Topic 1: Introduction to Business Management

Question 1

What is a business?

Answer 1

A decision-making organisation that produces goods and/or services.

Question 2

How do goods and services differ from each other?

Answer 2

Goods are physical products such as smartphones, laptops, books, and pencils while services are intangible products such as a haircut, public transportation, education, and healthcare.

Question 3

How do needs and wants of consumers differ from each other?

Answer 3

Needs are the basic necessities that people must have to survive such as food and water. While wants are people’s desires or things they want to have such as a larger home, a new smartphone, and an overseas holiday.

Question 4

How do customers and consumers differ from each other?

Answer 4

Customers are the people or organisations that purchase the product whereas consumers are the ones who actually use the product.

Question 5

What are the 4 functional areas of a business?

Answer 5

1. Human resources management: responsible for managing the personnel of the organisation.
2. Finance and accounts: managing the organisation’s money, ensuring compliance with legal requirements, and informing those interested in the financial position of the business.
3. Marketing: responsible for identifying and satisfying the needs and wants of customers.
4. Operations management: responsible for the process of converting raw materials and components into finished goods, ready for sales and delivery to customers.

Question 6

What are the 4 business sectors of the economy?

Answer 6

Primary sector: businesses involved in the cultivation or extraction of natural resources such as farming, mining, fishing, oil exploration, and forestry.

Secondary sector: businesses concerned with the construction or manufacturing of products

Quaternary sector: businesses that are involved in intellectual and knowledge based activities that generate and share information such as research organisations.

Tertiary sector: businesses involved with the provision of services to customers.

Question 7

How does a business add value to its goods and services?

Answer 7

Businesses make their products appealing to customers so they become willing to pay higher prices for the products. Businesses can do this by identifying the needs and wants of their targeted market.

Question 8

What is meant by the chain of production?

Answer 8

Primary production –> manufacturing –> services (secondary and quaternary sectors) –> consumers

It is how the four business sectors become interconnected with each other. A business sector cannot thrive without the existence of another sector.

Question 9

What are the main challenges for business start-ups?

Answer 9

Lack of finance, unestablished customer base, cash flow problems, marketing problems, people management problems, production problems, legalities, high production costs, poor location, more vulnerable to external shocks.

Question 10

What are the main opportunities for business start-ups?

Answer 10

Growth, earnings, transference and inheritance, challenge, autonomy, security, hobbies.

Question 11

How does the private sector differ from the public sector?

Answer 11

Private sectors are owned by private individuals and most of them aim to earn profit. While public sectors are under the ownership and control of the government to provide essential goods and services.

Question 12

What is a sole trader?

Answer 12

An individual who owns his/her own personal business such as self-employed decorators, plumbers, mechanics, private tutors, and freelance photographers.

Question 13

What are the advantages and disadvantages of a sole trader as a business entity?

Answer 13

Advantages: few legal formalities, profit taking, being your own boss, personalised service, privacy, quicker decision-making.

Disadvantages: unlimited liability, limited sources of finance, high risks, workload and stress, limited economies of scale, lack of continuity.

Question 14

What is a partnership?

Answer 14

A for-profit private sector business owned by two or more individuals. The maximum number for ordinary partnerships is 20.

Question 15

What are the advantages and disadvantages of a partnership as a business entity?

Answer 15

Advantages: financial strength, specialisation and division of labour, financial privacy, cost-effectiveness

Disadvantages: unlimited liability, a lack of continuity, prolonged decision-making, lack of harmony

Question 16

What is a privately held company?

Answer 16

A privately held company is a limited liability company that cannot raise share capital from the general public via stock exchange. Instead, shares are sold to private family members and friends.

Question 17

Why is the concept of limited liability important for owners of a company?

Answer 17

They can maintain overall control of the company.

Question 18

What is a publicly held company?

Answer 18

A publicly held company is able to advertise and sell its shares to the general public via stock exchange.

Question 19

How does a privately held company differ from a publicly held company?

Answer 19

A privately held companies chooses to not raise share capital from the general public while publicly held companies advertise and sell its shares to the general public.

Question 20

What are the advantages and disadvantages of limited liability companies as a form of business entity?

Answer 20

Advantages: raising finance, limited liability, continuity, economies of scale, productivity, tax benefits

Disadvantages: communication problems, added complexities, compliance costs, disclosure of information, bureaucracy, loss of control

Question 21

What are social enterprises?

Answer 21

Social enterprises are revenue-generating businesses with social objectives at the core of their operations.

Question 22

What are the differences between private and public sector for-profit social enterprises?

Answer 22

Private and public sector for-profit social enterprises work in similar ways but the only difference is that public sector for-profit social enterprises are state-owned enterprises run in a commercial way. They are formed by the government through legal means and regulated as they participate in commercial business activities for financial gain.

