Introduction to Business: Sectors and USP

Introduction to Business

• Businesses exist to satisfy the needs and wants of individuals, organizations, and governments.
• A business is a decision-making organization that uses inputs to produce goods or services.
• A business organization involves someone or a group working in an organized manner to achieve a specific target.
• The transformation process converts inputs like land, labor, capital, and enterprise into outputs.
• Outputs encompass goods (tangible items), services (intangible), and by-products.
• The choice of inputs impact the cost and quality of the final product.
• Value is added when outputs are more valuable than the inputs.
• A unique selling proposition (USP) distinguishes a product from its competitors.

Business Sectors

• The primary sector involves the extraction, harvesting, and conversion of natural resources.
• The secondary sector uses raw materials for manufacturing or construction.
• The tertiary sector provides intangible services.
• The quaternary sector offers services involving complex processing and information handling, such as technology and firmware.
• More developed economies typically have more resources in the third and fourth business sectors.

McDonald's Example

• In 2019, McDonald's acquired Dynamic Yield, an Israeli AI startup, for $300 million.
• McDonald's has implemented AI-driven voice recognition ordering systems in some restaurants.
• These systems use synthetic human voices and natural language processing algorithms.
• The AI-driven systems have reduced order times by almost a minute.
• McDonald's sold this technology in 2021 for additional revenue.
• McDonald's has faced lawsuits involving foreign objects found in their meals.
• One incident occurred in February 2012 in Chelsea, Michigan, when a customer sued after finding an unidentified object in her food.

Reasons for Starting Business

• Growth
• Earnings
• Transference and inheritance
• Challenge - personal fulfillment
• Autonomy
• Security

Introduction to Business Management

• Organizations can be classified as public or private.
• Public organizations are owned and operated by the government.
• Private organizations are owned by individuals or groups of individuals.
• Nationalization occurs when the government takes control of a private-sector business.
• Privatization is when the government sells a public organization to the private sector.

Types of Business Entities

• A sole trader is a small business owned by a single individual.
• A partnership is a business owned by more than one individual, with a maximum of 20 people allowed by law.
• Advantages of partnerships includes more investment, ideas, and skill sets involved in a business.
• Disadvantages of partnerships includes disagreements or liabilities for company actions.
• A company is a large business entity formed by a group of individuals to operate a business.
• Advantages of companies includes limited liability and potential for mass expansion.
• Companies are obligated to make their accounts public and have them audited.
• Shareholders are partial owners of a company that they invest in.
• Shareholders can earn dividends if the company is successful.
• Shareholders own part of the company's capital but are not held liable for its debt.
• Shareholders can influence business policy through their shares and associated voting rights.
• Companies can have varying ownership structures, with shares held by the public sector, private sector, or a combination of both.
• Shareholders in public companies can sell shares to anyone.
• In private companies, shareholders might face restrictions on potential buyers.
• An initial public offering (IPO) is when a business first sells all or part of its business to external investors.
• Companies that does IPOs can be listed on a stock exchange to generate additional funding.
• A public-private partnership (PPP) is a partnership between the government and a private company.
• Social enterprises aim to improve the world and do not focus solely on profit.
• A cooperatist business is owned and run by and for its members, who can be customers, employees, or residents.
• Non-governmental organizations (NGOs) are not created by the government.
• NGOs aim to reinvest earnings to better society or promote special causes, operating independently of the government.

Business Analytics

• A mission statement defines the business and its approach, often referencing customers.
• A vision statement defines the business's aspirations for the future.

Levels of Business Objectives

• Corporate objectives deal with organizational goals.
• Functional objectives are tailored to specific sectors within the business.
• Individual objectives are targets set for individual employees.
• Cash flow is the movement of cash into and out of a business over a period.
• The cash cycle is the time it takes for money to come in and out of a business and is essential for paying debts.
• Diversification involves a business offering new products and services in new markets
• SWOT analysis involves strengths, weaknesses, opportunities, and threats.
• Strengths and weaknesses are internal to the business.
• Opportunities and threats are external to the business.
• SMART criteria are used for analyzing objectives.
• Specific means the objective must define what is being measured.
• Measurable means the objective must include a quantifiable target.
• Agreed means the objective is discussed and agreed upon.
• Realistic means the objective must be attainable.
• Time-specific means the framework should define the objective.
• Decision trees utilize probability trees for methodical organization planning, optimal with numbers.
• Features of decision trees is always choosing the best and most profitable decision.
• Decision point
• Outcomes
• Probability or chance
• Expected value: The probability of an event occurring
• Business beliefs and view points should:
• Ensure that work is interesting
• Keep people in work as much as possible
• Pay suppliers quickly
• Invest in its local community
• CSR and triple bottom line should aim for sustainable business by:
• People
• Enviroment
• Profit
• Corporate Social Responsibility involves:
• Consideration of ethical and environmental issues
• A business that adopts CSR will act morally toward its various groups
• Ethical behavior is conduct thats thought to be morally correct and not necessarily the most profitable.

