Business Studies: The Business Environment - Value Adding Products | PDF

BUSINESS STUDIES The Business Environment 1  A business… ▶What is it? ▶What role does it play? ▶What impact does it have on you? ▶How important are businesses to the economy? And why? BUSINESS STUDIES_1-1 BUSINES...

BUSINESS STUDIES The Business Environment 1  A business… ▶What is it? ▶What role does it play? ▶What impact does it have on you? ▶How important are businesses to the economy? And why? BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE 2  A definition: ▶An organisation or economic system where goods and services are exchanged for one another or for money. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE 3  The Role of Business ▶ It is small to medium enterprises that make up about 98 per cent of all businesses in Australia. The one common feature shared by both the largest and the smallest business is that they produce a product - goods or service - which is sold in a market where buyers and sellers meet. The Australian business world has approximately 1. 98 million separate business enterprises that respond to the needs and wants of around 22 million Australian customers and millions of overseas customers. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE 4 Then v. Now What has changed over time? 5 Value-Adding By combining inputs and raw materials with human skill and equipment businesses add value. Businesses take resources and combine them into a product that is of more importance to the consumer than the value of the individual resources. Products that have value (such as sugar, milk, ream and flavouring) are processed using machinery and a variety of human skills to create ice-cream, which is a product that to many consumers has greater worth than the individual inputs. 6 Teacher example A business-person making jewelery would create value-add through the process of transforming beads, string/lace and clasps into bracelets, necklaces and earrings. The inputs (hypothetically) could cost $12.00, once crafted into a bracelet through human skill, become a product that has greater value than the inputs themselves and can be sold for a profit. If the bracelet was sold for $20 the contribution margin (amount of profit per product) is $8.00 ($20 - $12 = $8.00) 7  Distinguish between transformation and value-adding Value-adding is the process of creating additional Define value by transforming/changing inputs. For Example Answer the example, a bakery transforms ingredients into a question cake. The ingredients are worth less than the Link to other final product which is transformed and has a concepts greater value. Both terms are part of the same process – creating value, but transformation is the value created (through stirring, cooking and decorating, for example). The value becomes contribution margin. 8  VALUE ADDING PRODUCTS Product Raw MaterialsHuman Skill Equipment Final Product (value added) Tyre Rubber Workers/trained Factory, Tyre wheel factory persons machinery Cake Flour, Stirring, Hand-held Chocolate cake milk,eggs,sugar beating, beaters, ,chocolate poaring (into Bowl, spoon, tray), baking dish temperature control, timing BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE 9 Transform 10 Section A: Value-Adding Question Define ‘Value-Adding’ and give an example of a product or service where this occurs. (6 marks) 11 Define Example Answer Link Value-adding refers to the process of transforming raw inputs using either human skill, machinery, property plant and equipment. For example, a baker begins with flour, eggs, milk and sugar to make a cake. These ingredients (inputs) will certainly have a lesser value than the final product that has undergone the transformation process of being prepared (stirred/whipped) and then cooked, to become a delicious cake.  BUSINESS STUDIES AND YOU Informed Successfu consumer l business owner Productiv Informed e investor employee BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE 13  BUSINESS AND SOCIETY ▶What impact does business have on society? ▶How do they help the community? BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE 14  FUNCTIONS OF BUSINESS IMPACT ON SOCIETY ▶What impact does business have on society? ▶How do they help the community? BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE 15 BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE 16 Entrepreneurship Businesses provide individuals with the opportunity to turn their ideas into a livelihood. For those who venture into business and succeed, their profits are huge because no one else is doing it! An entrepreneur.. 1. is prepared to take the risk of starting and operating a business venture; of turning their dreams and passions into a livelihood. 2. usually they explore untapped markets with no track record of proven consumer demand or guaranteed returns. Risks: Monetary, social, emotional, against popular conviction or societal norms Untapped markets: needs/wants that have not been catered to. The need or want may not even exist until that point 17 Case Study Watch: Richard Branson Do: Worksheet 18  INCOMES ▶ Businesses provide income to owners/shareholders. For an individual income is the amount of money received for providing his or her labour. Employees receive wages (money received by workers on a weekly basis for services), and salaries (a fixed amount of money per year). If a business is a private or public company, it will have shareholders which receive a dividend depending on how the shares go. