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Understanding Business Activity

This section introduces the basic building blocks of business studies, covering the
nature and purpose of business activity, the importance of needs, wants, scarcity,
opportunity cost, specialization, and adding value. It also explores the classification of
business activities, the advantages and disadvantages of different forms of business,
and the role of entrepreneurs. Additionally, it examines how the activities of all
businesses affect different groups of people, or stakeholders, and how their
objectives may influence or be influenced by the activity of the business.

Business Activity: The Basics

Business activity is all around us, providing consumers with the goods and services
we need and want.

The Purpose and Nature of Business Activity

The purpose of business activity is to provide consumers with goods and services
that meet our needs and wants.

Needs vs. Wants

Need:

Any good or service which people must have to be able to live.

Examples include water, food, shelter, and clothing.

Want:

Any good or service which people would like to have but is not
essential for living. Examples include mobile phones, cars, and
holidays.

Scarcity and Opportunity Cost

The economic problem arises because unlimited wants cannot be met due to limited
factors of production, creating scarcity.

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Economic Problem: Unlimited wants cannot be met because there are

limited factors of production. This creates scarcity.

Factors of Production
These are the resources needed to produce goods and services:

Factor of
Description
Production

Land All natural resources such as minerals, ores, fields, oil, and forests.
Labor The number of people available to work.
Capital Machinery, equipment, and finance needed for production.
People prepared to take the risk of setting up businesses; they are
Enterprise
known as entrepreneurs.

Factors of production: the resources needed to produce goods and

services: land, labor, capital, and enterprise.

Scarcity means that choices have to be made about how to use limited resources.

Scarcity: There are not enough goods and services to meet the wants of
the population.

The opportunity cost is the next best alternative that is given up when making a
decision.

Opportunity cost: The benefit that could have been gained from an
alternative use of the same resource.

Importance of Specialization
Specialization is when people and businesses concentrate on what they are best at,
increasing efficiency and reducing production costs.

Specialization: People and businesses concentrate on what they are best

at.

Division of Labor

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This involves dividing production into separate tasks, with each employee focusing
on just one task. This increases labor productivity.

Division of labor: Production is divided into separate tasks, and each

employee does just one of those tasks.

Purpose of Business Activity

Businesses use scarce resources (factors of production) to produce goods and
services demanded by consumers. Types of goods and services include:

Consumer Goods:

Products sold to the final consumer that can be seen and touched.
These can be durable (used repeatedly, like TVs) or non-durable
(used once, like food).

Consumer Services:

Non-tangible products like insurance, banking, and transport.

Capital Goods:

Physical goods sold to other businesses to aid in their production

process, such as machines and delivery vehicles.

Adding Value
Businesses aim to add value at every stage of the production process by
transforming raw materials into goods or services that can be sold at a higher price.

Ways to Increase Added Value

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Branding: Building and maintaining a brand through advertising and

promotional activities.
Excellent Service Quality: Providing high-quality, personalized service.
Product Features: Offering more features and functions compared to similar
products.
Convenience: Providing goods and services that save consumers time or are
immediately available.

Business Activity: Satisfying Needs and Wants

Business activity combines the factors of production to produce goods and
services that meet consumer needs and wants.
The economic problem and the problem of scarcity are due to unlimited needs
and wants of consumers which cannot be met by businesses because they have
limited factors of production.
Choices must be made, and this creates an opportunity cost.
Specialization of both labor and capital helps businesses produce more goods
and services at a lower cost.
Businesses add value by taking raw materials and turning these into goods and
services that they can sell to consumers.

Factors of Production and Business Activity

Mitike and her sister's leather bag and belt workshop exemplifies business activity:

They use a $2000 loan to buy equipment and raw materials and to rent their
workshop.
Their business employs ten workers and, as they expand production, they also
hope to hire more.

Primary, Secondary, and Tertiary Sectors

Businesses are classified into three sectors based on their activities:

Primary Sector
Involves extracting or harvesting natural resources from the land or sea.

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Examples:
Farming
Fishing
Forestry
Mining
Often provides raw materials for secondary sector business activity.

Secondary Sector
Takes the natural resources produced by primary sector activity and turns
these raw materials into finished goods.

Examples:
Refining
Manufacturing
Construction
Food canning
Furniture making
Car manufacturing
House building

Tertiary Sector
Involves providing services to the final consumers or businesses.

Examples:
Shops
Restaurants
Banks
Cinemas
Airlines
Provides services such as retailing, finance, entertainment, and transport.

Chain of Production
The production and supply of goods to the final consumer involves
activities from primary, secondary, and tertiary sector businesses.

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Example: Oil
Drilling for oil (primary sector)
Refining the oil (secondary sector)
Petrol or gas station (tertiary sector)

Developed vs. Developing Economies

Developing country (LDC): Often has a small industrial sector and a lower
standard of living.
Developed country (MDC): Has high levels of industrialization and its people
have higher average incomes and enjoy a higher standard of living.
The size of a country's different sectors often indicates whether it has a
developing or developed economy.

Changing Importance of Business Classification

Industrialization: Growing importance of secondary sector business activity and
the reduced importance of primary sector business activity.
De-industrialization: Growing importance of the tertiary sector and the
reduced importance of the secondary sector.
Changes in consumer behavior:
Higher incomes: Consumers demand better quality and a wider choice of
products.
Better education: Consumers expect better products and know that they
can buy goods from suppliers in a different region or country through e-
commerce.
More leisure time: The demand for leisure activities has increased.
Changes in business behavior:
The need for finance to fund expansion so that businesses can compete in
global markets.
The need to be able to communicate internally and externally quickly and
as cheaply as possible to take advantage of the opportunities of wider
markets.
The need to provide better services for employees, for example, canteens;
this in turn increases business demand for the goods and services of other
businesses.

Private vs. Public Sectors

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Mixed Economy
An economy where the resources are owned and controlled by both the
private and public sectors.

Private Sector
The part of the economy that is owned and controlled by individuals and
companies for profit.

Public Sector
The part of the economy that is controlled by the state or government.

Choices in Private and Public Sectors

Sector What to Produce How to Produce For Whom to Produce

Private Firms want to make Customers' buying

Consumer choices
Sector profit power
The government The government The government
Public Sector
decides decides decides

Private Sector Decisions

Consumers want to buy certain goods and services.
Businesses only produce goods and services that consumers want if they can
make a profit.
Businesses decide the best way of producing their products at the lowest cost.
Goods and services will only be bought by people who have enough money to
pay the price charged.

Public Sector Decisions

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Decisions about what, how, and for whom to produce are made by government.
Produces goods and services that all people in the population need.
Decisions are based on providing good-quality services rather than making a
profit.
Some goods and services are provided free at the point of use.
If some consumers do not have enough money to buy goods and services, the
government might sell them at a lower price or provide them free of charge.

Enterprise and Entrepreneurship

Entrepreneur
An individual who has an idea for a new business and takes the financial
risk of starting up and managing it.

