Business Management IB Summary
A business is a decision-making organization involved in the process of using inputs to
produce goods and/or provide services.
Change: Competition, new technologies, markets, and trends in the consumer’s behaviour
lead business organizations to adapt their objectives, strategies and operations.
Success comes from being able to respond to signals in both the internal and external
Culture: Every organization operates in a range of environments in which its role may be
interpreted differently. These expectations affects planning decision-making and strategy
Within an organization, values and backgrounds influence what stakeholders focus on and
how they work.
Ethics: Every business decision has moral implications. These consequences can be
significant for internal and external stakeholders and the natural environment. Globalization: Worldwide movement toward economic, financial, trade, and communications
integration. Innovation: For many business organizations, a key challenge is bringing in the new and
managing the process of improvement in a sustainable way. Strategy: Refers to the significant long term planning decisions that organizations make in
order to meet the needs and wants of the stakeholders.
Strategy is about asking questions: What, why, when, how, where and who? Stakeholders ← Shareholders Research and development → R&D Decision Making: Basic decisions in firms and businesses are:
● What to produce - what good or services - and for how long?
● How to produce and in what quantity?
● Who to sell the goods or services to - how to distribute?
There are Strategic, Tactical and Operational costs
Opportunity Cost: The best alternative that is foregone when making a decision.
Due to limited resources, such as time and money, businesses are confronted with choices.
● Inputs: Are the resources, such as labour and raw materials, which a business uses
in the production process.
● Output: The product of the process. Can be goods if they are physical products, such
as cars, computers, books and food. Services are intangible products such as a
haircut, a bus ride or a visit to the cinema.
Businesses are affected by external activity. They need to take account of the level of
economic activity, social changes, government policies and perhaps external shocks.
Inputs Factors of production:
● Land: This is the land itself, the factory site. It also covers unprocessed raw materials
derived from the earth or water.
● Labour: The services given by all employees of the business.
● Capital: The assets such as buildings, plant and equipment, which it has bought and
used in the production process. Capital can be thought of as anything used to
produce something else.
● Enterprise: The idea which the founder or entrepreneur provides. This will include the
planning that brings together the other three factors of production.
The provider of each factor receives a reward for being involved in production:
● Landowners receive rent
● Employees receive wages and salaries
● The providers of capital receive interest
● Entrepreneurs get to keep the profit, if there us any- for their risk taking in setting up
the business process and for their additional responsibilities and decision making in
the business process.
Adding Value: The aim of organisations is to generate outputs, which have a greater value
than the inputs used. This can be achieved by:
● Making an increasingly efficient production process and eliminate waste.
● Persuading customers through effective marketing to purchase the firm’s products
or services at a price higher than it cost to produce them.
Processes: Business Functions:
● Finance: In charge of managing the organization’s money
● Marketing: Including Sales. Product, promotion, price and place.
● HR: Human Resources. Recruitment, rewarding, motivating and training of stuff
● Operations: Production of goods or the delivery of a service. They will be looking at
quality and stock control, methods of production and productive efficiency.
Setting prices of new products
Recruiting a new production manager
Allocating resources to purchase capital equipment
Deciding on the appropriate levels of stocks for raw materials
Finding out if consumers prefer one product design or another
Determining the level and number of employees the business needs for future
Accounting and Finance function: The accounting function involves the col ection,
recording, presentation and analysis of financial data.
The finance function, on the other hand, is concerned with raising the money required for all
business operations and the decision making on how and where that money should be
spent. The responsibilities of the finance function include:
● Sources of finance - decisions about the most appropriate source of finance for each
● Cash flow - the way in which money moves in and out of the business
● Credit control - the process of collecting debts and managing payments.
● Researching the market: Identifying market opportunities, examining the nature of
customers and potential customers, understanding the target market for the good or
service, testing customer reaction to potential products.
