Chapter 1 Introduction to business

Question 1

1.1 Organisations

Answer 1

Businesses are examples of organisations, which is a ‘social arrangement, which pursues collective goals, controls its own performance and has a boundary separating it from its environment’. The main elements of the definition are:
- Social arrangement: individuals gathered together for a purpose
- Collective goals: working towards the organisation’s objectives
- Controlled performance: performance is measured, and relevant action is taken
- Boundary: the organisation is distinct from its environment. The boundaries may be physical (buildings) and social (code of conduct, principles).

Question 2

1.2 Differences between organisations

Answer 2

Many differences exist between different organisations such as ownership, profit or not-for profit, size, legal status, access to finance and technology.

Question 3

1.3 What is a business?

Answer 3

A business is an organisation that is orientated towards making a profit for its owners. A non-for profit orientated organisations is not a business.

Question 4

2.1 Mission and objectives

Answer 4

A mission is the most generalised type of objective which can be thought of as an expression of its raison d’etre (reason for existence). A mission statement is the written communication of the mission to internal and external stakeholders. The mission statement sets out general terms which is not quantifiable or time-constrained.
A successful mission statement has the following elements:
- Purpose: why it exists and the aims for its stakeholders
- Strategy: what resources, competencies or generic strategy give the company a competitive advantage
- Policies: the standards and behavioural patterns adopted in the organisation
- Values: the beliefs of management and employees

Question 5

2.2 Goals

Answer 5

The mission is why the organisation exists, the vison is how the organisation sees itself in the future, the goal is a desired end result. To achieve the goals, they set aims (qualitative non-operational goals) and objectives (qualitative operational goals). Then a plan is set to achieve the objectives and standards and targets of the desired performance level is set.
Objectives should be SMART: specific, measurable, achievable, relevant, and timed.

Question 6

2.3 What are the business’s objectives

Answer 6

There are primary and secondary objectives. Primary ones maximise shareholder wealth for profit organisations and maximise the benefit for the target stakeholder for NFP organisations. Secondary objectives include market standing, innovation, productivity, staff development and corporate responsibility.

Question 7

2.4 Hierarchy of objectives

Answer 7

Managers of profit related organisations should strive to maximise shareholder wealth. They may choose other objectives such as profit satisficing, revenue maximisation, multiple objectives, and business constraints.

Question 8

2.5 Plans and standards

Answer 8

Plans state what should be done to achieve the operational objectives. Standard and targets specify the desired level of performance.
A business sets plans, budgets and targets, compares actual performance to the targets and then can correct operations and revise plans and budgets based on the performance.
A business can have physical standards (like kilograms of material used per product), cost standards (cost per kilogram purchased) and quality standards (targets for maximum number of faults per batch).

Question 9

3.1 Stakeholders and degree of influence and interest

Answer 9

A stakeholder is a person or group of persons who has a stake in the organisation. An organisation has different interested parties or stakeholders, with differing objectives and influence. The primary stakeholder are the shareholders or owners. The secondary stakeholders are management, employees, customers, suppliers.

Question 10

3.2 Corporate responsibility

Answer 10

Sustainability is the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs. Natural capital is the world’s stocks of natural assets which include geology, soil, airs, water, and all living things. Everything the world provides humans and organisations to use in order to live.
Business sustainability considers how a business goes to operate in a sustainable way. The actions and obligations of a business in achieving sustainability is part of corporate responsibility. Sustainable development in 2015 the UN established Global goals for sustainable development, the key goals include:
- Decent work and economic growth
- Industry, innovations, and infrastructure
- Responsible consumption and production