Characteristics of Successful Entrepreneurs

Innovative: Good at thinking up new ideas.
Self-motivated and determined: Have the drive to keep going.
Self-confident: Strong belief in their own ability and ideas.
Multi-skilled: Ability to see an idea through from development to profitable
sales.
Strong leadership qualities: Good communication skills and the ability to
motivate others.
Initiative: Able to develop a good plan for achieving the business's objectives.
Results-driven: Focused on achieving results and making sure products are
sold for profit.
Risk-taker: Prepared to take risks, knowing that failure is a possibility.
Good at networking: Prepared to learn from others.

Business Plan
A detailed written document outlining the purpose and aims of a business
which is often used to persuade lenders or investors to finance a business
proposal.

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Contents of a Business Plan

The business
The business opportunity
The market
The objectives of the business
Financial forecasts

How Business Plans Assist Entrepreneurs

The information it contains can be used to persuade lenders such as banks and
investors to provide finance to the business.
The plan gives the business a sense of purpose and direction.
The objectives and financial forecasts provide the business with targets to aim
at and enable the business to monitor its progress.

Government Support for Start-Ups

Small businesses are crucial for most economies. For instance, in the UK in 2012:

There were 4.8 million businesses.

Over 99% of these were small or medium-sized, employing fewer than 250
people.
Micro-businesses (employing fewer than ten people) accounted for 4.6 million
(96%) of all businesses.

Governments actively encourage new start-ups due to the economic benefits they
offer:

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Job creation: Small firms collectively employ a significant portion of the

workforce.
Innovation: Entrepreneurs bring new ideas for goods and services, increasing
consumer choice.
Competition: More businesses lead to greater competition, resulting in lower
prices and better quality.
Specialization: Small businesses often provide specialized goods and services
that larger businesses avoid.
Growth potential: Start-ups can grow into larger businesses, benefiting the
economy.
Lower costs: Some start-ups have lower costs than larger businesses, offering
consumers lower prices.

Governments provide various types of support to new businesses, including:

Grants and low-interest loans

Lower tax rates on early profits
Rent-free premises for a limited time
Free or subsidized training
Information and advice from specialist agencies

Measuring Business Size

There are several ways to measure and compare the size of businesses:

Capital Employed
Value of Output
Number of Employees
Market Share

Capital Employed
The value of all long-term finance invested in a business. It's used to
purchase assets like buildings, machinery, and inventory.

A small business will have less capital employed than a large business in the same
industry. However, using capital employed to compare businesses across different
industries can be problematic (e.g., car manufacturing vs. software design).

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Value of Output
The amount businesses earn from selling their products can be used to compare
businesses in the same industry.

A small business will generally have lower revenue than a larger one.

However, this isn't a great measure for comparing businesses in different industries
(e.g., a designer dress shop vs. a sweet shop).

Number of Employees
Larger businesses typically employ more people than smaller ones in the same
industry.

However, this measure can be misleading because businesses with

automated processes may have fewer employees than those using
traditional methods, even with similar output levels.

Market Share
The larger the share of the total market, the larger the business. However, this can
also be misleading.

Consider the following data:

Firm Market Share (%) Total Market Value ($000s)

Firm A 10 500
Firm B 60 500
Firm C 6 850

While Firm B has a larger market share than Firm A, Firm C's market share value (
51, 000)ishigherthanF irmB s(300,000), indicating that Firm C is larger.
′

Limitations of Measuring Business Size

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It's important to use more than one measure to accurately describe the size of a
business due to the limitations of each method.

Business Growth
Growth is a long-term objective for most businesses, although some prefer to remain
small.

Reasons for Expanding a Business

Increase in profits: Growth should increase output, leading to increased sales,
revenue, and profits.

Increase in market share: Growth can lead to a larger market share, making the
business and its products more widely known.

Economies of scale: As a business grows, it may benefit from reduced average

costs, increasing profits or allowing for lower prices.

Economies of scale: Reduced average costs as a result of business

growth.

Greater power to control the market: Larger businesses have more influence
over prices and market activities, and may even influence government policy.

Protection from the risk of takeover: Larger companies are more difficult and
expensive to take over.

Ways Businesses Can Grow

Internal growth (organic growth): Expanding by increasing production,
developing new products, or finding new markets.
External growth (integration): Expanding by merging with or taking over
another business.

Types of Integration

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Horizontal integration: Joining two firms in the same industry and sector.
Forward vertical integration: Joining two firms in the same industry where one
is a customer of the other.
Backward vertical integration: Joining two firms in the same industry where
one is a supplier to the other.
Conglomerate integration: Joining two businesses in completely different
industries.
Form of Integration Business Activity 1 Business Activity 2

Forward Vertical Oil Refining Supermarket

Conglomerate Restaurant Large Car Manufacturer
Horizontal Small Car Manufacturer Travel Agency
Backward Vertical Fruit Canning Fast Food Outlet

Problems Linked to Business Growth

Internal growth can be slow.

Integration can lead to job insecurity and management challenges.

Diseconomies of scale may occur, increasing average costs.

Diseconomies of scale: Increased average costs as a result of a

business becoming too large.

Different objectives and management styles can cause conflict.

Original owners may lose control of the business.

Careful planning and resource management are essential for successful business
growth.

Why Some Businesses Remain Small

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Owner's choice: Some owners prefer the lifestyle, control, or personal service
associated with a smaller business.
Market size: Businesses serving a local market may not want to expand beyond
their neighborhood.
Access and availability of capital: Small businesses often struggle to obtain
loans for expansion.
Market domination: Some industries are dominated by large companies,
making it difficult for smaller businesses to compete.

Why Some Businesses Fail

Poor planning and lack of objectives
Liquidity problems
Poor choice of location
Poor management
Failure to invest in new technologies
Poor marketing
Lack of finance
Competition
Economic influences (e.g., unemployment, high interest rates)

Business Failure Causes and New Business

Challenges
Two causes of business failure:
Poor financial management.
Difficulties competing with larger firms.
New businesses are more likely to fail due to:
Lack of experience.
Difficulty in raising funds.
Owners lacking essential business skills.

Grace: An Entrepreneurial Example

An entrepreneur is someone with a business idea who takes the risk to set it
up, often using their own money.

An entrepreneur is someone who has an idea for a business and is

prepared to take the risk of setting up the business using their own
money.

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A business plan gives direction by setting objectives, financial forecasts, and

needed resources.

A business plan provides purpose and time direction for the business by
clearly setting out the objectives and financial forecasts and the resources
needed to achieve these.

Measurements of business size: capital employed, number of employees, value

of output, and market share.

Capital employed, number of employees, value of output and market

share are all methods that can be used to measure business size.

Businesses grow through internal or external methods.

Types of Business Organizations

Business organizations in the private sector are defined by their legal structure.

Sole Traders
A sole trader is a business owned and managed by one person.

