DIP 14/01 – Introduction to Small Business Management

Lim Sei Kee @ cK

1. What is a business?

2. What are the differences between goods and services?

3. Provide at least five examples of goods & services.

4. Define ‘stock’.

5. Who is a supplier?

Discussion Qs [In a group of 5]

A business can be defined as an organization that provides goods and services to others who want or need them. 

What is a business?

Goods are tangible things that are produced, bought or sold, then finally consumed.

Examples: A. HOME: microwave, flat-screen television,

Nintendo Wii console. B. SCHOOL: projector, desktop, white board.

So, what are goods and services?

Services are activities that other people or businesses do for you.

When you book a holiday, visit the hairdresser or eat in a restaurant you are consuming one or more services.

Services are sometimes referred to as intangible, in the sense that you cannot touch or handle them.

Services

Q: Think about the money that you have spent recently. Did you buy a good or pay for a service?

There are some important differences in the skills required to run a business making goods compared with services. 

Requires a production location – factory

The output from production is stock – which can be transported and/or stored for future sale

Production costs will include the costs or raw materials and other inputs into the production process

GOODS

Requires close liaison with suppliers

Quality can built-in to the product through good design and production processes designed to ensure the right quality is achieved

Quite costly to set up.  The production process needs to be in place and working before goods can be produced.

GOODS

The location is where the service is provided – either physically (e.g. a builder) or virtually (e.g. telesales or via a website)

Service is delivered at a point in time – it cannot be stored! A shop has to be open to sell.  A hairdresser has to be there to cut hair

The main cost of a service business is the people involved

SERVICES

Require high levels of customer satisfaction

Quality is measured by the quality of customer service.  Harder to manage

SERVICES

Businesses provide goods and services.

To be able to do this, they need to be able to turn inputs into outputs.

This is known as the production process.

Production Process

A good way to think of a business is to imagine inputs entering an imaginary black box.

What come out of the box are outputs.

The black box is the business – what is does how it does it and so on.

Production & operations: The transformation process

A business needs resources in order to trade. 

The activities of a new business should be designed to turn those resources into products and services that customers are willing to pay for. 

This process is known as the “transformation process”.

Labour Land Capital Equipment Raw materials Enterprise Suppliers

Inputs into the production process include:

Labour: employees providing their time, effort and skills

Land: the natural resources that are used by the business – e.g.

actual land, energy, and other natural resources

Capital: capital includes physical assets such as machinery and

computers. Capital can also include finance – the investment that is

required in order for the business activities to take place.

Equipment: machinery, buildings, computers and all the other

Raw materials: Physical substances used as inputs (e.g. steel, energy,

ingredients)

Enterprise: The creative energy and force that gets a business

started and drives it forward. The entrepreneur takes the decisions about how much

capital, what kind of labour and how & when they are needed in the business.

Many of the inputs into the production process are provided by suppliers.

Suppliers provide the goods and services that a business needs in order for it operate.

The outputs of business activities are reflected in the products and services sold to customers. 

Traditionally, the outputs from the transformation process will fall into these three groups:

PrimarySecondaryTertiary

What about outputs, then?

Primary Extraction of natural resources (e.g. oil, gas) and farming

activities

Secondary Production of finished goods and components (e.g. flat-screen

TVs, computer memory chips, games consoles, industrial equipment, motor vehicles.

The secondary sector is also often referred to as the “manufacturing sector”.

Tertiary Providing a service of some kind. E.g. health, travel, legal,

finance, building, security.  Think of this as any business activity that involves people doing

things for you!

It is possible for a single business to be operating in more than one sector.

For example, many farms in Britain (farming = primary sector) also offer holiday accommodation (tertiary sector) and produce processed foods such as cheese and ice-cream from farm supplies (secondary sector).

The outputs from the production process are the finished goods and services.

Outputs are bought by customers – the people who pay.  Customers are often, but not always the same as consumers.

Consumers are the actual users of the goods or service.  For example, a parent might buy a PlayStation 3 console game for a child.  The parent is the customer; the child is the likely consumer.

Outputs from production process

21 MCQ Complete it individually.

DIP 14/01 Exercise