UNIT 1: Business Organisations &
Environment
IB Business Management
Revision Guide
1.1 Introduction to Business Management
The role of businesses in combining human, physical and financial resources to create
goods and services (AO2)
What is a business?
A business is any organisation that uses resources to meet the needs of customers
by providing a product or service that they demand. There are several stages in the
production of finished goods. Business activity at all stages involves adding value to
resources such as raw materials and semi-finished goods and making them more
desirable to – and thus valued by – the final purchaser.
The role of a business
Businesses identify the needs of consumers or other firms. They then purchase
resources, which are the inputs of the business, or factors of production, in order to
produce output. The ‘outputs’ of a business are the goods and services that satisfy
consumers’ needs, usually with the aim of making a profit. Business activity exists
to produce goods or services, which can be classified in several ways: consumer
goods, consumer services and capital goods.
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,consumer goods: the physical and tangible goods sold to the general public. They
include cars and washing machines, which are referred to as durable consumer
goods. Non- durable consumer goods include food, drinks and sweets that can only
be used once.
consumer services: non- tangible products that are sold to the general public and
include hotel accommodation, insurance services and train journeys
capital goods: physical goods that are used by industry to aid in the production of
other goods and services such as machines and commercial vehicles
What are business ‘inputs’? (factors of production)
These are the human, physical and financial resources needed by business to
produce goods or services. Firms will use different combinations of inputs,
depending on the product being produced and the size of the business. There are
four main inputs:
• Land – this general term not only includes land itself but all of the renewable and
non-renewable resources of nature such as coal, crude oil and timber.
• Labour – manual and skilled labour make up the workforce of the business. Some
firms are labour-intensive, that is they have a high proportion of labour inputs to other
factors of production, e.g. house-cleaning services.
• Capital – this consists of the finance needed to set up a business and pay for its
continuing operations as well as all of the man-made resources used in production. These
include capital goods such as computers, machines, factories, offices and vehicles. Some
firms are capital-intensive, that is they have a high proportion of capital to other factors of
production, e.g. power stations.
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, • Enterprise – this is the driving force of business, provided by risk-taking individuals,
which combines the other factors of production into a unit that is capable of producing
goods and services. It provides a managing, decision-making and coordinating role.Without
this essential input, even very high-quality land, labour and capital inputs will fail to provide
the goods and services that customers need.
The production process adds value to the final goods and services- Value added is the
process of creating a product that is worth more than the cost of the inputs used to
produce it. (ex. bottle orange juice is worth more than the original oranges grown on a
farm)
The main business functions and their roles: human resources, finance and accounts,
marketing, operations (AO2)
* The only difference between small businesses and large businesses is that the
owner of a smaller business has to deal with these functions themselves and a
larger business can afford to hire specialized managers to do the same jobs
organized in separate departments.
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, Primary, secondary, tertiary and quaternary sectors (AO2)
The Sectors of Economy
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