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Summary MNB1501 - Business Management 1A (Chapter 1 - 10)
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MNB1501 - Business Management 1A, Chapter 1 to 10 Summary from the Introduction to Business Management textbook, 9th Edition
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MNB1501 - Business Management 1AStudy Unit 1: The Business World and Business Management
The role of business in society
• Transformation of resources into goods and services society needs
• Business cannot operate without society
• Needs and values of society influence what business does. i.e. protecting the
environment
• Organizations influence behavior patterns of people in a particular society by developing
new products. i.e. Impact of cell phones, tablets etc. on social life.
• Success of business has an impact on the prosperity of a society. i.e. mining towns
Elements of business:
1. Human activities –managed or operated by people
2. Production – transform resources into products and services.
3. Involves Exchange – products & services for money or other goods/services
4. Profit – reward for meeting people’s needs
Market system/market economy = individuals themselves decide what to produce, how to
produce and what price of their product will be.
Business world = a complex system that involves the transformation of resources into goods and
services that must meet the needs of people in exchange for a profit.
Transformation: The process whereby resources are transformed into goods and services that
satisfy society’s needs. Also known as the production process.
Business world is under increasing pressure to ensure:
Social responsibility – limiting malpractice through regulation. Social responsibility measured by
the contribution of a business towards employment opportunities, equity, empowerment.
Business ethics – closely related to social responsibility. Business ethics focuses specifically on the
ethical behaviour of managers and directors, executives of organizations.
Affirmative action or equity regarding organization workforce – aimed at creating equal
employment opportunities - Employment equity Act 1998
Environmental damage – pressure groups to protect environment from all types of pollution,
Businesses are frequently responsible for air, water, soil and for the detrimental effects on fauna
and flora.
Consumerism – protects consumers against unsafe products and malpractice by exerting moral
and economic pressure on businesses.
Needs and need satisfaction
• Humans have varied and unlimited needs
• Society has limited resources (money) to satisfy those needs, which requires a choice to
be made about how best to utilize the limited resources for maximum benefit..
• Economic Principal = Decision to obtain the maximum benefit (satisfaction) with the
limited resources
• According to Maslow, all humans have same basic needs, but not everybody strives to
satisfy the same ones.
• Once basic needs (hunger) are satisfied, we strive to satisfy the next level i.e. security etc.
, Unlimited needs (Maslow’s hierarchy):
1. Physiological Needs (hunger, thirst)
2. Security Needs (protection)
3. Social Needs (love, recognition)
4. Esteem Needs
5. Self-Realisation Needs
Limited Resources/Production Factors
1. Natural Resources - land, forests, water
2. Human Resources - labour, physical and mental talents
3. Capital - buildings, machinery, computers – not for final human consumption
4. Entrepreneurship - Individuals who accept the risk, rewarded with profits for the risks
Need satisfaction Cycle - To be able to satisfy the needs of the community, entrepreneurs have to
use scarce resources in certain combinations in order to produce products and services.
Resources = required to produce goods and services to satisfy society’s unlimited needs. These
resources are however very limited and consist of natural resources, human resources, capital
resources and entrepreneurship.
Main Economic Systems
1. Free Market Economy (Free Enterprise System)
• Individuals decide what to produce, how to produce it and at what price.
• Free competition and high social costs
• Main driving force is profit generation
• Members of a community may possess assets and earn profits from them
• Allocation of resources are affected by free markets
• Community can freely choose between products, services, place to stay etc.
• Minimum interference from the state.
• People are free to do with their assets as they wish (freedom of distribution)
• Freedom of choice – producers decide whether they can profitably produce
products.
2. Command Economy (Communism)
• Alternative to Market Economy
• Centrally Directed economic system - State owns and controls resources and
factors of production
• System of communal ownership. Individuals own no land, factories or equipment
• Products and services are therefore limited to what the states offers
3. Socialism
• Proposed as a solution to a society’s fundamental economic problems
• Compromise between Free Market and Command Economies
• State owns and controls the principal/strategic industries (steel man, transportation,
communication, health and energy)
• Private initiative controls less important and smaller maters such as trade and
construction.
• Strategic and basic resources should belong to every member of the community
(Command Economy), the rest operate within the Free Market Economy.
, Market Economy Socialism Command (Communism)
(Capitalism)
Main Private ownership of factors Basic industries owned by State owns & controls all
Characteristics of production State industries and agriculture
Freedom of choice Freedom of choice Communal ownership
Minimum state interference Centrally direct economic
system
Markets Free competition Limited competition (state No competition
industries)
Driving Force Profit & reward achieved Recognise profit motive Profit is not allowed
according to individual Employee play in State Workers urged to work for
ability owned businesses based on the glory of the state
workers’ needs
Management Private businesses create Management environment: State creates management
management environment private & State environment
Managers free to take Decisions restricted to No freedom of decision
decisions Government policy in state- Managers are party
People free to choose owned organisations (SOO) members
careers
Labour Workers are independent Workers can choose jobs Limited choice of jobs
Can choose jobs and and employers Unions controlled by State
employers Limited right to strike in
Freedom to strike SOOs.
Consumers Freedom of choice in free Freedom of choice, except Rationing of products
markets iro SOO products, price & Very limited choice
Spending limited to income quality Price of products and
income levels set by State
Advantages Private initiative occurs Possibility of full employment State can concentrate
Economic freedom State stabilises economic resources towards particular
fluctuations ends
Disadvantages Environment is unstable Little incentive in SOOs Low productivity
Cyclical fluctuations SOOs can be unproductive Low standard of living
High social costs Planning is difficult or
impossible
o State & Economic System
• State intervention to solve economic problem in market economy does not
indicate a move towards command or centrally controlled economy.
• Government intervention aimed at encouraging economic growth and stability
• Control of strategic organisations cannot be left to profit seeking entrepreneurs
• An expanding entrepreneurial role by the state does not lead to a democracy
o South Africa
• Moving towards market-oriented economy
• High degree of government participation in & control of economy
4. Mixed Economy
• Includes a mix of both public and government control (capitalism and socialism)
• Degree of private economic freedom with centralized economic planning and
government regulation
, The need-satisfying institutions of the free market economy
Business Organisations
• Organisations that mobilise the country's resources to satisfy the country's needs at
the risk of a loss and in the pursuit of a profit
• Also known as Profit Seeking Businesses
• Most are privately owned (Private Enterprises), but state can also own businesses.
• State owned business = Public corporations (Transnet etc.)
Government Organisations
• Do not operate on a profit-seeking basis.
• Also known as Government Departments
• Provide a service to the community.
• Obtain funds from Treasury (people pay for these services through taxes).
Non-Profit Seeking Organisations
• Owned by state and private organisations
• Do not strive to make profit
• Seek just sufficient income to cover costs
• Sports clubs, welfare, religious, etc.
The Nature of Business Management
• Business Management
o Purpose and task
▪ Achieving the maximum output with the lowest possible input of
production factors.
o Focus on the problems of the individual organisations in the same community.
o How to manage a business as productively as possible
▪ Produce the most units at the lowest possible cost
▪ Achieve highest possible income
o Activities include:
▪ Research markets to determine whether there is a need for the product
▪ Acquire & process raw material
▪ Appointing people
▪ Obtaining capital
▪ Co-ordinating/managing activities
• Economics
o Study area of economic problems in the community, a social science studies of
how humans and society exercise choices concerning different ways of using their
scarce resources for products and services. `
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