A sole trader is a business that is owned and controlled by just one

person who takes all of the risks and receives all of the profits.

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Reasons to become a sole trader:

Being your own boss.

Deciding your own hours.
Using your skills and interests.

Advantages of being a sole trader:

Easy to set up.

Complete control over decisions.
Small amount of start-up capital needed.
Owner keeps all the profit.

Disadvantages of being a sole trader:

Unlimited liability for business debts.

Difficult to raise funds to expand.
Difficult to compete with larger firms.
Lack of essential business skills.
Long working hours.
Business dissolves upon retirement or death.
Advantages Disadvantages

Easy to set up business Unlimited liability - Responsible for business debts

Makes all the decisions May not be able to raise funds to expand the business
Has complete control May have to work long hours
Keeps the profit Difficult to compete with larger rival firms
May not have business skills to run a business

Partnerships
A partnership is a business owned and managed by two or more people.

A partnership is a business formed by two or more people who will

usually share responsibility for the day to day running of the business.
Partners usually invest capital in the business and will share profits.

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Advantages of partnerships:
Greater access to finance.
Shared decision-making.
Shared management and workload.
Easy to set up.
Disadvantages of partnerships:
Unlimited liability.
Shared profits.
Business dissolves if a partner leaves.
Decisions are binding on all partners.
Difficult to raise additional finance.
Advantages Disadvantages

Unlimited liability - Responsible for

Easy to set up a Deed of Partnership
business debts
Partners invest in the business so greater
Share the profits
access to funds
Business ceases to exist if one partner
Shared decision making
leaves
Shared management and workload Decisions binding on all partners
Difficult to raise finance

Private and Public Limited Companies

Unincorporated businesses: Owners are responsible for the debts of the
business with unlimited liability.

A business that does not have legal identity separate from its owners. The
owners have unlimited liability for business debts.

Limited company: Owners are not responsible for the business's debts.

Shareholders: Investors who invest money in the company in exchange for

shares.

A person or organization who owns shares in a limited company.

Private limited company: Small to medium-sized company, owned by

shareholders with limited liability; cannot sell shares to the public.

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Often a small to medium-sized company; owned by shareholders who

have limited liability. The company cannot sell its shares to the general
public.

Public limited company: Large company, owned by shareholders with limited

liability; can sell shares to the public.

Often a large company; owned by shareholders who have limited liability.

The company can sell its shares to the general public.

Ordinary shareholders: The owners of a limited company.

Limited liability: Shareholders only risk losing their investment, not personal
wealth.

The shareholders in a limited liability company which fails only risk losing
the amount they have invested in the company and not any of their
personal wealth.

Dividend: Payment to shareholders from profits.

A payment, out of profits, to shareholders as a reward for their

investment.

Key features of private and public limited companies:

Legal documents (Articles of Association and a Memorandum of Association)
must be completed during setup.
Shareholders invest capital by purchasing shares.
Shareholders have limited liability.
The business continues even if shareholders die.
The company can raise finance by selling shares.
Profit belongs to the ordinary shareholders and is shared through dividends.
Shareholders vote on major decisions.
Financial statements must be produced and submitted, available for public
view.

Differences between Private and Public Limited Companies

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Feature Private Limited Company Public Limited Company

Usually a small number of

Usually a large number of
Owners shareholders, often
shareholders.
family/friends.
Most common form of
Size Usually fairly small. organization for very large
companies.
Sale of shares by Can be offered for sale to the
Can only be sold privately.
company general public.
Sale of shares by Difficult to sell as must be sold Quick and easy to sell to the
shareholders privately. public.
Few shareholders, often with Many shareholders, with control
Control
concentrated control. by the Board of Directors.
Difficult to raise additional Can raise very large sums
Raising capital
capital. through share sales.
Can raise large sums due to
Often difficult due to low-value
Borrowing reputation and valuable
assets.
collateral.
Collateral: Non-current assets offered as security against borrowing.

Non-current assets offered as security against borrowing.

Disadvantages of Public Limited Companies

Costly legal formalities.
Directors' decisions influenced by major investors.
Risk of takeover by another company.
Stricter legal requirements for publishing information.

Franchises
A franchise is a business system where entrepreneurs buy the right to use the
name, logo, and product of an existing business.

A business system where entrepreneurs buy the right to use the name,
logo and product of an existing business.

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Benefits of franchising:
Less chance of business failure.
Advice and training from the franchisor.
Franchisor finances brand promotion.
Guaranteed quality supplies.
Limitations of franchising:
High initial cost.
Percentage of revenue/profits taken by franchisor.
Strict controls over product, pricing, and store layout.
Franchisee pays for local promotions.

Joint Ventures
A joint venture is when two or more businesses agree to work together on a
project and set up a separate business for this purpose.

Two or more businesses agree to work together on a project and set up a

separate business for this purpose.

Reasons for joint ventures:

Reduces risk and cuts costs.
Each business brings different expertise.
Shared market and product knowledge.
Limitations of joint ventures:
Mistakes can damage the reputation of all firms.
Different business cultures can make decision-making difficult.

Unincorporated vs. Limited Companies

Unincorporated business: Owners are legally responsible for the activities of
the business with unlimited liability.

An unincorporated business is one which does not have a separate legal

identity from its owners. This means that the owners are legally
responsible for the activities of the business. Also, the owners have
unlimited liability for the debts of the business.

Incorporated business: The company is legally responsible for its activities, and
the owners have limited liability.

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An incorporated business, such as a limited company, has a separate legal

identity from its owners. The company, and not the owners (shareholders),
is legally responsible for the activities of the business. The owners of an
incorporated business have limited liability for the debts of the business.

Risk, Ownership, and Limited Liability

Unincorporated businesses have greater legal and financial risks because:
Owners and the business have the same legal identity.
Owners have unlimited liability for business debts.
Incorporated businesses reduce these risks because:
Owners and the company have separate legal identities.
Owners have limited liability for business debts.

Choosing the Type of Business Organization

Unincorporated businesses are easier to set up.
As a business grows, owners may decide to incorporate to:
Reduce legal and financial risk.
Ensure business continuity.
Raise additional capital by selling shares.
The choice of business organization depends on:
The number of owners.
The owner's role in management.

Business Organizations

Factors Affecting the Choice of Business Organization

When deciding on a business organization, entrepreneurs consider several factors:

Attitude towards financial risk: Owners who don't want to risk personal
wealth prefer incorporated businesses.
Speed of setup: Unincorporated businesses (sole traders, partnerships) are
quicker to set up due to fewer legal requirements.
Potential size of the business: Small businesses often remain sole traders or
partnerships due to market size or owner preference.
Legal Structure: An incorporated business may be a better choice.

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Public Corporations

Key Features
Public corporations operate within the public sector with distinct characteristics:

Owned and controlled by the state.

Financed mainly through taxation.
Often have social objectives rather than solely profit-driven goals (e.g.,
providing public services).
Services often provided free or at a low cost.