Question 23

What are cooperatives?

Answer 23

Cooperatives are for-profit social enterprises owned and run by their members, such as employees or customers, with the common goal of creating value for their members by operation in a socially responsible way.

Question 24

What are the advantages and disadvantages of a cooperative as a form of business entity?

Answer 24

Advantages: incentives to work, decision-making power, social benefits, public support

Disadvantages: disincentives effects, limited sources of finance, slower decision-making, limited promotional opportunities.

Question 25

What is a non-governmental organisation (NGO)?

Answer 25

Non-governmental organisations are private organisations that pursue activities to relieve suffering, promote the interest of the poor, protect the environment, provide basic social services or undertake community development.

Question 26

How do mission and vision statements differ from one another?

Answer 26

The vision statement addresses the question ‘what do we want to become?’ whereas the mission statement deals with the question ‘what is out business?’

Vision statements are focused on the very long-term, whereas mission statements can focus on the immediate time period.

Question 27

Why are objectives important to business organisations?

Answer 27

To measure and control (planning), to motivate (inspire managers and employees), and to direct (own a sense of purpose).

Question 28

What does it mean for a business to protect shareholder values?

Answer 28

Earning a profitable return for shareholders in a sustainable way or in other words, protect and manage shareholders’ interests in the company.

Question 29

What is meant by ethical objectives?

Answer 29

Objectives that focus on making sure the business’ activities are morally correct. An example of ethical objectives could be the use of circular business models.

Question 30

How does growth differ from profit as business objectives?

Answer 30

Growth refers to the increase in sales revenue or market share while profit is specifically on maximising profits.

Question 31

How do strategic objectives differ from tactical objectives?

Answer 31

Strategic objectives are the longer-term goals of a business such as profit maximisation and growth (image and market share) while tactical objectives are short-term foals that affect a section of the organisation such as survival and sales revenue maximisation.

Question 32

What is corporate social responsibility (CSR)?

Answer 32

Corporate social responsibility (CSR) is the conscientious consideration of ethical and environmental practise related to business activity such as providing accurate information and labelling, adhering to fair employment practices, having consideration for the environment and active community engagement.

Question 33

What are the advantages and disadvantages of business acting in a socially responsible way?

Answer 33

Advantages: increased corporate image and reputation, increased customer loyalty, motivate employees.

Disadvantages: compliance costs, not all countries agree on what is “good,” stakeholder conflict.

Question 34

What is a stakeholder?

Answer 34

A stakeholder is any individual, group or organisation with a direct interest or involvement in the operations and performance of a business.

Question 35

How do internal stakeholders differ from external stakeholders?

Answer 35

Internal stakeholders are members of the business and external stakeholders are not part of the business but have a direct interest or involvement in the organisation.

Question 36

Who are the main internal stakeholders of a business?

Answer 36

Employees, managers and directors, and shareholders of the organisation.

Question 37

What examples are there of external stakeholders?

Answer 37

Customers, suppliers, financiers, pressure groups, competitors, and the government.

Question 38

What is the difference between a stakeholder and a shareholder?

Answer 38

Shareholders are the owners of a limited liability company so are only one stakeholder group of the business.

Question 39

Why are shareholders a potentially powerful stakeholder group?

Answer 39

Shareholders have voting rights and a ‘say’ in how the company is run and are entitled to a share of its annual profits.

Question 40

Why might competitors be considered as external stakeholders?

Answer 40

Competitors are interested in their competition and they can also hold shares of the business. However their main objectives include being aware of and respond to the activities of their rivals, to benchmark performance, and to be creative and innovative.

Question 41

What is the role of the government as a stakeholder group in business activities?

Answer 41

The government assures that business activities abide by the law such as how they pay taxes, avoid unfair business practices, follow health and safety standards, and comply with employment legislation. They also might have a financial stake in a business. Ultimately, the government strives to ensure that businesses act in the interest of the general public.

Question 42

What is meant by stakeholder conflict?

Answer 42

Stakeholder conflict refers to differences in the varying needs and priorities of the various stakeholder groups of a business.

Question 43

How might a business resolve stakeholder conflict in the workplace?

Answer 43

Look back at the roots of the business such as the type of business entity, the goals and objective of the business, and the source and degree of power. Judge the conflict based on that and see which solution aligns with the business more.

Businesses can also use stakeholder mapping to assess which stakeholder must have the highest priority to please.

Question 44

What is the meaning of economies of scale?

Question 45

What is the average cost and how is it calculated?

Question 46

What are diseconomies of scale?

Question 47

How might the notion of economies and diseconomies of scale be shown on a diagram?