Stakeholders

• Stakeholders are people with a direct interest in and are affected by a business's performance.
• Common saying "Everybody is a stakeholder".
• Internal stakeholders are members of the organization (employees, shareholders, managers, and directors).
• External stakeholders do not form part of the business but have a direct interest or involvement, such as customers, suppliers, and the government.
• Stakeholders have rights.

Growth and Evolution

• All businesses want to grow.
• An example growth and evolution can be seen through the growth of the Panama Canal.

Internal and External Economies and Diseconomies of Scale

• Economy of scale occurs when unit costs fall as production increases.
• Diseconomy of scale occurs when unit costs increase as production increases. Calculation:
• Average Cost: Total cost divided by the quantity of output (AC = TC / Q)

External Environment

• PESTLE Analysis: Framework for analyzing the external business environment.
• PESTLE stands for Political, Economic, Social, Technological, Legal, and Environmental.
• Political comprises of Government policies, stability, and regulations.
• Economic comprises of Inflation, interest rates, economic growth, and unemployment.
• Social comprises of Demographics, cultural trends, and lifestyle changes.
• Technological involves Innovation, automation, research & development.
• Legal comprises of Employment law, consumer protection, health and safety.
• Enviromental comprises of Sustainability, pollution, and climate change.

Globalization

• Globalization comprises of increased interconnectedness of markets and businesses across the world.
• Impacts can be seen through, access towards new markets, increased competition, and supply chain complexities.
• Challenges in globalization include cultural differences, exchange rate fluctuations, and ethical considerations.

Human Resource Management

• Human Resource Management (HRM) is to achieve the most efficient use of an company's employees.
• Personnel management consists of tasks necessary to administer the human resources needed for business activities.
• HRM includes the recruitment, acquisition, training, motivation and reward of human resources.
• HR managers develop employees' skills, creates and keeps a loyal workforce, and responds to changing external environments.

SWOT

• SWOT refers to Strengths, Weaknesses, Opportunities and Threats.
• Strengths and weaknesses are internal.
• Opportunities and threats are external.
• Gig economy labor market in which short term contracts or freelance work are common, opposed to permanent jobs.
• Strategies to reduce impact of change are:
• Education and communication
• Facilitation and support
• Negotiation and bargaining
• Explicit and implicit coercion

Human Resources Management: Structures

• Organizational structure is a vital part in shaping the success of their business.
• Span of control is the number of subordinates a manager directly controls.
• Chain of command is a line of authority that extends from the highest to lowest levels of an company.
• Bureaucracy is a structure with formal rules, procedures, and clear hierarchy.
• Centralized organizations hold the most decisions with people in managerial power
• Decentralized organizations give greater decision making power to employees.
• Delayering reduces levels of hierarchy within an organization's structure to reduce costs, improve communication, and encourage delegation.
• Matrix organizational structure uses teams of employees with suitable skills to respond to the customers' needs.
• Shamrock organization operates with 3 different elements.
• Core workers: Technicians, senior managers and professionals
• Contract workers: Not employed and have special skills
• Peripheral workers: Part time workers and do not have guaranteed hours of work
• Flexible businesses continually undergoes structural changes for the sake of meeting its needs.
• Project based organizations are when a project runs only for temporary amount of time with the business.

Leadership and Management

• Intuitive management consists managers who rely on their instincts and experience rather than data.
• Management consists of Planning, organizing, directing and controlling all or part of a business enterprise.
• Leadership consists of Functions of ruling, guiding and inspiring other people within an organization in pursuit of agreed objectives.