Main Forms of Business Organization in the

Private Sector ‍
The private sector includes various business structures:

Sole traders
Partnerships
Limited companies
Franchises
Joint ventures

Each form has its advantages and disadvantages. A key disadvantage of

unincorporated businesses is the owners' unlimited liability for business debts.

Unlimited liability: The owner is personally responsible for all business

debts.

Private vs. Public Sector Objectives

Private sector organizations primarily aim for profit.
Public sector organizations are more concerned with social objectives.

Business Objectives and Stakeholders

Need for Business Objectives

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Every aspect of a business requires objectives to create a plan or strategy. This plan
must be reviewed regularly to ensure the business stays on track. If objectives aren't
being met, the business may need to adjust its plan or even its objectives.

Objective: A statement of a specific target to be achieved. It should be

SMART.

SMART Objectives
Effective business objectives should be:

Specific: Clearly defined (e.g., airline aiming for a certain seat occupancy level).
Measurable: Quantifiable (e.g., airline aiming for 85% average seat occupancy).
Achievable and Agreed: Discussed with relevant departments to ensure
feasibility.
Realistic and Relevant: Aligned with available resources and relevant to the
responsible managers.
Time-specific: Set with a deadline (e.g., achieving target seat occupancy within
18 months).

Common Business Objectives

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Survival: A short-term objective, especially crucial for new businesses.

Profit: Maximizing the difference between revenue and total costs.

Growth: Expanding the business size to increase output and benefit from
economies of scale.

Economies of scale: Cost advantages due to increased production

levels.

Market Share: Increasing the business's percentage of total market revenue to

strengthen brand image.

Market share: The revenue of a business expressed as a percentage

of total market revenue.

Corporate Social Responsibility (CSR): Considering social, ethical, and

environmental issues in business decisions. Ignoring CSR can lead to bad
publicity and legal action.

Corporate social responsibility (CSR): Businesses taking

responsibility for the impact their activities might have on society
and the environment.

CSR has become important due to:

Pressure group activity

Pressure group: A group of like-minded people that puts pressure

on businesses and government to change their policies to reach a
predetermined objective.

Media awareness of social, ethical, and environmental issues.

Trade union and employee representative groups.

Trade unions: An organized association of workers in a trade, group

of trades, or profession, formed to protect and further their rights
and interests.

Government laws.

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Objectives of Social Enterprises

Social enterprises prioritize social objectives, focusing on community and
environmental needs. Profits are reinvested in the business or community rather than
distributed to owners/shareholders.

Social enterprise: A business with social objectives that reinvests most of

its profits back into the business or into benefiting society at large.

Stakeholders
Stakeholder: An individual or group which has an interest in a business
because they are affected by its activities and decisions.

Types of Stakeholders
Internal stakeholders
External stakeholders.

Internal Stakeholders
Have a direct interest in the business's decisions and activities.

Owners/Shareholders: Interested in business performance and profit.

Managers: Responsible for business performance and may receive
bonuses/promotions for achieving objectives.
Employees: Interested in job security and pay raises tied to business
profitability.

External Stakeholders
Also have an interest in the business's decisions and activities.

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Lenders: Banks want to ensure interest payments are made and borrowed
amounts are repaid.
Suppliers: Want to be paid on time and benefit from the business's success,
although increased business size may lead to pressure for lower prices.
Customers: Want assurance of the business's continued existence, especially
for products needing spare parts.
Government: Receives taxes on business profits, funding public services.
Local Community: Benefits from employment opportunities and local spending,
but may experience negative impacts like pollution and traffic.

Stakeholder Objectives

Stakeholder Objectives

Internal
Owners/Stakeholders High returns/dividends, increased share value.
Managers Job satisfaction/status, salary increases/bonuses.
Employees Job security, fair wages.
External
Timely interest payments, repayment of borrowing by the due
Lenders
date.
Prompt payment, fair treatment, avoiding pressure to reduce
Suppliers
prices.
Customers Quality goods/after-sales service, fair pricing.
Timely and correct tax payments, minimal spending on
Government
unemployment benefits.
Local economic benefits (employment), subsidizing community
Local Community
facilities, avoiding negative impacts like pollution.

Conflict Among Stakeholders

Business decisions can have both positive and negative effects on stakeholders,
leading to conflicts as different groups have differing objectives. A single decision can
even have mixed impacts on the same stakeholder.

Objectives of Private vs. Public Sector

Enterprises

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Private sector organizations primarily aim for profit.

Public sector organizations have different objectives which are:

Accessible
Affordable
Open to all

Business Objectives and Stakeholders

Business Objectives
Survival: Especially crucial in the initial stages.
Example: Aisha prioritizing survival in her first year of business.
Profit: Making money is a primary goal for most businesses.
Growth: Expanding the business in terms of revenue, market share, or
operations.
Example: Aisha considering beauty treatments to grow her business.
Market Share: Increasing the percentage of total sales within a specific market.

Types of Businesses
Private Sector Businesses: Aim for profit, growth, and market share.

Social Enterprise:

A private sector business that makes profit to benefit local

communities and reinvest to grow the business, not for the owners
or investors.

Public Sector Organisations: While profit might be an objective, social

objectives are usually more important.

Stakeholders

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Definition:

Individuals or groups who have an interest in the activities of a

business.

Internal and external stakeholders exist.

Stakeholder objectives can conflict with each other or with the business's
objectives.

Case Study: Tabansi's Drinks and Smoothies

Entrepreneurial Characteristics
Tabansi displayed entrepreneurial traits from a young age.
Example: Selling soft drinks to tourists at 13.

Business Advisor's Recommendations

1. Set Clear Objectives: Establish specific, measurable, achievable, relevant, and
time-bound (SMART) goals.
2. Produce a Business Plan: A comprehensive document outlining the business's
goals, strategies, and financial projections.
3. Consider Becoming a Private Limited Company: Changing the business
structure for potential benefits.

Financial Forecasts
Tabansi created financial forecasts for the next three years as part of his
business plan.

Reasons for New Business Failure

1. Poor Management: Lack of experience or skills.
2. Inadequate Capital: Insufficient funding.
3. Poor Location: Unfavorable business environment.
4. Lack of Planning: Failure to create a comprehensive business plan.

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Importance of Objectives
Profit: Ensuring financial viability and attracting investment.
Growth: Expanding operations, increasing market share, and improving
profitability.
Survival: Maintaining business operations in the face of challenges.

Benefits of Being a Sole Trader

1. Easy to Set Up: Simple legal requirements.
2. Full Control: Sole decision-making power.
3. Keep All Profits: No sharing of profits with partners or shareholders.

Stakeholder Interests
Lenders: Concerned about repayment of loans and financial stability.
Suppliers: Interested in maintaining a reliable customer and securing future
orders.
Government: Focused on tax revenue, employment, and regulatory compliance.