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 19  EMPLOYMENT ▶ Businesses provide 80% of all private sector jobs. The number of employees hired by a business at any time will largely depend on the nature of the products and the number. The more that is sold, the more people a business hires. The small to medium enterprises accounts for 50% of all private (non government) sector employment. of customers who wish to purchase the products. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 20  QUALITY OF LIFE ▶ Phones ▶ Computer ▶ Washing machines ▶ Fridge ▶ Medicine ▶ Research and Development BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 21  WEALTH ▶ Businesses seek to achieve a profit from their business activities. Producing goods or providing a service is a means by which they achieve this. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 22  CHOICE ▶ The more choices there are in the market the more options there are for consumers to satisfy needs and wants. ▶ Lowers prices (competitors). ▶ Encourages innovation (competition). BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 23  INNOVATION ▶ In the modern commercial environment, innovation is crucial for a a business to maintain its competitive advantage over other businesses. ▶ New product ideas ▶ Expanding ▶ Modify products ▶ Stand out in the marketplace. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 24  QUESTION 1. How does business encourage wealth creation within society? (3 marks) 2. Outline two (2) of the benefits to an economy of promoting innovation. (4 marks) D – Define the terms in the question E – Give examples or elaborate A – Answer the question L – Link to other terms/concepts if you can BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 25  D – Define the terms in the question E – Give examples or elaborate QUESTION A – Answer the question L – Link to other terms/concepts if you can 1. How does business encourage wealth creation within society? (3 marks) Business encourages wealth creation by the exchange of goods and services (buying and selling). This generates profit for owners, income for employees which fosters the ability to acquire assets (buildings, vehicles, shares etc.) 2. Outline two (2) of the benefits to an economy of promoting innovation. (4 marks) 1. Improved quality of products/services 2. Accessibility – greater access than before 3. Cheaper than historical products (cheaper inputs, streamlined production, outsourced) BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 26  QUESTION 1.How does business encourage wealth creation within society? 2. - Wealth creation can occur in many different ways. For example, an innovation could generate sales and increase profits. As abusiness grows, asset bases grow alongside.. 3. Outline two (2) of the benefits to an economy of promoting innovation. 4. - Goods could be cheaper due to competition 5. - Products and services could become better quality or efficiency. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 27  #1 BUSINESS OBJECTIVE PROFITABILTY. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 28  BUSINESS GOALS BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 29  BUSINESS GOALS ▶People start up a business because they want to achieve something; they have goals they want to attain. ▶From an early age, you have been setting goals. A goal is a desired outcome (target) that an individual or business intends to achieve within a certain time frame. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 30  ▶ What did you do to make sure you achieved those goals? WHAT ARE SOME GOALS YOU HAVE SET FOR YOURSELF BEFORE? BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 31  IS IT THE SAME IN BUSINESS? As with individuals, businesses: ▶need to establish goals ▶are required to undertake planning to successfully achieve specific goals. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 32  THE IMPORTANCE OF GOALS Carefully prepared goals — begin with the end in mind — benefit managers by: 1.Serving as targets. With goals, managers at all levels would find it easier to make coordinated decisions because they understand what the business is trying to achieve. 2.Measuring sticks. Specific goals act as a benchmark against which the business can measure its performance — that is, the actual outcome is compared with the planned goal. 3.Motivation. Good quality goals represent a challenge — something to aim for. They act as a motivating force. Employees will gain satisfaction when they successfully achieve a challenging goal. Goals also provide managers with a basis for rewarding performance, which in turn acts as a motivator. 4.Commitment. Getting an employee to agree to achieve a goal — or better still, having the employee participate in the goal-setting process — gives that employee a personal stake in the success of the business. