[BUSINESS AND MANAGEMENT] BUSINESS ORGANISATION AND

ENVIRONMENT
JINY LEE IB1
1.1 UNDERSTAND WHAT BUSINESS ACTVITY INVOLVES:
- Business is an organization that uses resources to meet the needs of customers
by providing a product or service that they demand.
- Business identify the needs of consumers or other firms. They then purchase
resources, which are the inputs of the business, or factors of production, in order
to produce output.
- Businesses also make decisions:
Some decisions are more important - they may result in a more
serious result;
These decisions are called "strategic" or high level decisions.
however, businesses also make some day-to-day decisions, called
"tactical" or low level decisions
1.2 IDENTIFY INPUTS, OUTPUTS AND PROCESSES OF A BUSINESS:
- Inputs:
Inputs are the resources that a business uses in its production process. It is also
called as the factors of production, which includes:
Land:
Renewable and non-renewable resources of nature
Labor:
Manual and skilled labor
Capital:
Finance needed to set up a business ex) computers,
machinery
Enterprise:
The ability to make decisions and take the risk
- Outputs:
Outputs are goods and services that satisfy consumers needs (usually with the
aim of making profit)
Output could be:
Goods, or
Consumer products
FMCG's

(Fast Moving Consumer Goods)

Items bought on a regular basis.

Examples are food in a supermarket,
papers and magazines etc. Each item
has little value.
Consumer durables

Producer products
Consumables

Items with a short life and little value.

Examples would be raw materials,
packaging, paper, lubricants etc.

Capital goods

Plant and Equipment used to produce

consumer goods. Examples are pump
and motors, filling machines and
computers. Not intended for sale as
they are the 'life blood' of the
White Goods - Kitchen goods such
business.
as washing machines, refrigerators
etc.

A good which lasts through many uses

and has a long-term value. They are
bought infrequently. Special items are:

Brown Goods - Entertainment

items such as TV's, Smartphones
and laptops.

Other examples are furniture, cars etc.

Services;
Process:
The processes include turning inputs into the manufacture of goods and/or
provision of services.

1.3 IDENTIFY AND EXPLAIN THE MAIN BUSINESS FUNCTIONS:

There are five main functions of business (HOMFI):
1. HUMAN RESOURCE MANAGEMENT:
The responsibilities of the HR department will include:
-

Recruitment - the process of finding appropriate people for a given

role. This includes advertising a vacancy, selecting candidates for
interview, managing contracts of employment, job descriptions and so
on.

Training - both new and existing staff will need training to help them
develop and improve their skills and this will be the responsibility of the
HR department.

Pay - people work for money and this process needs managing. How
much is each job worth, what other benefits do employees get (pension
entitlement, fringe benefits and so on), what happens when people are
sick? All these questions and issues are dealt with by the HR
department.

Employee relations and welfare - this includes pay negotiations with

employees, disciplinary procedures, considering grievances of
employees as well as health and safety, social activities and so on. All
these will usually be handled by the HR department.

Human resources is a collective term for the people within a firm. They are often
described and classified by their function:
-

Owners - the nature of ownership depends on the legal structure of the

firm. The owner may be one person (sole trader) or a group of

individuals (partners), or ownership may rest with a group of

shareholders.
-

Directors - people appointed by the owners to look after their interests.

Some directors are also employees. These are the executive directors
who are responsible for the day-to-day management of the firm. The
senior executive director is the Managing Director or the Chief Executive
Officer (CEO). The other directors, the Non-Executive Directors, only sit
on the Board and are expected to watch and advise both the board and
the owners.

Managers - people responsible for the planning and control of the

business.

Employees - people who operate the business on a day-to-day basis.

People may be in more than one group. An employee may also be a shareholder,
for instance. This can cause a serious conflict of interest.
2. OPERATIONS MANAGEMENT (PRODUCTION)
The responsibilities of the production department may include:
-

New product development - in association with the marketing

department

Research and development (R & D) - R&D refers to systematic

investigation or innovation; the outcomes of which are new or
improved materials, products, devices, processes, or services.
Prototypes of new products may be tested by the marketing
department with potential customers.

Production planning - the production department will consider

the layout of the facility, the optimum location of production, the
method of production, the type of machinery and so on.

Quality control - the quality of the product or service is crucial if

the reputation of the firm is to be maintained and enhanced.

Distribution - the production department will organise the

distribution of the good or service to the customers. This may be
through middlemen or 'intermediaries' such as retail shops or
agents or direct to the customer through e-commerce.