Human Resource Management and Motivation ‍

Importance of People in Business

People are the most valuable asset of any business.
Their work directly impacts the success or failure of the business.
Effective recruitment, selection, and training are crucial functions.
A well-trained workforce is essential.
Managers need to understand motivation theories to maximize employee
output.

Motivation at Work

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Definition:

The factors that influence the behavior of employees towards

achieving set business goals.

Combination of factors: money, job security, interesting work, promotion

prospects.

Factors Influencing Motivation

Pay
Promotion Opportunities
Recognition
Work-Life Balance
Training and Development
Improved Work Environment
Flexible Hours
Bonuses
Variety of Tasks

Benefits of a Well-Motivated Workforce

Increased Labour Productivity: Higher output per employee.
Reduced Absenteeism: Lower rates of employees taking time off.
Lower Labour Turnover: Reduced rates of employees leaving.
Easier to Manage: Motivated employees are more cooperative.

Consequences of Poor Motivation

Reduced Productivity: Lower output and efficiency.
Increased Absenteeism: More employees taking time off.
Higher Labour Turnover: More employees leaving the business.
Customer Complaints: Dissatisfied customers due to poor service or quality.

Maslow's Hierarchy of Needs

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Abraham Maslow identified five levels of human needs:

1. Physical Needs: Basic needs for survival (water, food, shelter).

2. Safety Needs: Security and protection from danger.
3. Social Needs: Belonging, love, and acceptance.
4. Esteem Needs: Respect, recognition, and status.
5. Self-Actualisation: Reaching one's full potential.

People progress through the hierarchy, seeking to fulfill each level before
moving to the next.

Once a need is satisfied, it no longer motivates.

Managers can use this theory to motivate employees by organizing work to

satisfy their needs.

How Businesses Can Help Satisfy Needs

Level of Need How a Business Helps

Physical Needs Pay high enough to buy basic needs, free meals at work
Contract of employment, protective clothing, training on equipment
Safety Needs
use, payments during periods of illness
Social Needs Organise employees into teams, organise social activities
Esteem Needs Manager praises employees, give employees responsibility
Self- Challenging work, opportunity to develop new skills for increased
Actualisation potential

Key Motivational Theories

Taylor's Scientific Management Theory

Focuses on reducing inefficiency by finding the quickest method for each task.
Trains employees to use this method.
Believes employees are primarily motivated by money (economic man).
Developed the piece-rate method, where employees are paid per unit
produced.

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Herzberg's Two-Factor Theory

Identified two groups of factors:
Hygiene Factors: Prevent job dissatisfaction (e.g., working conditions,
relationships, salary, supervision, company policy).
Motivators: Influence employees to increase effort (e.g., the work itself,
responsibility, advancement, achievement, recognition).
Hygiene factors must be at an acceptable level to prevent dissatisfaction.
Motivators can then be used to increase motivation.

Hygiene Factors vs. Motivators

Hygiene Factors Motivators

Working Conditions The Work Itself

Relationships with Others Responsibility
Salary or Wage Advancement
Supervision Achievement
Company Policy Recognition of Achievement

Financial vs. Non-Financial Rewards

Financial Rewards: Cash and non-cash rewards used to motivate employees
(e.g., wages, salaries, bonuses, benefits).
Non-Financial Rewards: Methods to motivate employees without giving
financial rewards (e.g., recognition, praise, increased responsibility,
opportunities for growth).

Employee Compensation Methods

Wage

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Employees are paid a fixed amount for each hour worked.

Calculation: Wage = $ (hourly rate) x (hours worked).
For example: 5/hourx40hours =200
Most common for production employees and non-managerial staff.
Advantage:
Businesses only pay for hours worked.
Disadvantage:
Pay is not linked to output.

Salary
A fixed annual payment, usually paid monthly, best suited for employees
whose work isn't directly linked to production (e.g., supervisors,
managers).

Advantage:
Employees don't receive extra pay for longer hours.
Disadvantage:
Pay is not linked to effort or output.

Piece-rate
Pay based on the number of units of output employees produce, typically
used to reward production employees.

Calculation: Wage = $ (rate per unit) x (units produced).

For example: 0.25/unitx600units =150
Advantage:
Employees are paid only for what they produce.
Disadvantage:
Quality may suffer as employees rush to increase output.

Commission
Pay based on the value of sales made by staff, exclusively used for sales
staff.

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Advantage:
Pay is linked to sales value.
Disadvantage:
Income is uncertain, potentially causing employee turnover.

Bonus Scheme
An additional payment for achieving targets set by managers, applicable
to individuals or groups.

Incentivizes employees to work harder if targets are realistic.

Advantage:
Linked to performance targets and productivity, reducing average costs.
Disadvantage:
Unrealistic targets can demotivate employees. Group bonuses may cause
conflict if efforts aren't equal.

Fringe Benefits
Non-cash rewards such as discounts, company cars, health insurance, and
pensions, used to recruit, retain, and recognize employee status.

Advantage:
Help in recruitment and retention.
Disadvantage:
Often linked to status, not performance.

Profit Sharing
Additional payment to all staff based on the business's profits, usually
paid annually as cash or shares.

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Argument:
Everyone contributes to the business's profit and should share in the
success.
Advantage:
Directly linked to the business's performance.
Disadvantage:
May reduce dividends to shareholders or reinvestment funds.

Non-Financial Rewards and Methods

Job Rotation
Increasing variety by allowing employees to switch tasks, preventing
boredom and developing multi-skilled workers.

Employees become multi-skilled, creating a more flexible workforce.

Job Enlargement
Giving employees a greater variety of similar-level tasks to increase
variety and reduce boredom.

Job Enrichment
Organizing work to use more of employees' skills and abilities, increasing
job satisfaction and motivation.

Employees become more involved in decisions affecting their job.

Employees feel more valued by their employer, which increases their job
satisfaction, efficiency, and motivation.

Job Redesign
Increasing the variety or difficulty of tasks to make work more interesting
and challenging, helping employees learn new skills and improve
promotion chances.

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Quality Circles
Groups of employees who meet regularly to discuss work-related issues
and suggest improvements.

Results are presented to managers, who may implement good ideas.

Team Working
Organizing production so that groups complete entire tasks, rather than
individual employees doing small parts.

For example, a team assembles a complete car engine.

Delegation
Managers passing authority for tasks to lower-level employees, often
combined with empowerment for decision-making.

Choosing Methods of Motivation

Factors to Consider:
Cost: Can the business afford the method? Will the benefits outweigh the
costs?
Employee Type: Some methods are only suitable for certain employees (e.g.,
piece-rate for production employees).
Individual Differences: What motivates one employee may not motivate
another.

