The Nature of Business (DP IB Business Management)

Creating Goods and Services

1. The purpose of business activity can be broadly defined as the organisation of human, physical and financial resources to produce goods or services that meet customer needs while adding value

   1. Produce goods or services

      • The primary purpose of business activity is to produce goods or services that satisfy a need or demand in the market

        • Goods are tangible physical items capable of being stored such as cars or games consoles

        • Services such as insurance or hairdressing are intangible, cannot be stored and are provided to customers when they are needed

   2. Meet customer needs

      • The ultimate goal is to create products that meet the needs and preferences of customers and provide value to them

      • By meeting customer needs, businesses can build customer loyalty, increase brand awareness, and generate revenue

   3. Add value

      • The third purpose of business activity is to add value to products or services 

      • Value-added features can differentiate products from competitors, create a unique selling proposition, and increase customer satisfaction

        • E.g. a product that is easier to use, has a better design, or is of higher quality than competitors can create a competitive advantage for a business

Business as a transformation process

• Businesses take inputs and transform them in order to produce outputs that customers will want to buy

• Thailand's Boon Rawd Brewery takes inputs including malts, hops and barley and uses the staff on the brewery premises in Bangkok as well as equipment such as mash tuns to transform by brewing these inputs into its output - beer 

• Inputs used in the transformation process can be classified as financial, human or physical resources, as well as enterprise

An Explanation of the Resources used to Create Goods & Services

• The transformation process may require a capital intensive or a labour intensive approach  

  • Capital intensive production is where the proportion of machinery costs are higher than any of the other resource inputs including labour

    • The generation of nuclear power is an example of a capital intensive process where a small number of workers oversee a large facility that is largely computer-controlled

  • Labour intensive production is where the proportion of labour costs are higher than the other resource inputs including machinery

    • The production of clothing remains a largely labour-intensive process, especially in countries where labour costs are relatively low such as south-east Asia

The Main Business Functions

• Businesses of all sizes have a range of functions that need to be take place in order for business activity to proceed

  • In small businesses, all of these functions are often all carried out by its owner

  • In large businesses, these functions are carried out by departments with their own targets that contribute towards the business achieving its overall objectives

 An Explanation of each Business Function

• Larger business structures often include other functional areas such as

  • Administration

  • IT Support

  • Legal Services

Interdependence of the functions

• Although each function has its own targets, they all work towards achieving the businesses overall objectives and are therefore interdependent 

  • E.g. Market research conducted by the marketing function may identify a change in customer needs that requires the product to be adapted in order to remain competitive

    • The finance and accounts function allocates and monitors a budget for research and development

    • The human resources function organises training for workers to adapt their working methods to produce the redeveloped product

    • The operations function designs or amends production processes to manufacture the product