IB Business and Management: What is a business?

IB Business and Management: What is a business? 1.1 Nature of Business Activity Business activity involves inputs, processes in order to generate the output of goods and/or provision of services. Any businesses have this input-output relationship. 1. Inputs are the resources that a business uses in their production process, for example enterprise (comprise of the entrepreneur), labor (physical and mental work), land, equipment, raw materials, components and machineries. 2. The processes include turning inputs into the manufacture of goods and/or provision of services. 3. The output or provision of final goods and services. It's crucial to remember that the word "product" can refer to both things and services: – Physical products (goods) versus Intangible products (services) Businesses can also provide the manufacture of goods and/or provision of services to other organizations. What is a business? A business is an organization that is involved in the production of goods and services. Businesses want to provide these goods and services to fulfill the needs and wants of people. Businesses are decision-making organizations involved in the production of goods and/or the provision of services. There are different ways, different interpretations of defining “Business”. “Business, that’s easily defined – it’s other people’s money.” “There is only one valid definition of business purpose: To create a customer.” – Peter Drucker (Management Guru) Businesses exists to satisfy the needs and wants of people, organizations and governments. As a business becomes larger, it is essential to have different functions that is clearly construed. This would mean having different departments such as a HR, Finance, Production, and Marketing Department etc. Similarly, we have the brain, kidney and liver that play very specific roles to enable the whole organism to function in unison. However the above mentioned points are just some of the internal factors that play a role and can affect a business, external factors affect businesses too, often beyond their control. Keyword definitions: ● Good – A good is a physical product that can be sold to consumers. For example: Food, Electronics, Vehicles etc. ● Service – A service is an intangible product. For example: Haircut, Train/Bus services, Cinema etc. ● Need – The basic necessities that people must have in order to survive. For example: food, water, clothes, shelter etc. ● Want – These are the desires of consumers. What they would like to have rather than what they would necessarily need. For example: better phone, bigger TV, bigger house etc. 1.2 Types of Organizations Private/Public Sector Organizations Starting up a Business Reasons for Starting a Business Identifying Market Opportunities Problems faced by Start-ups Profit Based Organizations Nonprofits and NGOs Distinguish between organizations in the private and public sectors Private Sector – The part of the economy that is not state controlled, and is run by individuals and companies for profit. The private sector encompasses all for-profit businesses that are not owned or operated by the government. Companies and corporations that are government run are part of what is known as the public sector, while charities and other nonprofit organizations are part of the voluntary sector. Public Sector – The part of national economy providing basic goods or services that are either not, or cannot be, provided by the private sector. It consists of national and local governments, their agencies, and their chartered bodies. Sole Traders – ● A business that is owned by one person ● Most common form of business ownership ● May have one or more employees but there is only one manager ● Can be very successful ● Often remains a small business ● Can offer specialist services to a community or customers ● Can be sensitive to the needs of the customer ● Can cater for the needs of the locals Operating as a sole trader – Advantages: ● Total control of business by the owner ● Quick decision making ● Cheaper and quicker to start up ● Keep all profit Disadvantages: ● Unlimited liability ● Difficult to raise finance ● May be difficult to enjoy economies of scale ● Problem with continuity of sole trader retires or dies.