Potential Benefits of Improved Motivation:

Reduced absenteeism
Reduced employee turnover
Improved productivity
Reduced recruitment costs

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Table: Advantages and Disadvantages of Wide and

Narrow Spans of Control

Feature Wide Span of Control Narrow Span of Control

Less expensive, fewer More expensive, more managers

Cost
managers needed needed
Faster communication and Effective communication is
Communication
decision-making easier
Less supervision, improves Better control over employees
Supervision
employee motivation and their work
Less control over subordinates' More supervision may reduce
Control
work employee motivation
Promotion Reduces promotion Increases promotion
Opportunities opportunities opportunities

Organizational Structure Types

Flat Organizational Structure

Figure 7.5 illustrates a flat organizational structure.

Delayering
Delayering: Reducing the size of the hierarchy by removing one or more
levels – most often middle management – to save costs.

Delayering usually involves cutting out middle management. Figure 7.6 illustrates
the effect of delayering on a hierarchical structure.

Advantages and Disadvantages of Delayering

Table 7.2 highlights the advantages and disadvantages of delayering:

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Advantages of delayering Disadvantages of delayering

Increased workload for managers who

remain could mean that tasks are not
Reduces costs.
completed on time or that the quality of
decision-making is not as good.
Reduces the chain of command so Business may have to make redundancy
communication and decision-making should payments to managers who lose their
be quicker and more effective. jobs. This is a one-off increase in costs.
Wider span of control increases the
opportunity for delegation. This helps Employees who remain might fear
develop employees' skills and could redundancy and this reduces their job
motivate employees who are given more security.
trust by managers.
Wider span of control after delayering
Senior managers are in closer touch with
might reduce the effective management
what is happening in the business.
of subordinates.

Centralized vs. Decentralized Organizations

Centralized Organization
Centralized organization: One where all the important decision-making
power is held at head office, or the center.

Many international franchise companies, such as Pizza Hut, operate a mainly

centralized organization structure to control the quality and service level across all
franchised outlets.

Decentralized Organization
Decentralized organization: One where the decision-making powers are
passed down the organization to lower levels.

A national hotel chain such as Avari Hotels Ltd, Pakistan, is an example of a business
that may have a decentralized structure.

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Advantages and Disadvantages of Centralized and

Decentralized Organizations
Table 7.3 highlights the advantages and disadvantages of centralized and
decentralized organizations:

Centralized organization Decentralized organization

Advantages Advantages
Decision-making is often quicker. Decisions are made based on local needs.
Decisions are taken for the benefit of
Can be used to train junior managers.
the whole business.
Greater use of specialist staff Delegation helps to improve employee
improves decision making. motivation.
Disadvantages Disadvantages
Decisions taken might not be in the interests of
Slower communication.
the whole business.
Unable to respond quickly to changes Poor decisions might be made because
in local markets. managers lack skills and experience.
May reduce employee motivation.

Roles and Responsibilities in a Business

Directors and the Chief Executive Officer (CEO)

Directors are the most senior level of management in any limited company.

Annual General Meeting (AGM): A meeting for shareholders that limited

companies must hold once every year.

Responsibilities of directors include:

Setting strategy
Ensuring resource availability
Reviewing performance
Protecting stakeholder interests
Providing leadership

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Chief executive officer (CEO): The most senior manager responsible for
the overall performance and success of a company.

The CEO is responsible for the day-to-day management of the business and
implementing the decisions of the Board of Directors.

Managers
Manager: An individual who is in charge of a certain group of tasks, or a
certain area or department of a business, for example, factory manager.

Managers are responsible for:

Implementing directors' decisions

Delegating tasks
Making decisions to achieve targets
Motivating employees
Solving day-to-day problems

Supervisors
Supervisor: An individual who checks and controls the work of
subordinates.

In large departments, supervisors give out tasks, ensure completion, and check work
quality.

Other Employees
Employees work together to:

Complete tasks efficiently and to the required standard

Achieve individual, group, or departmental targets

The Role of Management

Functions of Management

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Managers perform five functions:

1. Planning: Setting objectives and actions to achieve them.

2. Organizing: Preparing resources needed to achieve goals.
3. Commanding: Supervising and motivating subordinates.
4. Coordinating: Ensuring different parts of the business work together.
5. Controlling: Checking if the plan is working and taking corrective action.

Additional Management Responsibilities

Understanding employees
Setting a good example
Treating subordinates fairly
Delegating tasks
Communicating effectively

Delegation
Delegation: Passing authority down through the organizational hierarchy
to a subordinate.

Benefits of Delegation
Managers have time for complex tasks.
Motivates employees.
Develops employee skills.
Improves work quality.

Leadership Styles

Autocratic Leadership
Autocratic leadership: A leadership style where the leader makes all the
decisions.

Faster decision-making.
Employee motivation may be low.
Requires close supervision.

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Democratic Leadership
Democratic leadership: A leadership style where employees take part in
decision making.

Improves the quality of decisions.

Motivates employees.
Reduces the need for close supervision.

Laissez-faire Leadership
Laissez-faire leadership: A leadership style where most of the decisions
are left to the employees.

Effective for creative tasks.

Requires a coordinating and supporting role from the leader.

Features of Leadership Styles

Table 7.4 highlights the main features of the three leadership styles:

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Feature Autocratic Democratic Laissez-faire

Usually set by the

Set by the leader Set by the leader, but
leader with or without
Objectives without any input employees are often
any input from
from employees. consulted.
employees.
Employees are
Taken by the leader encouraged to take Delegated to
Decision-making without any input part, but the leader employees who take
from employees. still takes the final the decisions.
decision.
One-way, from the
Communication is most
leader to
Two-way- feedback is often upwards from
Communication employees. No
encouraged. subordinates for the
opportunity for
leader.
feedback.
The leader is available
to solve problems, but
Supervision of Closely supervised No supervision by the
otherwise close
employees by the leader. leader.
supervision is not
needed.
Employees are given
Employees are Employees are provided
information which
Availability of given very limited with all the information
allows them to fully
information information about they need to take
participate in the
the business. decisions.
business.
Could be high or low
Motivation depending on the task
Likely to be low. Likely to be high.
levels and skills of the
employees.

Choosing a Leadership Style

Factors that influence the choice of leadership style:

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Skills and experience of the workforce

Time available to make a decision
Personality of the manager
The task to be completed

Trade Unions
Trade union: An organization of employees aimed at improving pay and
working conditions and providing other services, such as legal advice, for
members.

Roles of Trade Unions

Negotiating with employers to improve pay and working conditions.
Resolving conflict.
Providing legal support and advice.
Providing services for members.

Effects of Trade Union Membership on Employees

Greater power in dealing with employers.
Support and legal advice.
Job security.
Membership fees.
Binding decisions.
Loss of wages during strike action.

Effects of Trade Unions on Employers

Single point of contact for negotiations.
Improvement in working conditions and health and safety.
High wage demands.
Industrial action.

Recruitment, Selection, and Training of

Employees

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This study guide covers the processes involved in recruiting new employees, the
importance of training, and the different methods used to ensure a competent and
effective workforce.

Recruitment and Selection

Having the best possible workforce is key to business success. This means recruiting
the right number of employees with the right skills.

