The Nature of Business (HL IB Business Management)

• The purpose of business activity can be broadly defined as the organisation of human, physical and financial resources to produce goods or services that meet customer needs while adding value
   

Produce goods or services

• The primary purpose of business activity is to produce goods or services that satisfy a need or demand in the market
  • Goods are tangible physical items capable of being stored such as cars or games consoles
  • Services such as insurance or hairdressing are intangible, cannot be stored and are provided to customers when they are needed
      

Meet customer needs

• The ultimate goal is to create products that meet the needs and preferences of customers and provide value to them
• By meeting customer needs, businesses can build customer loyalty, increase brand awareness, and generate revenue
    

Add value

• The third purpose of business activity is to add value to products or services 
• Value-added features can differentiate products from competitors, create a unique selling proposition, and increase customer satisfaction
  • E.g. a product that is easier to use, has a better design, or is of higher quality than competitors can create a competitive advantage for a business

 

Business as a Transformation Process

• Businesses take inputs and transform them in order to produce outputs that customers will want to buy

Businesses transform raw materials into finished goods and services, adding value to achieve a profit

 

• Thailand's Boon Rawd Brewery takes inputs including malts, hops and barley and uses the staff on the brewery premises in Bangkok as well as equipment such as mash tuns to transform by brewing these inputs into its output - beer 
  
  
• Inputs used in the transformation process can be classified as financial, human or physical resources as well as enterprise
   

An Explanation of the Resources used to Create Goods & Services

Resource Input	Explanation
Financial	Capital required to fund the production process Available cash (working capital) to purchase materials and pay bills Access to trade credit to improve cash flow Finance to purchase physical inputs (e.g. loans, owner's capital)
Human	Employees and managers to carry out and oversee production Suitably trained with relevant skills, qualifications or experience In sufficient quantity to meet output needs
Physical	Materials, equipment and premises to use in production Enough space to produce and store inputs and outputs appropriately Adequate and maintained machinery and technology infrastructure
Enterprise	A business idea and the desire to take the risk in turning it into a business idea

  

• The transformation process may require a capital intensive or a labour intensive approach
• Capital intensive production is where the proportion of machinery costs are higher than any of the other resource inputs including labour
  • The generation of nuclear power is an example of a capital intensive process where a small number of workers oversee a large facility that is largely computer-controlled
     
• Labour intensive production is where the proportion of labour costs are higher than the other resource inputs including machinery
  • The production of clothing remains a largely labour-intensive process, especially in countries where labour costs are relatively low such as south-east Asia

• Businesses of all sizes have a range of functions that need to be take place in order for business activity to proceed
  • In small businesses, all of these functions are often all carried out by its owner
  • In large businesses, these functions are carried out by departments with their own targets that contribute towards the business achieving its overall objectives
     

 An Explanation of each Business Function

Human Resources	Marketing
The Human Resources function is responsible for organising, managing and developing all of the human resources It identifies the quantity of workers needed as well as required skills Recruitment and selection of suitable employees Training and staff development Career development and dismissal Pay and conditions negotiations and other rewards Health and Safety	The Marketing function is responsible for promoting the products/services and brand to attract and retain customers Market research to establish customer needs and wants Development and implementation of appropriate marketing mix strategies promotion price place (including distribution) product (including packaging)
Finance & Accounts	Operations
The Finance function manages the financial resources and ensures financial stability It includes: Securing external finance such as loans Accurate record keeping of revenue and costs Construction of annual accounts and period financial reports Budgeting Collecting and making payments wages, salaries and bonuses customer and supplier invoices	The Operations function focuses on the efficient management of the core activities and production process required to deliver products or services It includes: Managing the production process Sourcing raw materials and components Managing stock Overseeing quality Seek improvements to efficiency Dealing with waste Transportation and delivery of goods Health and Safety

 

• Larger business structures often include other functional areas such as
  • Administration
  • IT Support
  • Legal Services

 

The Interdependence of the Functions

• Although each function has its own targets they all work towards achieving the businesses overall objectives and are therefore interdependent 

• • E.g. Market research conducted by the marketing function may identify a change in customer needs that requires the product to be adapted in order to remain competitive
    • The finance and accounts function allocates and monitors a budget for research and development
    • The human resources function organises training for workers to adapt their working methods to produce the redeveloped product
    • The operations function designs or amends production processes to manufacture the product