Understanding Business Activity and Production

Understanding Business Activity

• Business activity is the process of producing goods and services to meet consumer demand.
• Needs refer to fundamental goods or services that are necessary for survival and maintaining a minimum standard of living, such as food, shelter, and healthcare.
• Wants are desired goods or services that are not essential.
• Scarcity exists due to limited resources and unlimited wants.
• Opportunity cost is the benefit lost from choosing one alternative over another.

Factors of Production

• Land: all natural resources (minerals, ores, fields, oils, and forests).
• Labor: the available workforce.
• Capital: machinery, equipment, and finance for production.
• Enterprise: individuals willing to take the risk of setting up and running businesses.

Classification of Businesses

• Primary sector: extraction of natural resources (farming, fishing, forestry, mining).
• Secondary sector: processing and manufacturing (refining, manufacturing, construction).
• Tertiary sector: service provision (shops, restaurants, banks, cinemas, airlines).

Changing Importance of Business Classification

• Developing countries typically have a small industrial sector and low standards of living.
• Developed countries typically have high levels of industrialization and higher average incomes.

Business Enterprises in Private and Public Sectors

• Private sector: individuals and companies own and control businesses for profit. These include sole traders, partnerships, limited companies (private and public), franchises, and joint ventures.
• Public sector: state or government controls businesses. These include government departments, public corporations, and nationalized industries.

Enterprise and Entrepreneurship

• Entrepreneur: an individual who has an idea for a new business, takes the financial risk of starting it, and manages it.
• Successful entrepreneurs are usually innovative, self-motivated, and determined.

Types of Business Organizations

• Sole trader: a business owned and controlled by one person who takes all risks and profits.
• Partnership: a business owned and controlled by two or more people, sharing responsibility and profit.
• Private limited company: a company, small to medium size, owned by shareholders with limited liability. They cannot sell shares publicly.
• Public limited company: a large company, owned by shareholders with limited liability, able to sell shares to the public.

Business Objectives and Stakeholder Objectives

• SMART objectives: Specific, Measurable, Achievable, Relevant, Time-bound.
• Stakeholder objectives are the targets to be set by different stakeholder groups (owners, employees, suppliers) involved in a business.

Motivating Workers

• Motivation: factors influencing employee behavior towards achieving business objectives. These include: pay, job security, promotion, training, status, and responsibility.

Business Organization and Management

• Organization structure: internal framework of a business, showing management and organization.
• Roles and Responsibilities of Management: Directors, Chief Executive Officers, Supervisors.
• Communication: passing information between individuals and groups within and outside the business.

Methods to Measures Business size

• Capital employed
• Value of output

Why Some Businesses Grow and Others Remain Small

• Greater market share (to maximize profits)
• Increase profitability
• Enjoy the benefits of economies of scale
• Greater protection from the risk of takeover

Why Some Businesses Fail

• Poor planning
• Liquidity problems.
• Poor choice of location
• Poor management.
• Failure to invest in new technology
• Poor Marketing.
• Lack of finance
• Competition
• Economic influences

Organizational Structure

• Hierarchy the number of levels in an organisational structure.
• Chain of command authority flow.
• Span of control number of subordinates reporting to a supervisor.

Decentralised and centralised organization

• Centralised: decision-making powers are held at a central point.
• Decentralised: decision-making powers are distributed to lower levels of the organisation.

Delegation

• Delegating authority to a subordinate in the organization.

Leadership Styles

• Autocratic: leaders make all decisions.
• Democratic: employees participate in decision-making.
• Laissez-faire: leaders let employees make most decisions.

Trade Unions

• Organisation of employees aimed at improving pay and working conditions, providing legal advice, among other services.
• Carry out negotiations, resolve conflicts, provide support and legal advice, run pension schemes and insurance schemes.

Profitability and Liquidity

• Profitability: ability of a company to use resources to generate revenues > expenses.
• Liquidity: ability to pay short-term debts.

Financial Statement Analysis

• Income statement: records revenue, costs, and profits over a given period.
• Statement of financial position: records assets, liabilities, and owner's equity at a specific point in time.
• Cash flow statement: records inflows and outflows of cash over a given period.

External Influences on Business Activity

• Economic Issues (balance of payment, employment, inflation, economic growth).
• Legal controls (consumer protection, competition laws)
• Ethical Issues
• Impact of Globalization(global sourcing, risks for MNCs.)