Purchasing and stock control - the production department is

responsible for the purchase of stocks or raw materials required
for production.

3. MARKETING
The responsibilities of the marketing department may include:
-

Researching the market - identifying market opportunities,

examining the nature of customers and potential customers,
understanding the target market for the good or service, testing

consumer reaction to potential products and so on.

-

New product development - the marketing department will

often work together with the production department to develop
new products and services. The marketing department will test if
there is a market for the product, identify the features or
characteristics that the product requires and may carry out test
launches of the product in advance of the full product launch.

Marketing mix - the marketing department will develop the mix

of strategies that will help with selling the product. This includes
the pricing of the product, the promotion, the nature of the
product and the distribution channels for the product. (THE 4 Ps)

4. ACCOUNTING AND FINANCE

The accounting and finance department are responsible for all issues
related to the management of money and the flows of money around
the business and between the firm and other firms or customers.
The Accounting function involves the collection, recording,
presentation and analysis of financial data. The Finance function, on
the other hand, is concerned with raising the money required for all
business operations and the decision-making on how and where that
money should be spent.
The responsibilities of the finance function include:
-

Sources of finance -decisions about the most appropriate source

of finance for each activity.

Cash flow -the way in which money moves in and out of the
business. It is important to balance and manage these flows. If too
much money flows out at a given time, the firm is in danger of
insolvency.

Credit control - the process of collecting debts and managing

payments. At any given time a firm will be owed money by its
customers and may owe money to its suppliers.

5. INTERRELATIONSHIP OF FUNCTIONS
1.4 IDENTIFY AND EXPLAIN THE MAIN SECTORS OF INDUSTRY
Classification of business can be:
- BY SECTOR:

Private sector: includes all organisations owned, controlled and

managed by private individuals for the purpose of making a profit.

Public sector: organisations owned, controlled and managed by

the government (or state) to provide essential goods and services for
the general public. Governments play a role in the production of goods

and services that are underprovided by the private sector, such as

health and education.
-

BY LEVEL OF ACTIVITY:

Essentially this describes how close the business is to the

customer in the distribution chain.

For example, those businesses involved in the extraction of raw

materials, such as oil, are very early in the distribution chain, whereas
those which own retail outlets are much later in the chain and close to
the final customer

BY SIZE:

Classification is complicated by the fact that there are number ways

of measuring business size, such as capital employed, market share,
sales turnover, profit and the number of employees.

BY LEGAL STRUCTURES:

The way that a business is set up affects its legal rights and
responsibilities.

1.5 ANALYSE THE IMPACT ON BUSINESS ACTIVITY OF CHANGES IN ECONOMIC

STRUCTURE [HL]
The importance of each sector in a countrys economic structure changes over
time. Industrialization describes the growing importance of the secondary
sector manufacturing industries in developing countries. The relative importance
of each sector is measured in terms either of employment levels or output levels
as a proportion of the whole economy. This bring several benefits as well as
problems:
BENEFITS

Total national output (Gross

Domestic Product) increases
and this raises average
standards of living.

Increasing output of goods

can result in lower imports
and higher exports of such
products

Expanding manufacturing
businesses will result in
more jobs being created

Expanding and profitable

firms will pay more tax to

PROBLEMS

The chance of work in

manufacturing can
encourage a huge
movement of people from
the country to the towns,
which leads to housing and
social problems. It may also
result in depopulation of
rural areas and problems
for farmers in recruiting
enough workers

The expansion of
manufacturing industries
may make it difficult for a
business to recruit and

the government

Value is added to the

countrys output of raw
materials rather than simply
exporting there as basic,
unprocessed products.

retain sufficient staf

Imports of raw materials

and components are often
needed, which can increase
the countrys import costs.
This cost will vary according
to the exchange rate

Pollution from factories

In a developed country, the situation is reversed. There is a general decline in

the importance of secondary sector activity and an increase in the tertiary
sector. This is known as deindustrialization. The reason for and possible
impact of this change on business include:

Rising incomes associated with higher living standard have led consumers
to spend much of their extra income on services rather than more goods.

As the rest of the world industrializes, so manufacturing business in the

developed countries face much more competition and these rivals tend to
be more efficient and use cheaper labor. Therefore, rising imports of goods
are taking market away from the domestic secondary sector firms and
many have been forced to close.

Employment patterns change manufacturing workers may find it difficult

to find employment in other sectors of industry. This is called structural
unemployment.

The relative importance of each sector varies significantly between different

countries.