Internal vs. External Recruitment

When a business has a job vacancy, it can choose to fill it internally or externally.

Internal recruitment: Filling a vacant post with someone already employed in

the business.
External recruitment: Filling a vacant post with someone not already employed
in the business.

Internal Recruitment
A business may decide it already has the right people with the right skills to do the
job.

Advantages of Internal Recruitment:

The vacancy can be filled more quickly and cheaply.

Applicants already know how the business works.
The business already knows the strengths and weaknesses of applicants.
Employees can become more motivated when they see there is a chance of
promotion.

Limitations of Internal Recruitment:

A better candidate may have been available from outside the business.
It could cause conflict within the workplace if other internal candidates feel
they should have gotten the job.
It does not bring in any new ideas.
There will still be a vacancy to fill, unless the employee's previous job has
become redundant.

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External Recruitment
If a business decides that none of its current employees has the necessary skills or
expertise to fill a vacancy, or they want to increase the choice of candidates for a job,
then they will use external recruitment.

Benefits of External Recruitment:

External applicants might bring new ideas, which can improve the effectiveness
and efficiency of the business.
There will be a wider choice of applicants with different skills and experience.
It avoids the risk of upsetting employees when someone internal is promoted.

Limitations of External Recruitment:

It takes longer to fill the vacancy.

It is more expensive than internal recruitment because of advertising costs and
the time spent interviewing candidates.
External applicants will need induction training, which increases expenses.

Main Stages in Recruitment and Selection

Finding new employees requires a business to go through a recruitment and
selection process, which involves several stages:

1. The business identifies the need for a new employee and carries out a job
analysis.
2. A job description is produced.
3. A person specification is produced.
4. The job is advertised.
5. Application forms and job details are sent out.
6. Completed applications are received.
7. A shortlist is selected from all of the applicants.
8. The shortlisted candidates are interviewed.
9. The right candidate is selected.

Job Analysis

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When a vacancy occurs, the human resource department carries out a job analysis
along with the manager of the department where the vacancy is. This is a process
that identifies the content of a job in terms of the activities involved and the skills,
experience and other qualities needed to perform the work.

Job Description
A list of the key points about a job, including the job title, key duties,
responsibilities, and accountability.

A job description needs to include:

Job title
The main duties of the post
Responsibilities
Accountability

Person Specification
A list of the qualifications, skills, experience, and personal qualities looked
for in a successful applicant.

Advertising a Job
Once the job description and person specification have been produced, the business
needs to advertise the vacancy. This can be done internally through staff
noticeboards or newsletters or externally through local/national newspapers,
specialist magazines, job websites, or recruitment agencies.

Sending out Application Forms and Job Details

After the job is advertised, the business sends out further details and application
forms. Applicants complete and return the form or send a curriculum vitae (CV). A
CV contains:

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Personal details
Education and qualifications
Work experience
Other relevant skills and experiences
Hobbies and interests
References

Receiving Applications and Shortlisting

The human resource department and the relevant manager review applications and
compare them with the job description and person specification to create a shortlist
of applicants for interview.

A list of candidates who are chosen from all of the applicants to be

interviewed for the job.

Interviewing Shortlisted Candidates

Shortlisted candidates are invited for an interview, which may involve a question and
answer session, a panel of interviewers, or tests (e.g., aptitude tests, team activities).

Selecting the Right Candidate

Following the interviews and any tests, the interview panel selects the best applicant
for the job based on their performance, qualifications, experience, skills, and
references.

Part-Time vs. Full-Time Employees

Not all employees want to, or are able to, work full-time.

Benefits of Employing Part-Time Employees:

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A business can often attract well-qualified employees who want to return to

work but need flexible working hours.
Offering a full-time employee the opportunity to work part-time can help a
business to keep experienced staff.
Part-time work provides greater flexibility.
The contract hours of part-time employees may be flexible to allow for
changes in demand.
Part-time employees are more productive than full-time employees.
Employing two part-time employees instead of one full-time employee often
increases the skills and experiences of the workforce.
Part-time employees do not need to take time off work for medical and dental
appointments.

Limitations of Employing Part-Time Employees:

There will be an increase in induction and training costs.

There could be communication problems.
The quality of service offered to customers may not be as good with part-time
staff as it is with full-time staff.

The Importance of Training and Methods

Training is important to both businesses and employees.

Main Benefits of Training:

Trained production workers are more efficient, which increases productivity and
improves quality.
Management training improves the quality of business decisions and reduces
the risk of costly mistakes.
Training helps employees to develop their abilities and reach their potential,
improving motivation and morale.
It is easier to recruit new employees and keep existing employees.
Training can improve customer service, enhancing customer relationships and
loyalty.
Health and safety training helps reduce accidents.
A well-trained workforce improves a business's competitiveness.

‍Methods of Training

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There are three main methods of training:

Induction
On-the-job
Off-the-job

Induction Training
A training program to help new recruits become familiar with their
workplace, the people they work with, and the procedures they need to
follow.

Induction training introduces the new employee to:

Their work colleagues

The organization structure and their role and responsibilities within the
structure
The health and safety procedures in the workplace
The facilities available to employees

Benefits of Induction Training:

Employees quickly feel part of the business.

Employees are more likely to perform their tasks more effectively from the start
of their employment.

Limitations of Induction Training:

It increases business costs.

Employees are not adding to output but are receiving their wage or salary
during training.

On-the-Job Training
Training at the place of work, watching or following an experienced
employee.

Advantages of On-the-Job Training:

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It is relatively cheap.
Employees learn the way that the business wants the job done.
Employees are producing output while training.

Disadvantages of On-the-Job Training:

Employees might pick up any of the experienced employee's bad habits.

Employees might not learn the most up-to-date methods.
Employees make more mistakes while learning, which increases waste.
It slows down the production of the experienced employee.

Off-the-Job Training
Training that takes place away from the workplace, for example, at a
college, university, or specialist training provider's premises.

Advantages of Off-the-Job Training:

Employees learn the latest methods and techniques.

It does not disrupt the production of other employees.

Disadvantages of Off-the-Job Training:

It can be expensive, especially when the training is provided by a private

training provider.
The employee does not produce any output during training.

‍Reasons for Terminating Employment

There are several reasons why a worker's employment with a business may end, or
be terminated.

Resignation: Termination of employment by the employee, perhaps because

they have found a job with a different employer.
Retirement: Termination of employment due to the employee reaching an age
beyond which they do not need to work.
Redundancy: Termination of employment by the employer because the job is no
longer needed.
Dismissal: Termination by the employer because the employee has broken
company rules or is not performing work to the required standard.

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Downsizing the Workforce

A business may need to reduce its workforce size due to:

A fall in demand for the product the employee produces.

Introducing new technology that automates tasks.
Relocating some distance from its current site.

Recruiting or Making Redundant

Selecting employees for redundancy must be clear and fair. A common method is
"last-in, first-out," where those employed for the least time are made redundant
first. However, this can result in losing better-skilled employees.

