Economies of Scale in Business

Business Systems

• Businesses are systems with inputs, processes, outputs, and feedback.
• Inputs can be physical, financial, or human.
• Processes include Human Resource Management (ensuring employees are skilled and treated ethically), Finance and Accounting (financial stability), Marketing (selling the right product at the right time), and Operations (smooth production).
• Outputs are goods (tangible) and services (intangible).
• Feedback is crucial for system stability, and can come from various sources (customers, suppliers, employees, community).

Doughnut Economics

• A model outlining the social foundation (human needs) and ecological ceiling (planetary boundaries) for economic activity.
• The goal is to meet human needs while respecting the health of the planet.
• Planetary boundaries encompass the natural environment.
• The social foundation focuses on the production and consumption of goods and services to meet human needs and wants.

Sectors in Economy

• Economists identify four main sectors: Primary (extraction of raw materials), Secondary (manufacturing and processing), Tertiary (service provision), and Quaternary (knowledge/data services).
• Businesses can be integrated across multiple sectors.

Starting a Business

• A business has a higher chance of success with a skilled and collaborative team.
• Adequate funding is crucial for business operations.
• Effective market research and operations are essential for success.
• Passion for the business, a compelling business idea or market need can help drive business success.

Challenges For Starting a Business

• Lack of funds
• Strong competition
• Limited market
• Unskilled employees
• Poor management skills
• Economic, environmental, and political shocks

SWOT Analysis

• A tool to analyze internal strengths and weaknesses, and external opportunities and threats.

STEEPLE Analysis

• A tool for analyzing external factors (Sociocultural, Technological, Economic, Environmental, Political, Legal, and Ethical).

Business Plan

• A document outlining the business, problem solution, product/service, market analysis, marketing plan, SWOT analysis, cash flow forecast, and funding sources.

Sectors in Business

• Private Sector: Owned by individuals, including small businesses and large multinational companies.
• Public Sector: Owned by the government to provide essential goods or services that are unaffordable to some (inaccessible) members of society.

For-Profit Commercial Enterprises

• Four types of ownership: sole traders, partnerships, for-profit privately held companies, and for-profit publicly held companies.
• Sole traders: simplest form; no legal separation between the owner and the business.
• Partnerships: two or more owners; requires a partnership agreement detailing profit sharing, roles, responsibilities, and procedures for accepting/removing partners.
• Companies: owned by multiple shareholders; limited liability; privately held (family/friends) or publicly traded (shares on stock exchange).

Non-Profit Social Enterprises

• Produce goods or services to meet human needs, with surpluses reinvested in the business.
• NGOs (Non-Governmental Organizations): Non-profit social enterprises that benefit society or the environment, often getting government funding.

Vision and Mission Statements

• Vision statements describe a future ideal.
• Mission statements define a business's current activities to reach the envisioned future.

Value by Stakeholders

• Owners: generate ideas, finance, entrepreneurial spirit, and receive profits.
• Consumers: pay for products/services, influence through word-of-mouth, and expect convenient access and quality products/services.
• Employees: contribute skills, work ethic, feedback, and expect wages, benefits, and a positive work environment.
• Suppliers: provide materials, help with production, and expect payment and stable contracts.

SMART Goals

• Specific, Measurable, Achievable, Relevant, and Time-bound objectives to achieve business goals.

Value Extraction

• Capturing value from other stakeholders (inside or outside the business).

Corporate Social Responsibility (CSR)

• Businesses actively improve society and the environment through their business operations & designs.

Social Responsibilities

• Local-social: secure employment, fair wages, and basic needs.
• Global-social: fair treatment of suppliers, living wages, safe working conditions, and ecological considerations.
• Ecological: support and regenerate nature locally and globally; considering planetary boundaries.

Strategies

• Plans to achieve specific goals involving understanding the organization's vision and mission, researching relevant markets and products, analyzing and evaluating the strengths, weaknesses, opportunities, and threats (SWOT), securing funding, and setting goals with time-bound completion dates for progress tracking and course corrections as necessary.

