BUSINESS AND BUSINESS AND MANAGEMENTMANAGEMENT

MODULE 1MODULE 1

BUSINESS ORGANIZATIONS BUSINESS ORGANIZATIONS & ENVIRONMENT& ENVIRONMENT

IntroductionIntroduction

If you walk down any street, you will notice that many of If you walk down any street, you will notice that many of the shops display their names for all to see. It may be the shops display their names for all to see. It may be Murphy’s the fish seller; Brown, Macy and Brown lawyers; Murphy’s the fish seller; Brown, Macy and Brown lawyers; as well as known chain stores such as Shopper’s Drug Mart as well as known chain stores such as Shopper’s Drug Mart or the GAP. All are businesses, but each with a different or the GAP. All are businesses, but each with a different status in terms of how is operated, who the owner is and status in terms of how is operated, who the owner is and how any profit is shared.how any profit is shared.

The IKEA GroupThe IKEA GroupFacts & FiguresFacts & Figures

The IKEA story began in 1943 in the small village of The IKEA story began in 1943 in the small village of Agunnaryd in Sweden, when founder Ingvar Kamprad Agunnaryd in Sweden, when founder Ingvar Kamprad was just 17. Since then, the IKEA Group has grown into was just 17. Since then, the IKEA Group has grown into a major retail experience with 123,000 co-workers in 25 a major retail experience with 123,000 co-workers in 25 countries/territories generating annual sales of more countries/territories generating annual sales of more than 21.5 billion euros.than 21.5 billion euros.

Top five sales countriesTop five sales countries

Germany 16%, USA 11%, France 10%, UK 7% and Germany 16%, USA 11%, France 10%, UK 7% and Italy 7%. Italy 7%.

The IKEA Group (continued)The IKEA Group (continued)

5%

80%

15%

Australia & Asia

Europe

North America

Sales per Region

30%

67%

3%

Australia & Asia

Europe

North America

Purchasing per RegionIKEA manufactured and supplies a

wide range of furniture and household goods. Based in Sweden, it sells many of its

products in boxes, which are then assembled by the consumer.

Suggest examples of the factors of production that IKEA may be

using

Using IKEA’s products as an example, distinguish between consumer goods and capital

goods

What is a Business?What is a Business?

A decision-making enterprise that uses A decision-making enterprise that uses inputsinputs to produce an to produce an outputoutput – a good or – a good or serviceservice

Inputs are often referred to as Inputs are often referred to as Factors of Factors of ProductionProduction

Outputs can be tangible (physical Outputs can be tangible (physical substance) or intangible (a service or substance) or intangible (a service or degree of satisfaction)degree of satisfaction)

Business ResourcesBusiness Resources Factor’s of productionFactor’s of production

– LandLand Where business premises may be located; natural Where business premises may be located; natural

resources used by business; rental units etcresources used by business; rental units etc

– LabourLabour Workforce of business; including salaries and hourly Workforce of business; including salaries and hourly

paid workerspaid workers

– CapitalCapital Money, equipment and machinery used by the Money, equipment and machinery used by the

businessbusiness

– EnterpriseEnterprise The business sense (idea) of the entrepreneur The business sense (idea) of the entrepreneur

(owner); organization, hiring, investment etc(owner); organization, hiring, investment etc

Financial ReturnsFinancial Returns

For their part in the production For their part in the production process, the factors or production process, the factors or production have some financial returnshave some financial returns

Hence, the more factors there are, Hence, the more factors there are, the more returns there are likely to the more returns there are likely to bebe– Land can result in a return called Land can result in a return called rentrent– Capital often generates Capital often generates interestinterest– Labour results in Labour results in wages wages for employeesfor employees– Entrepreneurs receive a Entrepreneurs receive a profitprofit for their for their

risk-taking in the production processrisk-taking in the production process

The Purpose of a BusinessThe Purpose of a Business

Businesses exist to satisfy the Businesses exist to satisfy the needsneeds and and wantswants of of people, organizations, and governmentspeople, organizations, and governments