Types of Leadership

• The types of leadership include:
• Autocratic: Manager makes all decisions
• Paternalistic: Decisions in what they believe is best of their subordinates
• Democratic: Team members participate in decision making
• Laissez-faire: Leadership responsibilities are shared by all
• Situational leadership: Adjust the type of leadership to best suit a particular situation or task

Statement of financial position

• Stays that Statement of financial position is made up of Current assets, noncurrent assets, current liabilities, noncurrent liabilities, net assets, share capital, retained profits, equity

HR Motivation and Demotivation

• More motivation increases more work and volume and increased sales.
• Less motivation decreases Less motivation: Less productive, decreased sales, less profit
• Intrinsic motivation is Motivation from inside (heart).
• Extrinsic motivation is Motivation from outside (money).
• Demotivation leaves Employees lacking enuthisasm and interest.
• Hierarchy of needs (Maslow): Employees have successive requirements that can be fulfilled

Organizational Culture

• Organizational culture refers to The values, beliefs, norms, and behaviors shared by members of an organization.
• Types of organizational culture includes:
• Power culture: Dominated by a central figure or group
• Role culture: Highly structured, bureaucratic, with clearly defined roles
• Task culture: Team-based, focused on completing specific projects
• Person culture: Focused on individuals and their personal development
• Corporate identity: How a business presents itself to both employees and external stakeholders.
• Cultural change is the Process of transforming the culture of an organization and the main challenges is that Resistance to change, embedded behaviors, and is time-consuming..

Communication

• Communication: The exchange of information between individuals or groups
• Types of communication:
• Verbal: Face-to-face conversations, presentations, meetings
• Written: Letters, emails, reports, memos
• Visual: Charts, graphs, diagrams, videos
• Non-verbal: Body language, gestures, facial expressions
• Communication channels:
• Formal: Official, structured channels following the chain of command
• Informal: Unofficial channels like social interactions and workplace gossip
• Vertical: Up and down the organizational hierarchy
• Horizontal: Between peers and departments at the same level
• Diagonal: Between individuals at different levels and departments
• Barriers to effective communication:
• Language differences
• Cultural differences
• Physical barriers
• Emotional barriers
• Information overload
• Poor timing

Improving Communication

• Improving communication includes:
• Active listening
• Clear and concise messaging
• Appropriate channel selection
• Feedback mechanisms
• Regular communication review

Finance and Accounts

• Financing exists in 3 ways with internal financing and 12 ways with external financing.
• Sources of finance for various operations includes:
• Savings
• Credit cards
• Friends and family
• PYMES
• Microfinance providers
• Angel investors
• Business loans and lines of credit
• Venture capital

Internal financing:

• Internal financing comes primarily from:
• Personal funds, using Funds from their own resources, Use of savings, and using support from Friends and family to invest
• Sale of assets by: -Raising cash by selling assets they don't require -Can raise large amounts of finance -Selling assets not required to raise capital
• Retained profit by: -Profit from previous years as a source of finance -Common for businesses to use retained profit as a source of finance -Avoids paying interest

Overdraft:

• Overdrafts Permits a business to borrow money up to an agreed limit at any time

Trade credit:

• Trade credits are Loan extended by one trader to another when the goods and services are bought on credit

Debt factoring:

• Debt factoring helps Business by selling their invoices to a third party at a discounted price.

- Venture Capital: Venture capital is when investors Provides investments to startup companies and small businesses by:

-Providing private equity and type of financing

Debentures:

• Debentures are known for it being Long term loans with fixed rates of interest

Costs and Revenues

• Fixed cost: Doesn't change when a business alters its level of output (e.g., Rent)
• Variable cost: Alters directly with the level of output (e.g., fuel, raw materials)
• Total costs = total fixed costs + total variable costs
• Direct costs: Related to the production of product and vary with the level of output
• Indirect costs: Overheads that cannot be allocated to the production of a particular product and relate to the business as a whole
• Salary: A fixed amount of money
• Wages: Depending on working hours
• Revenue: Income or earnings over a period of time Calculation:
  • Revenue = quantity sold X selling price
• Revenue streams: Business earnings from the full range of trading activities
• Total revenue: Income a business earns
• Profit: The extent to which total revenue exceeds the total cost
• Loss: The amount in which a business's total cost exceeds revenue
• Statement of profit and loss: Record of winnings and losses of money Calculation:
• Profit (or loss) = total revenue - total costs

