IB Business Management Introduction PDF

Unit 1.1 Introduction to Business Management Ms Diz IB Business Unit 1.1: Introduction to Business Management In this chapter you will learn how to: Explain the nature of business, and all four business functions Define primary, secondary, tertiary an...

Unit 1.1 Introduction to Business Management Ms Diz IB Business Unit 1.1: Introduction to Business Management In this chapter you will learn how to: Explain the nature of business, and all four business functions Define primary, secondary, tertiary and quaternary sectors Outline the nature of business activity in each sector and the impact of sectoral change on business activity Examine challenges and opportunities for starting up a business (Toolkit: The Business Plan) 2 TOK Discussion The Nature of Business: ○ What is a Business? ○ Business Activity ○ Production Processes ○ The Business Functions 3 The Nature of Business: What is a Business? Any organization that uses resources to meet the needs or wants of customers by providing a product or service that they demand. 4 The nature of business: What is a business? INPUTS PROCESS OUTPUT 5 Summary of Business Activity So what do businesses do? Here is a summary: They Combine Inputs (factors of production) Process of adding value To obtain outputs Human resources / Goods Labour Physical resources/ Land Production Financial Process resources/ Capital (Added Value) Enterprise/ Entrepreneurship Services 6 Capital Goods vs Consumer Goods Capital Goods vs. Consumer Goods: Unlike capital goods, consumer goods are not used to create other 7 products. Production Processes Production processes can be: Capital-Intensive or Labour-Intensive 8 The Business Functions ALL business is divided into Key Main Business Functions or Departments: ○ Human Resource Department ○ Finance Department ○ Marketing Department ○ Operations Department 9 The Business Functions ALL business is divided into Key Main Business Functions or Departments: ○ Human Resource Department The Right People ○ Finance Department - For the right amount of Money ○ Marketing Department - Making the right Product ○ Operations Department - In the right Way. All these functions are interdependent, and should be successfully aligned (strong business) 10 The Business Functions Small Business Functions = Big Business Functions 11 Entrepreneurs may wear “many hats” Entrepreneurs and Intrapreneurs Entrepreneurs - An individual who demonstrates enterprise and initiative in order to make a profit. Intrapreneur - An individual employed by a large organization who demonstrates entrepreneurial thinking in the development of new products or services. They develop products for big corporations. 12 Sectors of Activity: ○ Primary ○ Secondary ○ Tertiary ○ Quaternary Sectoral Change 13  Sectors of Activity There are four different Sectors of Activity - Tertiary Sector - Part of the economy - Primary Sector - The part of the economy engaged in the delivery of services engaged in extraction (minerals, oil…) or the (banking, tourism, healthcare, production of raw materials (farming, fishing, restaurants) forestry, livestock…). - Quaternary Sector - Part of the - Secondary Sector - Part of the economy economy engaged in the production, engaged in the production of finished goods processing and transmission of (manufacturing). information (consultancy, technological services, research and development) 14 Goods Services Sectors of Activity There four sectors are typically linked in what is referred to as the: PRODUCTION CHAIN or CHAIN OF PRODUCTION 15  Production Chain (Steps through ≠ Sectors, to turn raw materials into consumer goods) Primary Sector Secondary Sector Secondary Sector Tertiary Sector Tertiary Sector Quaternary S.16 Production Chain and Added Value Why is the price of the tomato sauce can what we see in the supermarket? 17 Assignment Think of some everyday products that you use and imagine their production chain. A cherry pie you purchase A skateboard A smartphone What primary, secondary, tertiary, and quaternary businesses are involved in the production, distribution, and marketing of these products? 18 Sectoral Change The size of each sector of the economy may change because they grow and develop (same as people and businesses). Economists measure the size of each sector in terms of number of people employed by the industries in each sector As economies develop, we see what is called sectoral change (a shift away from the primary sector and progressively into the others). These sectoral changes may produce strains on resources (such as human resources). 19 Sectoral Change - Less Developed Economies As countries develop, so does their business activity. Underdeveloped economies tend to rely heavily on the primary sector, with some secondary sector activities. Distribution of Sectors in an Underdeveloped Economy. Examples of these are: - Afghanistan - Cambodia - Haiti 20 Sectoral Change - Developing Economies Developing Economies rely heavily on the secondary sector and somewhat still on the primary sector. There is a growing presence of the tertiary sector. Distribution of Sectors in a Developing Economy. Examples of these are: - Brazil - Russia - India - China 21 Sectoral Change - Developed Economies Developed Economies are those that have shifted from primary and secondary sectors to rely on tertiary and quaternary sector businesses. Distribution of Sectors in a Developed Economy. Examples of these are: - Switzerland - United States - Germany - Spain 22 Starting a Business: ○ Reasons ○ How do you start a business? ○ Steps ○ Reasons why businesses fail Tootkit: The Business Plan 23 Starting a Business - Reasons 24 Starting a Business: How do you start a business? Business idea: This requires creativity. Business ideas may be: ○ Market driven ○ Service driven Planning: Try to minimize risks 25 Starting a Business: Steps The six main steps in starting a business are: 1. Organizing the basics 2. Researching the Market 3. Planning the Business 4. Establishing Legal Requirements 5. Raising the Finance 6. Testing the Market 26 Starting a Business: Steps 1. Organizing the Basics ○ Where? When? Name? Legal Structure? Feasibility? 