3.1.1 Nature and purpose of a business Flashcards
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why businesses exist
Businesses exist to provide goods and services on a commercial basis to customers
2 areas a business can sell in
good or services
benefits that business give to society
Create Employment & Develop Human Capital
Drive Innovation through R&D and New Products
Pay Taxes on profits earned & collect taxes for Govt.
Create Wealth by providing returns on investment
whats a start up
A start-up is a new business enterprise, formed by one or more entrepreneurs
The Role of the Entrepreneur
Spots business opportunities
Takes (calculated) risks in order to gain possible future returns
Acts a catalyst for the creation & growth of new business enterprises
What Happens in a Business?
The transformation process
this describes what happens inside the business. This is where value is added to inputs to create outputs
factors of production (Key Inputs into the Transformation Process)
capital (money )
land (where )
labour (workers , how )
enterprise (bring all together)
the main Business Sectors
Primary (Extraction of natural resources)
secondary (Production of finished goods and components)
tertiary (Providing services to consumers and businesses)
Quaternary (Providing information & ICT)
wtf is a business Mission
The business mission refers to the organisation’s long-term intentions and details its overall purpose.
how should objectives be set.
Should be SMART and out how the aims of the organisation will be achieved.
What are Business Objectives?
The specific intended outcomes of business strategy
The anticipated end results of a programme of activities
Targets which the business adopts in order to achieve its primary aims
why have objectives
A clear statement of what needs to be achieved
A focus for all activity
Targets for individual and group achievement
A means of measuring performance
The Hierarchy of Objectives in Business
Mission
Corporate /
Strategic
Functional
Team
Individual
(in order, more strategic at the top
more specif at the bottom)
How objectives can be used
Implement the mission
Provide a clear focus for decision making
Provide a target
Motivate employees
Facilitate control of actual performance
Provide a criteria for evaluating performance
Reduce uncertainty
Provide a sense of unity
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explain these mf’s
Mission…aim…objective
Mission
A qualitative statement of the business’s aims
Aim
A long term plan from which business objectives are derived
Objective
A target which must be achieved in order to realise the stated aim
A time assigned targets derived from the goals and set in advance of strategy
Typical Business Objectives (9 total)
Cash Flow:
To ensure sufficient cash is available to meet day to day expenses
Cash flow is the flow of cash into and out of a business over a period of time
Social:
To behave in a way which benefits society
This could include to create employment, support the local community or improve educational standards
Ethical:
To behave in a way which is considered to be morally correct
This could include treating key stakeholders including suppliers and employees in a fair manner or reducing negative impacts on the environment
Growth:
To increase in size either by value of sales or volume of sales (or both!)
This may be organically i.e. opening new stores, launching new products or externally i.e. by joining with other businesses or taking them over
Survival:
To continue to exist as a business
This may be the primary objective of a start-up business or one experiencing difficult trading conditions
Profit Optimisation:
Achieving a balance between a profit surplus that does not risk exploiting consumers against a level that might be so low as to threaten a firms viability in the medium to long term.
Profit Maximisation:
Whereby a firm seeks to make as much profit as possible.
Profit:
To achieve sales revenue that is higher than total costs. Why is profit such an important objective?
Profit = Sales Revenue – Total Costs
costs,
lower them
corporate objectives (typical)
Profit (value, margin)
Return on investment (ROCE) (roi)
Growth (profit, earnings per share)
Market share
Cash flow
Sales revenue
Shareholder value
Corporate image & reputation
acronym helps management set effective objectives
SMART
specific
measurable
achivable
relevant
time bound
Factors Can Influence Business Objectives
State of the economy
Competition
Risk and attitude to risk
Corporate culture
Political factors
Social attitudes
Age of the business
Size and legal status
Ownership
Views of owners and managers
Market conditions
Legislation
a good mission statement contains
clear outlimes of the business
Differentiates the business from its competitors
Is relevant to all major stakeholders
Common Criticisms of Mission Statements
Not always supported by actions of the business
Often too vague and general
Often merely statements of the obvious
Often seen as a PR exercise
Sometimes regarded cynically by staff
Sometimes not a true reflection of reality
To mean anything they must be supported wholeheartedly by senior management
strategic objectives features
focused long term
setby owners
higher risk
hella investment
hard to change
sretching and challenging (fcking hard)
Tactical objectives
short term
set by line management
lower risk
limited resources
easy and cheap to change
realistic and achivable (simple)
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