Introduction to business studies
The term business refers to any activity that is carried out by an individual or an organization concerning provision of goods and services with a view of making a profit.
It’s made when the activity carried out brings in more money than the amount spent.
Business study is the study of the activities that are carried out in and around production, distribution and consumption of goods and services.
Terms used in business studies
These are items that are tangible i.e. they can be touched and felt e.g. furniture, buildings, vehicles and medicine.
They are actions of activities that may be sold. Unlike goods, services are intangible e.g teaching, banking, hairdressing and shoe making.
Production refers to the creation of goods and services or increasing their usefulness through activities such as transporting them to where they are required. People who produce goods are: farmers, manufacturers, house builders and road constructors. On the other hand, people who provide services include drivers, teachers, lawyers and doctors.
Distribution refers to movement of goods and services from producers to the users. Activities that take place during distribution include: buying and selling, transporting, communication, advertising and banking.
The term consumption refers to using hence it’s the usage of goods and services. A person who uses a good or service is called a consumer. E.g. when a student is reading a text book he/she is consuming it.
Branches of business studies
Business studies is a subject that covers topics from various disciplines. They are as follows:
This is the study of trade and aids to trade
Refers to exchange of goods and services for other goods and services or for money.
Aids to trade
Are human activities (services) that assist trade to take place e.g. transport, banking, warehousing and communication.
This refers to a systematic way of recording business activities which all used for decision making.
This is the study of how human beings strive to satisfy their endless wants using the available scarce resources.
This refers to all activities that are carried out in an office e.g. communication, filling, clerical work, reproduction of documents etc.
This is the study of activities involved in the process of identifying a business opportunity and acquiring the necessary resources to start and run a business. The person who carries out these activities is referred to as an entrepreneur.
Importance of Business studies in society
Business studies is meant to prepare learners to function as informed consumers, producers and workers in the society. Some of the benefits of learning business studies include:
Importance of business to an individual
Meaning and purpose of a business
Meaning of a business
This refers to any activity carried out by an individual or by an organization with the aim of making a profit. The term business also refers to firms or organizations that provide goods and services to make a profit.
Purpose of business (Reasons for the existence of businesses)
Business is important in any society because it is not possible for people to provide themselves with all what they need without direct or indirect aid from others. Some of the main reasons why businesses exist are:
People carry out different business activities in order to earn income. Business activities are activities which involve the provision of goods or services with an aim of earning a profit.
Activities done without the intention of making profit are referred to as non-business activities. Business activities may be grouped into the following seven categories:
Business Environments and Their Effects on the Business
Business environment refers to conditions or factors which surround and affect business operations. These factors could be within the business (internal environment) or from outside the business (external environment).
These factors affect the decisions, strategies, processes and overall performance of the business.
Internal Business Environment
This comprises factors that are within the business unit itself. These factors can be controlled fully by the business. Internal environmental conditions could be either strength or weaknesses. The strengths tend to improve the performance of the firm while weaknesses tend to affect the operations of the business negatively.
Internal environment is also referred to as: micro-environment. Micro environmental factors include:
1. Objectives of the business
These are targets or goals that are set by the owners or managers of a business to be achieved. The objectives will influence the following;
a. The strategies of a business-This is a plan of action which a business intends to follow so as to achieve its goals.
b. The resources required-By studying the objectives set; a business can determine the resources required for its effective operation. These resources may be physical, financial, human etc.
2. Management policies and style
The management refers to the people who are responsible for directing the day-to-day operations of a business. It is the management that sets the objectives and policies of an organization.
A policy is a course of action of action for achieving set objectives, which is adopted by a business. (It is the established way of doing things in a business.)
a. The policies of a business-The policies adopted by a business may boost or hinder its growth and survival e.g. the management may decide that workers will not be allowed to join trade unions. This may make the workers feel locked out of the decision making process, resulting in tension. This tension may interfere with the performance of the employees and result in inefficiency.
b. The activities of a business-Management policies will determine the activities of a business i.e. the goods and services provided, location of business etc.
c. Management style-This refers to how managers conduct the daily operations of the business. This will determine how workers relate with their managers. The style adopted by the management will influence the workers performance positively or negatively thus affecting the overall performance of the business.
