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Summary International Baccalaureate Diploma Business & Management Higher Level Notes
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Business & Management Higher Level Notes
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Business & Management NotesUnit 1.1 Nature of Business Activity
A business is a decision-making organization, using inputs to produce goods and/or to provide
services.
Inputs are the resources -> labour and raw materials, used in the production process producing
outputs known as products.
Product can refer to both goods and services. Goods are physical products. Services are intangible
products.
Marketplace
Market is place or process whereby buyers (customers) and sellers (businesses) meet to trade
Customers are the people or organizations that buy a product whereas consumers are the ones
using the product
Types of products
Consumer goods are sold to the general public, split into either consumer durable goods (products
lasting for long time used repeatedly) or non-durable goods (those that need to be consumed shortly
after purchase)
Capital goods / Producer goods are products purchased by other businesses
Services are intangible products provided by businesses
Adding Value
Value added is the difference between the value of inputs and the value outputs -> allows business
to sell its products for more than its production costs -> profit
Opportunity cost
Defined as the best alternative that is forgone when making a decision
Role of profit in business activity
Profit refers to the positive difference between a firm’s total revenues and its total costs per period
of time.
Revenues are the inflows of money, usually from the sale of products.
Costs are the outflows of money, to finance production activities
If business costs are greater than revenues, organization makes loss
1. Profit acts as incentive to produce
2. Acts as reward for risk takers engaged in business activity
3. Encourages invention and innovation (cut costs of production)
4. Profits acts as indicator of growth/decline.
5. Source of finance to fund internal growth of business
,Factors of Production
1. Land. Refers to all natural resources found on the planet that are available for production
Renewable resources/ Non-renewable resources
2. Labour.
3. Capital Refers to all non natural resources that are used in creation and production of other
products. When firms increase capital stock, it’s called investment. Investment increases the
productive capacity of the economy and is crucial for the growth of an economy.
Government also contribute to investment expenditure (infrastructure)
4. Enterprise. Refers to management, organization and planning of the other three factors of
production.
LLCG -> Love Live Calling God
Rewards:
1. Land -> Rent
2. Labour -> Wages
3. Capital -> Interest
4. Enterprise -> Profit
(Collectively known as income)
Specialization
Means that a business concentrates on production of a particular good or service or a small range of
similar products
Different levels:
1. Individual
2. Departmental
3. Corporate
4. Regional (certain regions of country specialize)
5. National
Divisions of labour -> refer to the specialization of people, rather than organizations. Levels of
production would be higher and more efficient
Advantages of specialization (IISH)
1. Increased productivity – Output increases because of proficiency
2. Increased efficiency – Better use of scarce resources. Less time and resources wasted
because employees are more competent. Average costs of production
3. Standardization – Specialization results in constant standards/specifications met
4. Higher profit margins – Customers may be prepared to pay higher price for specialist and
services
Disadvantages of specialization (BILC)
1. Boredom – Fed up with repetitive tasks
2. Inflexibility – Employees who specialize will be less flexible as they lack skills and
opportunities to adapt to different roles and responsibilities
3. Lack of autonomy – Interdependence in production process -> lead to discontinuity
4. Capital costs – Purchase and maintenance of specialist machinery. Exhaust finance
,Business Functions
1. Production (Operations)
- Responsible for process of converting raw materials into finished goods, ready for
delivery to customers
Tasks may include:
- Determining how good will be manufactured or how service will be delivered
- Deciding on the resources needed for production
- Planning the timescale of production
- Stock management and control
- Performing quality control and inspections
- Arranging for delivery of finished stocks to customers
- Meeting production targets and deadlines
- Carrying out R&D into new products and work processes
Ensure efficient production
2. Marketing
- Identifying and satisfying consumer wants and needs
Product, Price, Promotion, Place
3. Finance
- Managing the organization’s money, ensure accurate recording and reporting of
financial documentation to comply with legal requirements
4. Human resources
- Workforce planning, recruitment, training, appraisal, pay and benefits, equal
opportunities, health and safety matters
, Business Sectors
1. Primary Sector
- Are involved with extraction, harvesting and conversion of land (natural resources) as
factor or production. Resources are then used in the secondary sector
- Employment and output in primary sector tends to dominate in less economically
developed countries
- In more economically developed countries, businesses operating in the primary industry
are more developed through use of mechanization and automation
- As economy develops, there is less reliance on primary sector in terms of employment
and national output. Part of the reason for this trend is that there is little value added in
primary production.
2. Secondary sector
- Are involved in using raw materials and other resources for the manufacturing or
construction of finished and usable products
- Developing countries tend to have a dominant secondary sector that accounts for a
relatively large percentage of the country’s national output. Economists argue that the
secondary sector of the economy is the wealth creating sector because manufactured
goods can be exported worldwide to earn income for the country. Value is added to the
natural and raw resources during the process.
- As an economy develops, there is tendency for the manufacturing sector to decline in
importance in terms of employment and output in the economy
3. Tertiary sector
- Provides services to their private and corporate customers, known as service sector
- Goods can be transformed in the process of providing a service
- In more economically developed countries (MEDCs), the sector tends to be most
substantial in terms of both employment and percentage of GDP (gross domestic
product -> Value of the countries’ output each year)
- The decline in the manufacturing sector in these nations also helps to explains a
MEDFC’s increasing reliance on the service sector
The three sectors of production are linked through the chain of production
All three production sectors are said to be interdependent
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