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 33  A BUSINESS'S GOALS WILL ALTER OVER TIME DUE TO CHANGES IN THE INTERNAL AND EXTERNAL BUSINESS ENVIRONMENT. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 34  LARGE BUSINESS GOALS Goals for large businesses tend to be broader in scope, as evidenced by the company goals for Billabong International Limited (as outlined in its annual report): ▶Billabong International's values remain consistent with its foundation objectives, which include a commitment to brand protection and enhancement, the manufacture of design-relevant and functional products, marketing in the core boardsports channels, the professional development of staff, and ongoing customer service and relationships. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 35  SMALL BUSINESS GOALS Goals for smaller businesses tend to be narrower in scope, as evidenced by the business goals for Yarrawollen Consulting (as outlined in its business plan): ▶Over the next two years, Yarrawollen Consulting will focus on achieving the following goals: ▶maintenance of professional standards in all client contacts ▶provision of up-to-date, relevant and practical business advice ▶increase in customer base by 10 per cent ▶improvement in profitability by 8 per cent. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 36  SETTING GOALS ▶ To influence employee behaviour and increase their commitment, goals need to be specific and challenging. For example, deciding to ‘increase sales this year’ will not direct and energise employees as much as deciding to ‘increase New South Wales sales by 5 per cent in the next 12 months.’ Similarly, choosing to ‘improve Business Studies results a bit’ will not motivate a student as much as deciding to ‘improve Business Studies results by 10 per cent during next term’. Specific and challenging goals provide a target to aim for. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 37  ▶ https://www.youtube.com/watch?v=1-SvuFIQjK8 Watch after snapshot S.M.A.R.T. GOALS BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 38 Write goals for: Pretend you are operating a bakery: 1. Improve sales 2. Lower waste 39 Write goals for: Pretend you are operating a bakery: 1. Improve sales Increase overall profit by 5% within 3 months. Increase the quantity (number) of items by 10% by the end of the financial year 2. Lower waste Within three months, discarded stock will reduce by 2%. 40  BUSINESS GROWTH AND DECLINE: BUSINESS LIFE CYCLE Businesses are similar to people in that: ▶no two are identical ▶each has its own identity ▶they are referred to by name or brand ▶they possess individual personalities and physical appearances ▶they are confronted by life's challenges ▶they sometimes succeed and at other times fail ▶they rely on each other for survival. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 41  THE BUSINESS LIFE CYCLE ▶ However, the most striking similarity is that, like people, a business will pass through a number of distinct stages as it develops. This is referred to as the business life cycle. The business life cycle is a model; that is, a simplified version of 'real-life' situations. Using a model makes it easier to understand the complexities of the business world. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 42 BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 43 Business Life Cycle Question Compare the challenges of the growth phase compared to the post-maturity. (6 marks) Define growth phase - Pro - Con Define post-maturity - Pro - Con 44 Business Life-Cycle Question Compare the challenges of the growth phase compared to the post-maturity. (6 marks) Define growth phase - Pro: Sales increase, it’s the phase where brand awareness spikes and our sales rise faster than the historical phase - One risk in the growth phase is the businesses' ability to meet the demand (production, skilled employees and facilities) – solid planning to avoid bottleneck, wait times, reputation failures Define post-maturity - Pro: In essence if you have reached that phase of maturity, that means you saturated the market – increased sales (growth phases), you have also matured as a business and have survived the first 3 years (maybe) - Con: Consumer interest wanes, saturation of product/service has occurred. Therefore, the business needs to reinvent, change in order renew customer interest – sales. 45  REASSESS: NEW GOALS ▶ In each stage of the cycle a business is confronted with new challenges — as well as being presented with different opportunities. The nature, operation and organisation of the business changes as the business progresses from one stage to the next. As this occurs, the business owners need to constantly develop strategies to deal with its expansion. To do this successfully, owners must continually assess the business's position on the life cycle. This is important, otherwise inappropriate strategies will be put in place and jeopardise the 'life' of the business. However, the reality is that it can often be difficult for owners to determine their position on the life cycle because they fail to recognise the changes taking place. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 46  NOTE: ▶ There is one very important difference between the human and business life cycles — with the business life cycle, there is no set time limit for each of the stages. For example, some businesses can reach maturity in a short period of time, whereas another business may take decades to move beyond the establishment stage. BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 47  Food Van: Kebabs Scenario: Jim recently launched a food van and eventually hopes to open a restaurant. In terms of the life cycle, the business is currently in the Early Establishment Phase. In this phase/stage, his goal is to increase awareness and begin to build a market share. He defines market share as percentage of people that are buying takeaway in his city. Create a SMART goal for each of the remaining three phrases for Jim. Establishment Phase Growth Maturi Post- ty maturity Overarching goal Goal: Increase awareness/market share (percentage of takeaway market). How does Jim Post ad to groups carry it out? Park in market-square on Fridays Flyers Incorporate the SMART: Achieve awareness by details above posting to all forums by x date and into a SMART parking at eat street every Friday goal until x date. Additionally, all mailboxes in Devonport to receive flyer by x date. 48  Food Van: Kebabs Establishment Growth Maturity Post- Phase maturity Goal (Smart) Goal: Increase Increasing awareness/market our share (percentage market of takeaway share and awarenes market). s Improved ability to pay debs/cos ts How long might Aim to sell 2,000 this phase take for kebabs within 3 this business? months (22 kebabs a day) $10 x 22 = $220 a day revenue 49  Formative REVISION TEST next Tuesday BUSINESS STUDIES_1-1 BUSINESS: THE BIG PICTURE MRS CHRISTIE JANUARY 31, 2014 50 Chin it and bin it! 1. Value-adding refers to: a. Working out the cost price of products b. Transforming inputs into outputs c. Brand repositioning d. Cost mark-up strategy 51 Chin it and bin it! 1. Value-adding refers to: a. Working out the cost price of products b. Transforming inputs into outputs c. Brand repositioning d. Cost mark-up strategy 52 Chin it and bin it 2. Describe the ‘transformation process’ of making a cake to sell in a bakery. 53 Chin it and bin it 2. Describe the ‘transformation process’ of making a cake to sell in a bakery. Raw materials/ingredients have been stirred, poured, mixed and cooked using equipment and human skill. Thus, transforming the ingredients into a cake, worth more than the individual ingredients themselves. 54 Chin it and bin it 3. How are the following groups impacted by ‘Innovation’: ▶ Individuals ▶ Businesses ▶ Entire economy (For each one that you think is affected, write a reason how/why) 55 Chin it and bin it 3. Who is impacted by ‘Innovation’: ▶ Individuals: Improved products/services, could result in lower prices, choice, value ▶ Businesses: Improved equipment, procedures, communication ▶ Entire economy: Potentially increased GDP, possibly even extra exports (international buyers for innovative products - increases our circular flow) (For each one that you think is affected, write a reason how/why) 56 Chin it and bin it 4. What does the M stand or in SMART Goals? 57 Chin it and bin it 4. What does the M stand or in SMART Goals? Measurable 58 Chin it and bin it 5. 6 months is an example of which letter in the acronym SMART? 59 Chin it and bin it 5. 6 months is an example of which letter in the acronym SMART? Time framed 60 Chin it and bin it 6. An entrepreneur innovates or discovers markets as well as… 61 Chin it and bin it 6. An entrepreneur innovates or discovers markets as well as… takes on additional risk. 62 Chin it and bin it 7. The Third Phase of the Business Life Cycle is: 63 Chin it and bin it 7. The Third Phase of the Business Life Cycle is: Maturity 64 Chin it and bin it 8. ‘Improvise, adapt, overcome’ applies to which phase and why (one reason)? 65 Chin it and bin it 8. ‘Improvise, adapt, overcome’ applies to which phase and why (one reason)? An owner or manager must re-evaluate goals and ensure that the trajectory of the business is growth or establishment to revitalise the business. 66 Chin it and bin it 9. Revenue is: turnover of income, not profit. True or false? 67 Chin it and bin it 9. Revenue is: turnover of income, not profit. True or false? 68 Chin it and bin it 10. How is ‘wealth’ different from ‘profit’? 69 Chin it and bin it 10. How is ‘wealth’ different from ‘profit’? Wealth isn’t always liquid (available cash). It can be buildings, equipment, customer base, reputation and built and established equity. Wealth is the empire, profit is revenue - expenses. 70 Next topic! 71 Review Task 1. What phase of the Business Life Cycle is the business in? Why do you believe so? 2. What is the ‘value-adding’ process for the bakery? Suggest a few likely inputs and outputs. 3. What problem is the business facing? 4. How could the owners address this problem? 5. Write a SMART goal for Pam and John the business owners. 72