3. Business structure
This is the formal arrangement of activities that are carried out at various levels of the organization so that objectives of the business can be achieved.
Duties and responsibilities of all the workers are defined in the business structure. Their interrelationship are also defined.
A well laid out business structure is likely to lead to success of the business since:
4. Business Resources
A resource refers to anything that can be used to achieve an objective. These resources include;
a. Human resource-Human resource (personnel) refers to the employees working in an organization. Employees will only be useful if they have the necessary knowledge and skills to successfully carry out the assigned tasks. It is therefore necessary for the management to match the correct people with the correct job activities; this will ensure success for the business.
b. Financial resource-Money is required in order to start and operate a business. A business with adequate finances that are property allocated to various activities and also monitored is likely to do better than the one lacking such aspects.
c. Physical resources-These include tangible facilities which belong to the business such as buildings, machinery, furniture and stock. Availability of such facilities enables the business to operate.
d. Technology-This refers to skills and methods used in production. Use of modern technology enhances production of goods and services.
5. Research and development
Research and development is an important factor for the success of a business. Research generates new ideas, skills and better methods of doing things.
A business has to do market and consumer research regularly to find out how the consumers perceive its goods and services, and how they can improve in order to outdo their competitors.
Research also assists in the development of new and unique goods and services that may attract new consumers or maintain the loyalty of the existing ones.
6. Business culture
This is a combination of employee’s expectations, beliefs and values within the business. It is normally passed on from one generation of employees to the next. Employees acquire norms and code of conduct that is acceptable to all from the general manager down to the sweeper. A business that has a culture of involving employees in decision making may perform better than one that does not involve its employees.
The owners of the business provide finances/resources to start and run the business. They also make decisions concerning operations of the business.
Appropriate decisions are likely to lead to well being of the business while poor decisions may adversely affect the business.
External Business Environment
This environment consists of all the factors which affect the operations of the business from the outside. Some of these factors offer business opportunities while others may create problems (threats).
Business have limited or no control over external environmental factors and should therefore try to do adjust in order to cope with them.
External environmental factors are also referred to as macro-environment i.e. environment that is in large scale.
External business environment can further be sub-divided into operating environment and remote environment, depending on whether the factors can be influenced to some extent or not. Those environments that can be influenced are referred to as operating environment while those that cannot be influenced are known as remote environment.
When these factors favor a business, they are called opportunities but when they are unfavorable they are called threats. These factors include:
a. Economic environment
These are the factors that determine people’s ability to buy goods and services which is referred to as purchasing power. The ability to buy depends on amount people earn, prices of goods & changes in taxes. If the buyer’s ability to purchase increases, the business is likely to sell more.
b. Demographic environment.
It refers to factors relating to population (population change) such as growth rate, size, sex, age distribution levels & income distribution. A growing population creates a wide market for goods & services. Better education & jobs for consumers would improve their demand for quality goods and services
c. Legal – political environment
This refers to government laws, regulations, procedures that influence businesses. Firms are required by law to sell goods that meet certain specified standards. Political environment creates an environment that is conducive for the business to grow.
Unfavorable political environment such as war & political disputes creates uncertain environment hence poor performance of the business
d. Technological environment
Advancement in technology will lead to better quality of goods and services. If the business uses outdated technology, while other firms are using modern technology, consumers will tend to go for the goods and services produced by other firms.
e. Cultural environment
Culture refers to the norms that regulate behaviour of people in a society. They include customs, values and beliefs that are shared by a given society. Culture dictates how people live and what products they consume. E.g. Muslims don’t take pork.
f. Competitive environment
This is an environment whereby firms are trying to outdo each other in their efforts to maximize profits. This will take either of the following forms:
g. Physical environment
They physical environment includes factors such as relief, climate and infrastructure like roads, water supply, electricity, telephone, security and banks.
They may affect a business positively or negatively. Examples include: good infrastructure would support business activities while poor infrastructure may discourage business activities.
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Business Studies Notes Form 1 - 4
Atika School Team