Why It

Matters: Role
of Business
WHY LEARN ABOUT THE ROLE OF BUSINESS IN
SOCIETY?
Why it Matters

 Stop what you are doing and take a minute to look

around you. What do you see?
 Now, look around again but this time consider
everything within your view and ask yourself what all
of these things have in common?
 If you said that they are all the product of business,
then you’re right!
 How can that be, you ask? Business is everywhere, in
everything we touch, we eat, we see, we smell, and
we feel.
 The next part of the challenge is this: try to think of
something, anything, that you can say with certainty
has no relationship to business.
Enterprise
CHAPTER 1
Chapter Overview

In this chapter we examine:

 the nature of business activity; what businesses
do; the purpose of business
 the role of the entrepreneur; why are they
important to the economy?
 social enterprises (businesses not set up to make a
profit but to benefit society)
The Nature of Business
Activity
1.1
The Purpose of Business
Activity
 What is business?
 The activity of making, buying, or selling goods or
providing services in exchange for money

 Business objectives: measurable targets set by the

business such as sales or profits that have to be
achieved within a given time period
The Transformation
Process
 All businesses are involved in the transformation
process
 They take inputs and transform them in some way
to produce outputs that they hope consumers will
want
Inputs

The inputs into a business include:

 land
 labor
 capital
 intellectual capital
Land

 Choosing a location for the business

 Extremely important for businesses such as
shops and cafes!
 Primary Sector: the first stage of production
and includes extracting or growing resources
 Farming, mining and fishing are all part of the
primary sector
 Premises: the amount of space available to a
business
 Premises can affect the working environment
and people’s motivation
Labor

 Organizations need staff

 Quality of employees will have an influence on the
success
 What are some qualities employers look for?
Capital

 Equipment used by businesses

 What are some examples?

 The amount and quality can affect the service

provided.
 But how?
Intellectual Capital

 The intelligence of the workforce

 Ability to develop new ideas, find solutions and spot
opportunities
Outputs

 Goods: tangible items

 Service: intangible
 Combination

 Can you give me an example of a business that

offers a combination of goods and services?
Outputs

 A motel provides both services and goods. Which

of the following is an example of a good provided
by a motel?
 Offering a bathrobe that you can purchase to take
home with you
 Offering rooms for rent
 Offering free sample size shampoo and soap

 Which is an example of a service provided?

Case Study: Dabbawalla

1. Explain the transformation process of the

dabbawallas in terms of inputs and outputs.
They take the lunch boxes and move them from one
location to another
They use people and trains to link people to their lunch
2. Discuss how you would measure the success of
this process.
Speed of delivery
Proportion of deliveries that get to the right person
without damages or breakages
Managing a Business:
Chain of Operations
Designing the
Transformation Process
 When designing its transformation process a
business person must consider questions such
as:
 What level of output will be provided?
 How many customers do you want to be able
to have?
 What quality of service will be provided?
 How will you provide the service?
 What aspects of the process will the business
undertake for itself and what elements will be
outsourced to or bought in from other
providers?
Creating Value

 Value is created when outputs are produced that

are worth more than the inputs brought in to
provide them.

 What are some examples?

Opportunity Cost

 Opportunity cost measures the sacrifice you make

if you choose one course of action in terms of the
next best alternative

 For example:
 If a business decides to use its labor force to
increase output of soft drinks
 The opportunity cost is what could have been
produced had it been used to produce something
different
Opportunity Cost

 In pairs, come up with 5 examples of opportunity

cost.
The Business Environment
(PEST)
 Political and legal issues
 New laws by a government can:
 prevent the way some products are promoted (such
as cigarettes)
 affect the way employees must be treated
 Affect the way a business produces (perhaps to
reduce its environmental impact)

 Economic issues
 The amount of income in an economy can change
over a period of time, affecting demand
 The value of one currency in terms of another can
alter, affecting the cost of importing supplies
 The cost of borrowing can go up, increasing costs
The Business Environment
(PEST)
 Social issues
 An increase in the size of the population or a
change in the life expectancy of the population in
a country can affect the level of demand and the
types of products people buy

 Technological issues
 Changes in the availability and speed of the
internet can make it easier to find suppliers and sell
across the world
Case Study: Brazil

1. Explain two possible reasons why the Brazilian

economy might be growing so fast.
Benefiting from revenue from selling food and oil at
high prices
Substantial oil and gas reserves have been discovered
2. Discuss the possible effects for Brazilian businesses
of operating in such a fast growing economy.
Creates opportunities for sales and expansion which
may lead to investment
Demand may outstrip supply creating competition for
scarce resources, driving up the price
What Does a Business
Need to do to Succeed?
 To succeed a business needs to be more
competitive than its rivals
 Need to provide better value for money

 Its ability to achieve this depends on:

 The benefits it offers
 What does its product do relative to its competitors’
products? Is it faster? Easier to use? Smaller? Bigger?
Longer lasting?
 What price is being charged relative to the
competition?
Competitive Threshold
Why do Businesses Fail?

 Businesses fail when they stop being competitive

 Stop providing good value for money relative to
their competitors

 This can be due to:

 External reasons
 High level of borrowing and so their costs are hit badly
when the cost of borrowing rises
 Internal reasons
 Poor training of staff leading to poor customer service.
 Providing relatively low benefits given the price they
charge.
Two Reasons Companies Fail --
and How to Avoid Them: Knut
Haanaes
1. What are two reasons why companies
fail?
2. Give two examples.
3. Explain the difference between
exploration and exploitation.
4. What percentage can do both?
5. Give some examples.
6. What traps are there?
7. How can businesses avoid these traps?
Case Study: Small
Businesses in South Africa
1. Explain two reasons why businesses in South
Africa fail.
Lack of access to finance; lack of financial know how;
lack of government support; rapid growth
2. Discuss whether failure is inevitable for a business
starting up in South Africa.
Not inevitable as some obviously succeed.
It depends on the entrepreneur, the quality of the
idea, the extent of planning, whether it can get access
to finance and government support, etc.
Math Moment

Imagine 60% of new businesses in a country fail in the

first two years. Of those that survive another 40% fail
in the next three years.