Financial position

• The financial positions comprises of -Sales revenue, cost of sales, gross profit, expenses, profit before interest and tax, interest finance cost, tax on profit, profit for the period, dividends, retained profit

Balance of financial positions (balance sheet)

• A financial statement captures assets and debt by the end of an accounting period
• Current assets greater than 1 years means it equates to Non-current assets.
• Current liabilities greater than 1 year means it equates to Non-current liabilities.
• Assets are Items owned by a business such as cash
• Liabilities are what Represents money owed by a business
• Stocks: Raw materials and other items necessary for production
• Debtors: People and organizations that owe the business money

Stakeholders

• Final accounts of the business and how their statements show their assets/debt -Hotel analogy: 5 rooms -Non-current assets -Non-current liabilities -Current assets
  • Current liabilites
  • Equity
• Final accounts: Financial performance of a business over a trading period
• Public companies are required to produce final accounts
• Internal stakeholders: Shareholders, managers, and employees
• External stakeholders: Government, suppliers, customers, pressure groups and investors

Statement of profit and loss

1. Gross profit
2. Profit before interest and tax
3. Profit before tax
4. Profit for period

Statement of financial position

Financial statement recording the assets (possessions) and liabilities (debts) of a business.

• Non-current assets: Assets owned by a business that it expects to retain for 1 year or more
• Current assets: Assets likely to be converted into cash before the next statement of financial positions is made

Liabilities:

• Debt owed by the business to organizations or individuals
• Current liabilities: debts owed by the business due for payment within one year or less (overdrafts, creditors, short term loans)
• Non-current liabilities: Debts that a business doesn't expect to repay within the period of 1 year

Equity

• Working capital: Current assets - current liabilities
• Net assets = total assets - total liabilities
• Tangible assets: Assets that have a physical existence (land, property, machinery)
• Intangible assets: Do not take physical form

Ratio Analysis

• Ratio analysis allows stakeholders to evaluate a business's performance through examination of the financial statements
• Gross profit compares the gross profit achieved by a business with its revenue and presents it as a percentage Calculation:
  • Gross profit margin = gross profit x 100 / revenue
  • Gross profit = sales revenue - cost of sales

Types of ratios

• Gross profit margin
• Profitability ratios: Amount of goods or other profit made by a business regarding its turnover is a ratio
• Liquidity ratios: Measure of the ability of the business to settle its debts in the short term

Improving gross profit margin

How to Improve the Gross Profit Margin.

• Increase sales revenue (greater volume or increase price)
• Reduce the cost of sales

Increase sales revenue

• Increase sales revenue through -Raising price. -Be mindful of falling demands for specific items
• Profit margin: Percentage of product's selling price that is profit from operations Calculation: Profit margin = profit before interest and tax x 100 / sales revenue

Improving profit margin

• Strategies to Improve Profit Margin involves -Increase sales revenue or reduce the cost of sales Reduce expenses Outsourcing

ROCE

Calculation: -Examines the the capital The higher the better -Profit before interest and tax x 100 / capital employed Improve the ROCE: - Improve the capital

• Change price
• Reduce costs
• Reduce capital employed

Final Accounts

• Show financial performance a period and financial position at a point in time
• Users of financial information Managers for decision making Shareholders for investment decisions Banks for lending decisions Government for taxation purposes Types of final accounts: Statement of comprehensive income (profit and loss): Shows all revenues and expenses. shows that Is calculated over particular periods.

Balance sheet

• Statement of financial position in showing assets, liabilities, and its equity, including its moment in time during cash flow movements.
• Also Analyzed by operating investing and financing activities. Calculation:
• Cash flow: Movement of cash in and out of a business

Investment and appraisals

• Shows investment into the business which is also a current asset that receives from the sale of goods/service.
• Which can later move into the business from one of the methods (sales, credit sales, investors, lenders, and disposal assets)

Cash flows

• Cash flow and its management of all assets it yields.
• Asset rich, cash poor A situation where a business can become insolvent from not having enough cash to pay its debts, a number of assets.
• Cash outflows: Money leaving a business, usually to pay for costs associated with the business
• Examples of cash outflow through: -Purchasing stock - Paying creditors -Paying wages -Paying rent - Paying insurance

Net- Cash flows and its Management

• All types of the managements which affects different incomes and expenses
• Management which is the amount of cash left once the outflow payments, have been subtracted from the inflow receipts
• Management which its net cash flow equals to Inflow or outflow or receipts or payments Calculation
• Cash flow and its Management
• All types of the managements which affects different incomes and expenses
• Cash flow and its management is affected through its period of time of the business.