Other criteria include:

Employee productivity.
Attendance records.
Employee age.

Legal Controls Over Employment Issues

Governments have laws to protect employees from exploitation and unfair dismissal.

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Contract of Employment: A legally binding agreement including details such as

names, commencement date, pay, hours, job title, holidays, period of notice, and
grievance procedures.

A contract of employment has benefits to both the employer and the

employee. It removes any misunderstanding that could arise over
issues such as hours of work, rate of pay and holidays.

Unfair Dismissal: Legal protection ensuring employees are not dismissed

without good reason.

An employee who thinks they have been unfairly dismissed can take
legal action against the employer.

Discrimination: Laws preventing discrimination based on gender, race, color,

religion, disability, and age.
Health and Safety: Laws protecting employees from injury or physical
discomfort.
Legal Minimum Wage: Laws preventing employers from paying very low
wages.

Internal and External Communication

Communication is essential for a business's smooth operation.

Communication is important in what it is they want so that the business

supplies exactly what is required. Effective business communication is
essential to all businesses. Without it business life would stop!

Internal Communication: Communication between employees within the

business.
External Communication: Communication with people and organizations
outside the business.

Effective Communication
Communication is effective if:

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The message uses the correct medium.

The message reaches the right person.
The receiver understands the message.
The receiver provides feedback.

Feedback: the receiver's response to a message.

Benefits of Effective Communication

Reduces the risk of mistakes.
Enables faster decision-making.
Enables quicker responses to market changes.
Improves coordination between departments.
Improves morale and motivation.
Improves customer relationships.

Communication Methods
Communication methods include:

Oral
Written
Electronic
Visual

Oral Communication
Communication using the spoken word, such as meetings and telephone calls.

Two-way communication: the receiver is allowed to respond to the

message and the sender listens to the response.

Written Communication
Provides a permanent record of a message. Examples include letters, memos,
agendas, minutes of meetings, job descriptions, purchase orders, invoices, and
company magazines.

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Electronic Communication
Communication via email, fax, text messaging, and video-conferencing.

Visual Communication
Using graphs, charts, videos, and photographs to improve presentations and
information.

Benefits and Limitations of Communication Types

Type Benefits Limitations

Personal contact, allows

No permanent record, receiver might
Oral immediate feedback, language can
not listen, noise interference.
be adjusted.
Provides a permanent record, can No personal contact, slower feedback,
Written be reviewed, suitable for many potential for misunderstanding, time-
receivers. consuming.
Very quick, permanent record
Access to equipment needed,
(email), can reach many receivers,
Electronic expensive, no personal contact (except
can create interesting messages
video), risk of confidentiality breach.
(websites).
Simplifies complex data, creates Detail might be lost, different
Visual
interest, memorable. interpretations.

Choosing the Best Method

Consider:

How urgent the message is.

The length and complexity of the message.
How many people need to receive the message.
The distance between sender and receiver.

Communication Methods
Several methods can be used to communicate over long distances, including:

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Email
Text
Phone Call
Letter

The choice depends on factors such as:

Urgency of the message

Receiver's access to the internet or mobile phone network
Importance of simultaneous receipt by all receivers
Cost of media
Need for a written record
Requirement for discussion
Confidentiality of the message

Advantages and Disadvantages of Communication Media

Communication
Advantages Disadvantages
Media

Letter Written record; Confidential Postage costs

Written record; Only used for
Memorandum
internal communication
Cost of equipment; Might not be
Email/Text Written record
confidential
Can discuss the message to
Telephone Cost; Not face-to-face
ensure understanding
Everyone gets the same Time-consuming; Costly if travel is
Meeting message; Allows for required; No written record unless
discussion and feedback minutes are taken
Confidential; Allows for Time-consuming; No written record
Interview
discussion and feedback unless minutes are taken
Video- Reduces travel cost; Less Cost of equipment; Problems with
conferencing time-consuming different world time zones
Information is easier to
Chart/Diagram Loses some detail
understand

Effective Communication

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Effective communication is when a message is sent using an appropriate

medium, and the receiver provides feedback to show that the message
has been received and understood.

Google's Approach
Google holds a weekly meeting known as TGIF, where senior executives share
updates and employees can ask questions about the business.

Communication Barriers
Barriers to communication can prevent a message from being received or
understood. These barriers can be categorized into three main areas:

Problems with the channel of communication

Problems between senders and receivers
Problems with the physical environment

Causes of Barriers to Effective Communication

Barrier Cause

Problems with the Wrong medium; Complex or technical language; Too

communication channel much information; Channel is too long
Lack of trust and respect; Demotivated employees;
Problems between senders
Poorly disciplined employees not passing on the
and receivers
message
Problems with the physical Too much noise; Too much distance (though electronic
environment communication has reduced this issue)

Problems Arising from Ineffective Communication

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Tasks are not completed or are completed incorrectly.

The business's reputation may be damaged, leading to a loss of customers.
The level of employee morale and motivation falls.
Higher risk of accidents in the workplace.
Poor sales.
Recruitment and selection problems.

Reducing or Removing Communication

Barriers
To ensure effective communication, it's important to reduce or remove any barriers.
The method used will depend on the cause of the problem.

Ways to Reduce Communication Barriers

Use language appropriate to the receiver.
Keep the channel of communication as short as possible.
The sender must insist on receiving feedback.
Use the most appropriate medium for the message.
Remove physical barriers, such as noise.
Management must build a culture of trust and respect between all employees.

Advertising and Brand Image

Businesses allocate funds to advertising and promotional activities to sway
consumers toward their products over competitors. They also invest in advertising to
cultivate a brand image. Consumers often favor products with a strong brand name,
even if similar, cheaper alternatives exist.

Branding Example: Trainer Market

A prime example of branding's influence is seen in the trainer (running shoe)
market. Many consumers, particularly the younger demographic, opt for brands like
Nike due to their brand image, despite the availability of more affordable options.

Factors Affecting Consumer Spending

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Case Study: ABC Footwear

ABC, a footwear manufacturer in Country X with 80 years of experience, faces
challenges due to evolving market dynamics.

Factor Description

Loyal Customer
ABC has a loyal customer base valuing quality and service.
Base
The style of ABC's shoes has remained relatively unchanged for a
Stagnant Style
decade.
Economic Country X has transitioned into a robust economy with low
Context of unemployment and good wages. The younger generation is
Country X fashion-conscious and willing to pay for trendy items.
ABC faces heightened competition, especially from manufacturers
Increased in Country Y, a low-wage economy, enabling them to offer products
Competition at lower prices. These competitors invest more in advertising, while
ABC relies on its reputation.
ABC's sales and revenue have been declining for four consecutive
Declining Sales
years, raising concerns about potential losses.

Changing Customer Needs

One purpose of marketing is to satisfy customer needs for profit. Businesses must
adapt to changes in customer needs to survive long-term. This is especially true for
businesses involved in fashion.

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