● New product development: Will often work together with the production department
to develop new products and services. The marketing department will test if there is
a market for the product, identify the features or characteristics that the product
requires and may carry out test launches of the product in advance of the full product
● Marketing mix: Will develop the mix of strategies that will help with selling the
product. This includes the pricing of the product, the promotion, the nature of the
product and distribution channels for the product.
HR Function: Human resources is responsible for the management of people
● Recruitment: The process of finding appropriate people for a given role. This
includes advertising a vacancy, selecting candidates for interview, managing
contracts of employment, job descriptions.
● Training: Both new and existing staff will need training to help them develop and
improve their skills.
● Pay: People work for money and this process needs managing. How much is each
job worth, what other benefits do employees get (pension, entitlement,
fringe,benefits) what happens when people are sick ?
● Employee relations and welfare: This includes pay negotiations with employees,
disciplinary procedures, health and safety, social activities.
Production Function (Operations):
● New product development: In association with the marketing department
● Research and development (R&D): R&D refers to investigation or innovation; the
outcomes of which are new or improved materials, products, devices, processes, or
services. Prototypes of new products may be tested by the marketing department
with potential customers.
● Production planning: Will consider the layout of the facility, the optimum location of
production, the method of production, the type of machinery.
● Quality control: The quality of the product or service is crucial if the reputation of the
firm is to be maintained and enhanced.
● Distribution: Will organise the distribution of the good or service to the customers.
This may be through or intermediaries such as retail shops or agents or direct to the
customer through e commerce.
● Purchasing and stock control: The purchase of stocks or raw materials required for
Economic Sectors: The 4 stages in a chain of production.
● Primary sector: Extraction of raw materials, agriculture and finishing,
● Secondary sector: Industries that create a finished or useable product.
● Tertiary sector: Provision of services to business and individual consumers. Includes
transportation and distribution of goods, wholesale and retail, and consultancy.
● Quaternary sector: Knowledge based. Includes services such as information
technology, information-generation and -sharing (eg facebook)
Chain of production:
● Primary production → Manufacturing → Tertiary production →
- Apple example: Steel/glass → Manufacturing → Apple Store → Buyers
Changes in economic structure:
● Structural change: Refers to a shift in the relative share of national output and
employment that is attributed to each business sector. Usually measures in terms of
their share to output, employment or total spending.
● Gross Domestic Product: Measures the national output.
Starting a business:
● Business idea
● Entrepreneurial skills
● Fixed assets
Business Plan: A report detailing how a new business sets out to achieve its aims and
objectives. It’s a useful planning tool. The owner has to plan marketing, financial and human
resources of the business. Can be used for stakeholders. The Business:
● Name and address of the proposed business.
● Type of business organization.
● Vision, mission, aims and objectives.
● Cost of premises and other start-up costs.
● Details of the owners and past business experience.
● Details of the good and service being offered.
● Forecast level of demand with any supporting evidence showing why customers will
pay for this product.
● How and where production will take place, equipment needed.
● Size of the market, potential number of customers.
● The nature of the market such as the customer profile and market segmentation.
● Recent growth rate of the market and expected growth rates for the future.
● Outline of direct and indirect competitors, including market shares and strengths and
● Proposed source of finance
● Break-even analysis to project the firm’s break-even level of sales.
● Steps to be taken to deal with cash flow problems.
Problems faced by startups:
● Lack of capital
● Marketing problems
● No customer base
Types of business organizations:
● Public Sector organisations: Under control or direction of government. No
shareholders. Solely accountable to the government for their performance.Do not
publish financial information. Eg: education, health, water, police.
● Private sector organizations: Public and private limited companies. Shares are
traded on a stock market. Focus on profit. Are not run by governments.
Privatization: The selling of a state owned industries to private investors:
● Reduces costs: The profit motive, and competitive pressures will drive costs down.
Often a state regulator ensures that private firms do not exploit their monopoly
position in the market.
● Increases choice
● Increases quality
● Encourages innovation and invention
● Saves the government’s money - the costs of the nationalized industries would br
Types of business organisations (private) Sole Trader: Business owned and operated by one person. Few legal requirements.The sole
trader in some industries must observe certain laws, such as health and safety laws.