Operations of time and assets

• The operations of time and assets that can change for the business.
• Determine of how can it be managed for the business.
• All parts of starting a business can expand from money,
• Opening balance: Amount of cash at the start of the month which is affected by the period of time that businesses have.

Cash flow

• Cash flow that is used for businesses with many expenses.
• All expenses that they have to to use for it whether it is goods or the services that has more cash.
• Net monthly is to measure the expenses.

Budget of month

• Closed balance with amount of cash.
• Beginning cash
• Investment appraisal
• Analysis done to consider the profitability of an investment over the life of an asset
• Investment can purchase by different people.

Risks

• Capital used to be a different environment in which a project.
• Cash used from the investment along the way.
• Types of operations is high compared or to the labor.
• There are all ways to produce one item that is unique for each customer it does to the products.

Capital is key to the production process

-Batch production

• Large scale is key to being mass created and produced depending on how much it can make.
• Customized models depends on what to produces.
• Nike has had several companies that can produce as a custom with technology that enables those creations.
• Waste can be removed for production.
• Continuous is key to making things.

Operations of mass production

• Pulling a product with the right resources by production.
• Error and is key to the right management.
• Different operations needs quality.
• The companies depends on the quality that can make it possible.
• Preventing those defects from happening. Quality of Management:
• Every company is different because its organization.

Location

• Continuous improvement is important
• Location plays in a huge role which many companies depend on.
• What business depends on which location can be the business' location.
• Legal reasons and situations depends on the state.
• Expanding places and cultures depends on the environment to see whats the best for that location.

Factors

• Quantitative and qualitative measures such
• Proving its market and seeing what customers want to buy.

Outsourcing

• Managing through what they know.
• Comparative which may be what customers shopping for.
• Operations that can happens for the company.
• Allies and people.
• Overseas needs to have its resources in people to work as well.

Production Analysis

• Levels of the business.
• Amount of volume or production to generate for the company.
• People to help it cost to reduce it, and improve the process.
• Frameworks: Define some of the key terms of the words to explain it.

Management and analysis

• Management is something to analyze and see where you can improve the product
• Analysis needs to include the evaluation for advantages and disadvantages to recommend the best path.
• Frameworks needs to include long term strategies. and all its objectives
• Multicultural things in countries to spread the name for multiple countries.

Stakeholders depend their location and what resources they have.

• People on what's been going on with the situation and the enviroment.
• Franchising is where many different chains are from other locations.

Financial status

• All locations are different for profit.
• Statements needs to have the appropriate needs.
• Different strengths used to take weaknesses. opportunities. and threats.

Marketing

• The goal is to find many customers who want to buy the productions as well as understanding them.
• A market is when the products are high in quality.
• Increase in profits through having more quality of items.
• Percentage goes to one company.
• All different products are set.
• Analysis on whats the markets values and trends.
• Data that is collected to see whats important.
• Advantage.

Product and markets

• Finding the most effective solutions to solving a product or service. 4 PS
• Product- design.
• Features- is the product and what does it do.
• Life cycle -how long does it take for it.
• Branding- whats the symbol, design that makes this product or service valuable.
• Price needs to be cheap and fair on what that its values is.
• Place, distributing location whats a fair spot to all businesses and the customers that help buy it from the company. Promotion - how effective is there communication.

Market and segmentation

• Markets divide groups of consumers into different groups with different needs.
• Market are mostly bases from the geographic and city and region.
• Personalities based on lifestyle.
• What products or markets are niche is small or specialized.
• Marketing makes the customer in charge of what they think.

E-Commerce

• The growth of Internet through consumers and businesses.
• Global reach and is always there to have consumers shop whenever to make it worth it.
• Security is important to make sure that consumers have protection.
• Strategies online to make things affordable.

Intro to operations management

• All process that requires to create the transformation of inputs to outputs
• Capital.
• Labor.
• Land.