Muffin TopsMuffin Tops NeedsNeeds are the basic necessities that a person must are the basic necessities that a person must

havehave WantsWants are the desires that people have are the desires that people have

The MarketplaceThe Marketplace The The marketmarket is simply a place or is simply a place or

process whereby buyers (process whereby buyers (customerscustomers or or consumersconsumers) and sellers ) and sellers (businesses) meet to trade(businesses) meet to trade– Physical shop, restaurant etcPhysical shop, restaurant etc

A market can exist in a non-physical A market can exist in a non-physical form, such as the Internet or form, such as the Internet or telephonetelephone

Types of ProductsTypes of Products

Consumer GoodsConsumer Goods– Sold to the general public, rather that to other Sold to the general public, rather that to other

businessesbusinesses– Can be further classified as durable goods (last Can be further classified as durable goods (last

a long time and are used repeatedly) or non-a long time and are used repeatedly) or non-durable goods (expire in a short time)durable goods (expire in a short time)

Capital GoodsCapital Goods– Purchased by other businesses and are used to Purchased by other businesses and are used to

produce other goodsproduce other goods ServicesServices

– Intangible productsIntangible products

Adding ValueAdding Value

All businesses must add value in the All businesses must add value in the production processproduction process

Valued added is the difference Valued added is the difference between the value of between the value of inputsinputs and the and the value of value of outputsoutputs– Inputs Inputs

Costs of productionCosts of production

– OutputsOutputsThe goods and services sold to customersThe goods and services sold to customers

Profit DeterminationProfit Determination By adding value, businesses are able to By adding value, businesses are able to

sell products for more than its production sell products for more than its production costscosts– Thereby earning a Thereby earning a profitprofit

Customers are willing to pay prices in Customers are willing to pay prices in excess of the costs of production for excess of the costs of production for several reasons:several reasons:– Speed or quality of service/craftsmanshipSpeed or quality of service/craftsmanship– Prestige of ownershipPrestige of ownership– Feel good factorFeel good factor– Perceived value for moneyPerceived value for money– Brand image/loyaltyBrand image/loyalty– Lack of competitionLack of competition

The Role of ProfitThe Role of Profit

Provides incentive to produceProvides incentive to produce A reward for risk-takersA reward for risk-takers Encourages innovation and inventionEncourages innovation and invention Acts as a indicator of growthActs as a indicator of growth Used as a source of financeUsed as a source of finance

All businesses must make a profit to All businesses must make a profit to survive in the long runsurvive in the long run

Opportunity CostOpportunity Cost

Businesses have to make decisions that Businesses have to make decisions that affect their daily operations an long term affect their daily operations an long term plansplans

Opportunity cost is defined as the best Opportunity cost is defined as the best alternative that is foregone when making a alternative that is foregone when making a business decisionbusiness decision– Chinese RestaurantChinese Restaurant

Businesses are confronted by decision-Businesses are confronted by decision-making opportunities all the timemaking opportunities all the time

Assumption must be made that all Assumption must be made that all decisions will result in the most benefitdecisions will result in the most benefit

Opportunity Cost DiscussionOpportunity Cost Discussion

Sunday shopping in Ontario has been around Sunday shopping in Ontario has been around since the early 1990’s. Stores in Ontario were since the early 1990’s. Stores in Ontario were fined if they opened on Sundays, but the fines fined if they opened on Sundays, but the fines were so insignificant, that stores continued to were so insignificant, that stores continued to stay open. McDonalds is one of the few stay open. McDonalds is one of the few restaurant chains in the world that remain open restaurant chains in the world that remain open 24 hours a day, seven days a week. Several 24 hours a day, seven days a week. Several banks in Kingston are now open on Sundays.banks in Kingston are now open on Sundays.

Define opportunity cost and examine the reasons Define opportunity cost and examine the reasons why opportunity cost is an important concept in why opportunity cost is an important concept in business decision-making.business decision-making.