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AS-1 Business and its Environment

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Hon Lam

on 18 September 2018

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Transcript of AS-1 Business and its Environment

Sole Trader
Private limited companies
Public limited companies
Joint Ventures
Holding Companies
The nature of business activity
• purpose of business activity
• the concept of creating value
• the nature of economic activity, the
problem of choice and opportunity cost
• business environment is dynamic
• what a business needs to succeed
• why many businesses fail early on
Chapt. 1, Enterprise
Business Studies AS-level
This Unit 1 is probably revision for those of you who did IGCSE Economics...
What is Opportunity Cost?

What does this mean for a customer?

What does this mean for a business?
To choose or not to choose, that is the cost of an opportunity
Commitment and self-motivation
Leadership skills
Self-confidence and try-try-try-again
Risk taker
Is it a bird...?
Is it a plane...?

No, it's an entrepreneur!
Business fail everyday, especially new businesses. The first year of trading could be the most demanding for new small businesses. Although, larger businesses and even global corporations are usually safe they can still fail for very similar reasons.
It was doing so well but...
Main features:
1. Produce goods/services by themselves
2. Social aims and ethical ways of
achieving them
3. Need to make surplus/profit from its
business to survive
Social enterprises
(are not charities!)
Economic sectors
• primary, secondary and tertiary sector businesses
• the public and private sectors

Legal structures
• main features of different types of legal structure,
including ability to raise finance
• appropriateness of legal structure: sole trader,
partnership, private limited companies, public
limited companies, franchises, co-operatives, joint
• concept of limited liability and its importance
• problems resulting from changing from one legal
structure to another
Chapt. 2, Business Structures
Three sectors of the economy
The role of the entrepreneur
• qualities an entrepreneur is
likely to need for success
• the role of business enterprise
in the development of a
business and a country
Social enterprise
• the range and aims of social enterprises
• triple bottom line – economic (financial), social
and environmental targets
Purpose of business activity and creating value
The purpose of business activity is to use resources (factors of production) to meet customer needs (the market) by creating and adding value to raw materials and resources.
Don't forget the basics! Factors of production - Land, Labour, Capital and Enterprise.
Establish a customer base/market share
Record keeping
Cash and working capital
Poor/inadequate management skills
Dynamic business environments
Objectives of social enterprises:
1. Economic - reinvests its profits to help society
and provide some return to owners
2. Social - provides jobs to local/disadvantaged
3. Environmental - protect the environment and to
manage in an environmental and sustainable way
Legal Structures
Don't forget these:

Private vs Public sector organisastions

Planned, Market, and Mixed economies
Chapt. 3, Size of Business

Economies of Scale
How to measure size of a business -
1. Number of employees
2. Revenue
3. Capital Employed
4. Market Capitalisation (=market price of each share X no. of shares)
5. Market Share
6. Do not use PROFIT as a measure!!!
So does business size matter
Significance of
small businesses
Reduced tax
Start-up space

(Table 3.2)
(Table 3.2)
(Table 3.2)
Business Objectives, Chapt. 4
Corporate Objectives
Divisional Objectives
Departmental Objectives
Individual Targets
Mission Statements
Compare these mission statements...
Activity 4.2 (only two similar companies)
Mission statements
Quick message
Motivate employees
Company values
"What the business is about"
Vague and general
Public relations exercise
Impossible to analyse or disagree with
Can you tell one from another...
Corporate Objectives
Usually, quantifiable targets are set for the whole company to achieve, e.g.

Profit maximisation
Profit satisficing
Increasing market share
Corpoarate Social Responsibility (CSR)

Relationship between mission, objectives, strategies, and tactics
Aims and Objectives are the what the business should focus for, to achieve them the business should apply detailed strategies and tactics for its departments and operations to work on.
Objectives and Decision-making (Fig. 4.4)
1. Set objectives
2. Assess the problem and issues
3. Gather data and information and possible solutions
4. Consider all options
5. Make the strategic decision
6. Review the results and successes against the original objectives
Remember: You do not need to recite all of these! Just get the sequence of ideas right and use an example to illustrate it!
Activity 4.4 (P.44) 1 +2 note form, 3 full essay.
Factors that help determine corporate objectives
Corporate culture -- as mentioned before, every business organisation will have developed it's own way of doing things (Addidas vs Nike) and solving problems over time (Hong Kong Ferry Company).