Tactics

• Actions to achieve goals, including various production models for managing waste and pollution. • Linear Production: Taking resources, creating products, and disposing of waste. • Circular Production: Optimizing the use of waste and returning material to the production cycle. • Circular Business Models: Using recovered or bio-based materials to reduce or eliminate new material inputs.

Product Service System (PSS) Models

• Focus on selling services for using products rather than selling the product itself.
• Focus on long-term relationships and use of products.

Limitations of Business Models

• Lack of robust existing system for waste recovery.
• Unintended consequences of implementation.
• Some models may not account for all stakeholders.

Shareholder

• Internal and external individuals or groups affected by the organization, incluing managers, employees, shareholders, suppliers, government, labor unions, banks, and society.
• Stakeholder alignment involves balancing the interests of stakeholders.

Advantages/Disadvantages of Market Leadership

• Advantages:
  • Achieving economies of scale for reduced cost
  • Access to new customers and markets
  • Influence on product prices
  • Competitiveness in the industry environment
  • Attract talented employees
• Disadvantages:
  • Lack of innovation
  • Competition
  • Decreased profitability
  • Higher cost of production
  • External influences (laws, regulations, etc.)

Market Share

• The portion of a given market that a business commands.

Market Growth

• The increase in sales revenues/volume in a particular market over a period.

Market Leadership

• High market share in a market, often a market leader in brand recognition due to high market share. The market leader produces with economies of scale which decreases the cost per unit. Leaders often have high pricing power.
• Advantages:
  • Higher access to distribution channels
  • Brand recognition
  • Economies of scale
  • Price leadership.
• Disadvantages:
  • Reduced incentive for innovation
  • Increased competition
  • Diseconomy of scale
  • Less responsiveness to changes in needs of customers

Economic of Scale

• The reduced unit cost of production as output increases, enabling large businesses to achieve cost advantage over smaller companies.
• Internal Economies: Cost reductions within the organization, achieved by:
• Purchasing: Buying materials in bulk at discounted rates
• Managerial: Spreading fixed cost over a large output (e.g., managers’ salaries)
• Technical: Cost reductions by using advanced equipment
• Financial: Access to cheaper loans and better interest rates
• External Economies: Cost reductions affecting entire industry, arising from:
• Innovation: An industry becoming important for society or the environment
• Infrastructure: Access to efficient and robust communication infrastructure (e.g., ports)
• Specialization: Focusing on an industry allowing for improvement in areas of productivity and cost
• Diseconomies of scale: Cost increases associated with large-scale operations.

Growth Strategies (Internal/External)

• Internal growth: Expansion using internal resources, with advantages of controlling the business’ operations and culture. Limitations include slower expansion and potential cash flow problems for companies with low earnings. • External growth: Growth through merger, acquisition, or joint venture. Faster growth than internal growth but riskier, including external funding, conflicts between the businesses, and different cultures. • Franchising: A form of external growth where one party (franchisee) buys the rights to use the business and brand of another party (franchisor), typically with a fee, offering a means to expand quickly with lower investment required.

Ansoff Matrix

• A framework for exploring potential growth strategies, by categorizing different growth options based on whether products and markets are existing or new.

Boston Consulting Group (BCG) Matrix

• A portfolio analysis model that classifies different business products (stars, dogs, cash cows, and question marks).

Marketing Mix (7 p's)

• A set of controllable marketing tools that a company combines to achieve its defined marketing objectives for a target market or segment. • Product • Price • Promotion • Place • People • Physical evidence • Processes

Marketing Research

• Primary: Gathering new data (surveys, interviews, focus groups, observations).
• Secondary: Analyzing existing data (government publications, academic journals, media articles).
• Qualitative research: Non-numerical data (opinions, attitudes), and usually smaller sample sizes.