2. Researching the Market ○ What will I do differently? Unique Selling Proposition? Target market. Marketing 3. Planning the Business ○ Create a business plan: Document that addresses all the issues that need to be planned before the operations/production begins. 27 Starting a Business: Steps 4. Establishing Legal Requirements ○ Know the laws, licenses, wages etc… 5. Raising the Finance ○ Investors? Personal Funds? Terms of lending? Accurate accounting and auditing 6. Testing the Market ○ Launch the business. Little by little. Pilot Programs. Keep in mind: Many things beyond the business’ control may cause it to fail. 28 Challenges: Reasons why businesses fail 1. Organizing the basics 4. Legal Requirements a. inappropriate location a. Laws were not addressed b. wrong business structure b. Registration was too difficult c. unreliable suppliers c. Tax obligations were not addressed 2. Researching the market 5. Raising the Finance a. Poor market research a. Cash flow problems b. Inappropriate target market b. inappropriate accounting c. Testing was too optimistic c. Incapable of raising medium to Long term 3. Planning the business finance a. Business plan did not convince 6. Testing the Market b. Vague goals a. Launch failed b. Inconclusive pilot c. Limited success (people didn’t like the 29 product) TOK Discussion 1. Is Business Management an art or is it a science? 2. As a business can operate in more than one sector, why do we need the categories called “sectors” (primary, secondary, etc)? 3. To what extent can entrepreneurs know in advance the challenges they may encounter when starting a business? 30 Assignment Go to KIVA (www.kiva.org), it is a microfinance lending site, find 3 businesses that you find interesting and compelling. What is it about those businesses that interest you? Why do you think they could be successful? Would you consider making a small donation to one of those businesses? 31 Toolkit: The Business Plan The Business Plan a comprehensive document in which you outline all key aspects of the proposed business project. It covers the 4 business functions: Human Resource Finance (specifically all start-up costs and break-even point) Marketing Operations It also includes all the information about the idea itself, the organization, and its aims and objectives (mission and vision). 32 Toolkit: The Business Plan 1. The Business Idea - Setting out the business idea in the right context. 2. Business Organization - How the business will be organized. 3. Human Resources - How the business will be staffed. 4. Finance - How the business will be financed. 5. Marketing - How best to market the product. 6. Operations - How will the product be made. 33 Toolkit: The Business Plan The business idea: ○ What is the core idea? ○ How will the product work? ○ What is the product for? ○ Why will it succeed? ○ What is the development cycle? 34 Toolkit: The Business Plan Business Organization: Where will the business be located? What type of business will it be? Who will be making the decisions? How will the profits be shared? Are there any legal requirements to be met before launching? 35 Toolkit: The Business Plan Human Resources: Who will have what responsibility? What rewards should employees expect? What type of employees will we require? 36 Toolkit: The Business Plan Finance: Where will the source capital come from and at what cost? Is it possible to predict the source of income or revenue? What is our budget? Opportunity Cost: The lost benefit derived from an alternative 37 Toolkit: The Business Plan Marketing: Has market research been conducted? Who are we selling to? Will we focus on a particular group or to anybody in general? How will the product be advertised? How will the product be distributed? 38 Toolkit: The Business Plan Operations: How will the product be made? How many units do we need to produce? How long will production take? 39 Assignment: Group Activity Choose one of the following businesses: Local Delicatessen and Café Manufacturer of a new energy drink Travelling hairdresser After-school sports club Work in groups to discuss the challenges and opportunities that you would face when opening up such a business. Write down at least three challenges and three opportunities. 40 Assignment: Group Activity Create your own Business Plan Choose one of the following business ideas and write up a business plan. Write up at least 3 bullet points for each step in the business plan. You will have to present this to the rest of the class (your Potential Investors). Local Café A Hotel/Resort After School Sports club A New Social Media App 41 Assignment: Group Activity Rubric 42