These corporate mentalities, personalities or characteristics is known as corporate culture.
Factors that help determine corporate objectives
The size and legal fom of the business - obviously the smaller the business the less number of key stakeholders that will affect business decisions, i.e. sole trader business decisions vs. multinational business decisions.

The complexity of business decisions multiplies as the organisation grows bigger, e.g. instead of dealing with a group of local and returning custommers, a larger business organisation may have to deal with hundreds and thousands of customer over a larger geographical spread.
In terms of legal forms, the ideas are similar, e.g. a partnership will owned by a group of people possibly no more than 20, but a public limited company may have thousands or even millions of shareholders.
Factors that help determine corporate objectives
Public sector business tend not to have a profit objective but work towards a quality of service measure, such a number of patients served for a hospital or number of buses/trains on time.

However, do the recent closures of rural services to cut costs cross the line toward profits...
Factors that help determine corporate objectives
The age of your business... Hong Kong Ferry Company... When asked how will they deal with the Millenium Bug, the Hong Kong Ferry Company replied "we don't have computers..."

Obviously, the longer the organisation has been operating the more likely it will survive and be less oblivious to external factors. For younger businesses this is not the case, they are are more sensitive to external changes such as economic up-turns and down-turns.
Factors that help determine corporate objectives
Divisional, departmental, and individual objectives
More detailed
Corporate Objectives
Public or Private Sector
Size and Legal From
Corporate Culture
Years of
Management by Objectives
OK, if all are in agreement... what if...?
Communicating Objectives
When employees are involved in the decision making process:

Employees and managers may achieve more through thorough understanding of individual objectives and how they are linked to corporate goals.

Creating a shared responsibility through decision making.

Managers can monitor employees and make corrective actions (e.g. training) to keep employees on track.
Ethical Influences on Business Objectives
Activity 4.5, 1 + 2 notes, 3 full essay
End of Chap. 4 review:


Choice of either 1 or 3
Then any one of the 20 mark questions.

All questions less than 10 marks in note form. 10 marks or more in essay form.
Stakeholders in a Business, Chapt. 5
Business Stakeholders

individuals or groups interested in the activities of business, e.g. owners/shareholders, managers, employees, customers, suppliers, lenders, government and the local community
roles, rights and responsibilities of stakeholders
The importance and influence of stakeholders on business activities

impact of business decisions/actions on stakeholders, and their reaction
how and why a business needs to be accountable to its stakeholders
how conflict might arise from stakeholders having different aims
how changing business objectives might affect its stakeholders

Different kinds of stakeholders
Know these definitions:
Who are the stakeholders of a business?
Employees and their families
Local communities
Special interest groups
Lenders (banks)
Impact of business activity on stakeholders
Business Activity
Check out Activity 5.1, notes
Responsibility to stakeholders
Critical think -- check out Toyota's Stakeholder Engagement page and make note of what they are doing -- http://www.toyota-global.com/sustainability/society/stakeholder/
Continue the fury!
Both Activity 5.2 and 5.3 are very strong cases that is happening all around the world.

Try them both, in note form.

Within a group discuss all aspects that you may think of for one of the cases. How every good, bad and ugly can affect stakeholders.
Corporate Social Responsibility
In the same view of stakeholder theory, CSR views a business as a member of a greater community.

Review the notes you have for Toyota and explain to a neighbour if you think Toyota is fulfilling the basis of CSR.
Now look at Activity 5.4, 1+2+3 in note form, 4 in full essay
Conflicts of interests of different stakeholders
Activity 5.5, 1 in full essay, 2+3+4 in note form
Changing Business Objectives and Impact on Stakeholders
End of Chapt. 5 review:


1. All short questions in note form.

2. The Virgin case P.60, 1+2+3 in note form, and 4 in long form
the business
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