Advantages Of Sole Trader:
● There are a few legal regulations.
● Being your own boss.
● Complete control of business and there is no one to consult before making
● Freedom to choose your holidays, hours of work, etc.
● Close contact with your own customers, the ability to respond quickly to their needs
● Do not have to share profits.
● Only give information to the Tax Office.
Disadvantages of Sole Trader:
● Do not have any person to discuss business matters with.
● Unlimited liability: business accounts cannot be separated from the owners
accounts. Your money is not protected.
● Business is not a separate legal unit
● Source of finance for a sole trader are limited to the owners savings, profits
● Because the business is small, the owner has to do many jobs which he might not be
skilled. He cannot afford
● It is difficult to find money to make a start up, as big banks do not lend money to
them because of the risk
● The owner must register and send annual accounts to the tax office.
● The name is significant. In some countries the name must be registered.
Partnerships: Group or association of between 2 and 20 people that agree to run a business
together. Partners will contribute to the capital of the business, will run the business and
share profits they make. Can be set up easily.
Advantages of a partnership:
● More capital, would allow expansion
● The responsibilities of running the business can be shared. Absences and holidays
are no problem because one of the partners is always available.
● Both partners are motivated to work hard
Disadvantages of partnership:
● Unlimited liability
● Accountable for each other’s debts
● Business do not have separate legal identity. If one of the partners dies, the
partnership would end.
● Unincorporated business: because they do not have a separate legal identity from
● Partners can disagree on important business decision and consulting all partners
● If one of the partners is very inefficient or dishonest then the other partners could
suffer by losing money in the business.
● This is a limit of up to 20 partners, so the amount of capital is limited up to the
amount of capital that 20 people could invest.
Partnership Agreement: Is the written and legal agreement between business partners.
Private Limited Company : Company is a separate business from its owner. It can make
contracts or legal agreements. Company accounts are kept separate from the account of
the owners. A company exists separately from the owners and will continue to exist if the
owners die. Companies are jointly owned by the people who have invested in the business,
buying shares: shareholders
● Shares can be sold to a large number of people
● Sales of sales could lead to much larger sums of capital to invest in the business.
Business could expand rapidly.
● All shareholders have limited liability, up to the original investment.
● All private limited company names must end with “limited” or “ltd”.
● The people who started the company, are able to keep control of it as long as they do
not sell too many shares.
● Shares cannot be sold or transferred to anyone without the agreement of the other
● Accounts of a company are less secret. Each year the latest accounts must be sent
to the Register of Companies and members of the public can inspect them.
● The company cannot offer its shares to the general public. Will not be possible to
raise large sums of capital to invest back into the business.
● Significant legal matters which have to be dealt with before creation.
Documents to start a private limited:
● Articles of association: rules under which the company will be managed. States the
rights and duties of all of the directors.
● Memorandum of Association: official name and the address. The objectives of the
company and the amount of the share capital that the directors intend to raise. The
number of shares to be bought by each of the directors.
● A certificated incorporation will be issued to allow the company to start trading once
these documents have been received by the Registrar of Companies.
Public Limited Company: More suitable for very large business. Owned by private individuals
and they are in the private sector of industry.
Advantages of a public limited company:
● Limited liability to shareholders.
● It is an incorporated business and is a separate legal unit.
● There is now the opportunity to raise very large capital sums to invest in the
business. There is no limit to the number of shareholders a public limited company
● There is no restriction on the buying, selling or transfer of shares.
● A business trading as a public limited company usually has high status, and will find
it easier to attract suppliers.
Disadvantages of a public limited company:
● Legal formalities are quite complicated and time consuming.
● There are many more regulations and control.
● Publications of account which anyone can see.
● Some public limited companies grow so large that it’s difficult to control and
● Selling shares to the public is expensive. Publication and printing of the prospectus is
an additional cost.
● Risk of losing control.
Procedure for converting a private to a public limited company: Make a statement in the
Memorandum of Association that it is now a public limited company →