lack track records of consumer demand
• Risks can be monetary, social, emotional, or against societal norms.
• Untapped markets cater to needs and have no existing options.

Income

• Businesses provide income to owners/shareholders.
• Income is the amount of money received for providing labor.
• Employees receive wages (weekly payments) or salaries (fixed annual amount).
• Shareholders in private or public companies receive a "dividend" based on share performance.

Employment

• Businesses provide 80% of all private sector jobs.
• The specific number of employees depends on the product nature and demand level.
• The more that a business sells the more people a business hires.
• SMEs account for 50% of all private sector employment.

Quality of Life

• Contributions to quality of life through phones, computers, washing machines, fridge, medicine, and Research & Development.

Wealth

• Businesses seek to achieve a profit from their activities.
• Wealth grows through producing goods or providing services.

Choice

• The more choices available in the market, the easier it is for consumers to satisfy their desires
• Increased choice lowers prices and encourages innovation, as competitors compete.

Innovation

• Innovation maintains a competitive edge in the current business climate.
• New product ideas, expanding, modifying products, and standing out in the marketplace are all forms of innovation

Example Question 1

• Business promotes wealth creation through the exchange of goods and services (buying and selling).
• Exchange of goods generates profit for business owners and income for employees enabling wealth creation through assets such as buildings, vehicles, and shares.

Example Question 2

• Innovation improves the quality of products/services, enhances accessibility with greater ease of use than before, and lowers the costs than historical predecessors.

Business Goals

• People start businesses to achieve something.
• A is the desired outcome that an individual or business intends to achieve within a certain time frame.
• Businesses need to establish goals and plan to achieve said goals.
• Businesses goals alter over time due to changes in both the internal and external business environment.

Importance of Goals

• Serving as targets: Managers find coordinated decisions easier with clear goals.
• Measurable goals: The achievement of specific goals act as a benchmark against which performance is measured.
• Motivation: Good quality goals act as a motivating force.
• Commitment: When an employee agrees to achieve a goal, or even participates in the goal-setting process, they start to have commitment in its achievement.

Examples of Large and Small Business Goals

• Large businesses : Broader in scope, such as the inclusion of a commitment to brand protection and enhancement, manufacture of design-relevant and functional products, marketing in board sports channels, the professional development of staff, and ongoing customer service and relationships.
• Small businesses : Narrower in scope such as maintenance of professional standards in client contacts increase in customer base by 10 per cent

Setting Goals

• To increase employee commitment, goals need to be specific and challenging.
• An example of a specific goal includes: ‘increase New South Wales sales by 5 per cent in the next 12 months.
• Specific and challenging goals provide a target to aim for.

Business Life Cycle

• Businesses are similar to people: each has its own identity, is referred to by name, possess individual personalities, and are confronted by life challenges and rely on each other for survival.
• They are often defined in a business life cycle.
• However, the most striking similarity is that a business will pass through distinct stages to develop,
• Business life cycle: This is a model used to understand the complexities of the business.

The Stages of a Business Lifecycle

• Establishment - the company has just launched and is trying to get off the ground (Stage 1)
• Growth - The sales and profits of the company increase (Stage 2)
• Maturity - The business is making money, but sales start to slow (Stage 3)
• Post-Maturity: Renewal, steady state, or decline(Stage 4)

Key Stages of Business Life Cycle

• Establishment: Business is launched to increase awareness.
• Growth: Market share must increase, which can be one of the biggest risks in the business
• Maturity: Saturation of product/service occurs, and so it needs to reinvent or change in order to renew customer service.
• Owners must re-evaluate the trajectory for growth in both cases.

Differences in Business Life Cycles Compared to Human Life Cycles

• There is no set time limit for stages in a business life cycle. Some businesses can reach maturity quickly, while others may remain in the establishment phase for decades.

Food Van: Kebabs Goal Examples

• Example establishment phase goal: increase awareness and market share (percentage of takeaway market).
• Example growth phase:increasing the market share and awareness, and improve the ability to pay debts/costs
• Example how long the establishment takes:Selling 2,000 kebabs within 3 months (22 kebabs a day) or $10 x 22 = $220 a day in revenue, with a further three phrases.

Key Terms

• Value-adding : Transforming inputs into outputs
• Raw materials are stirred, poured, mixed, and cooked using equipment and human skill to make a cake, worth more than the individual ingredients.
• A business effects wealth through improved products/services that result in lower prices and more choice for both Individuals and Businesses
• Business innovation results in improved equipment, procedures, and communication.
• Innovation in the economy can create increased GDP
• SMART Goals: Measurable goals within a defined timeframe

Key facts

• Revenue is turnover of income, not profit.
• Wealth differs from profit as it is not always in cash
• Wealth can be buildings, equipment, customer base, reputation, and built equity, whereas profit is revenue minus expenses.
• Revitalization must include the process of improvisation to remain relevant.