If 400,000 businesses start up in one year, how many

would be left after five years?
96,000 businesses left
Step 1: 400,000 x .6 = 240,000
Step 2: 400,000 – 240,000 = 160,000
Step 3: 160,000 x .4 = 64,000
Step 4: 160,000 – 64,000 = 96,000
The Role of an
Entrepreneur
1.2
Entrepreneurs

 An entrepreneur is someone who is willing to take

a risk to start a new project or a new business

 Enterprise refers to the skills needed to do this.

 An entrepreneur has an idea and then tries to make
it work
Risk and Reward

 Entrepreneurs are prepared to take risks

 They are investing time, money and effort into a
new project that may or may not work
 The danger is that it will not work and all their
investment will be lost
 The real risk to entrepreneurs is that they will lose much
or even everything they have put into a project
because the business idea eventually fails
Risks and Rewards Matrix

Risk

Reward Low High

Low These are safe projects but These projects are not of
do not generate high returns. interest because of the high
risk relative to the low rewards.

High These projects are ideal: These projects are of interest

low risk but high rewards. but risky. To go ahead,
However, it may not be easy entrepreneurs must believe
to find projects like this! the rewards outweigh the
risks.
Math Moment

If you estimate that a project has a 55% probability

of succeeding, what is the probability of failure?
45%
Case Study: Banyan Tree

1. Explain two factors that might have helped the

success of Banyan Tree.
Clear brand proposition: Asian luxury accommodation
reinforced by attention to detail (such as not wearing
shoes). All aspects convey exclusivity
Local economy; Festivals; Consumer behavior
2. Discuss the features you think make a successful
entrepreneur.
Entrepreneurs may need to be creative, inventive, look for
opportunities
They may need a range of skills as they undertake many
duties themselves
They may need to be determined, focused, and resilient
Why Become an
Entrepreneur?
 You will experience a great feeling of satisfaction
if your idea is successful
 Setting up on your own means it is your business,
to do with as you wish
 Some people prefer this to working for others: they
like their independence
 You keep the rewards
 You have more control of what you do and when
you do it
Case Study: Awfully
Chocolate
1. Explain two reasons why demand for Awfully
Chocolate’s products may have been high.
Good-quality product; well promoted and priced
suitably; may offer better value for money than rivals
2. Discuss whether the success of a new business is
likely to be mainly due to luck.
Luck may be important (i.e. in terms of the state of the
economy, the weather, what competitors are doing).
However, planning (whom to target, how to offer
better value for money, keeping up with customer
trends) also helps.
A good entrepreneur will exploit opportunities created
by good luck and overcome problems caused by bad
luck
The Qualities of an
Entrepreneur
 There is no single set of qualities that will definitely
make someone an entrepreneur
 What qualities do you think makes a successful
entrepreneur?

It is likely a successful entrepreneur is someone who:

 Is prepared to work hard and is determined
 Is able to deal with stress and setbacks
 Has a vision and is faithful to it
 Is willing to take a risk (i.e. giving up a salary; long
periods with low rewards, etc.)
The Qualities of an
Entrepreneur
According to the Royal Bank of Scotland (RBS) a
successful entrepreneur is usually:
 well-rounded
 innovative
 results-orientated
Why Do Governments Like
Entrepreneurs?
Entrepreneurs:
 create jobs and help keep unemployment low in
the economy
 earn money and pay taxes
 create competition for the existing providers in
markets
 provide new products and services
How can governments
help?
They can provide:
 Access to advice and useful information to help
them get started
 Funding, such as grants, to help with the initial
start-up costs
 Legal protection for new ideas
Case Study: Government
Help in Singapore
1. Explain how culture may act as a barrier to
entrepreneurship.
Culture can encourage people to take risks and set up
on their own.
It can affect the way entrepreneurs are viewed (Are
they respected? Is this a role people aspire to? If they
fail are they looked down on?).
2. Discuss the ways in which the government of
Singapore might encourage entrepreneurship.
By promoting a stable business environment, reducing
taxes, providing advice and guidance, ensuring
finance is available, and by investing in infrastructure.
Case Study: N.Y. – The Most
Competitive City in the World
1. Explain two reasons why New York may be a
good place to do business.
It may be cheap to start up, not involve lots of
regulation and legislation, have plenty of advice on
hand, entrepreneurs are respected, and access to
resources and talent.
2. Discuss whether Bangkok is a good place to do
business.
Case Study: Brazil’s
Labyrinth of Bureaucracy
1. Explain two reasons why starting a business in
Brazil might be difficult
Complicated legislation and regulation; could be time
consuming and difficult to get permission to operate
2. Discuss the possible consequences of making it
difficult for businesses to open in a country.
Could be corruption; may need to know someone or
pay someone to get the permissions needed
Entrepreneur Assignment

Pick an entrepreneur and investigate his/her background to

determine the factors that lead to business success.

Include:
 The history and growth of the business they founded
 Skills, abilities, and interests that helped to make him/her
successful
 Personal traits that made him/her so successful (i.e. generous,
smart with money)
 Dates and locations for the history and growth of the
company

To present:
 Your PowerPoint should include 10 or more slides
 Bulleted lists only (not full paragraphs). You are telling us the
story through presentation, and using flash cards or a sheet of
paper.
Social Enterprises
1.3
Social enterprises

 Do not have profit as the main objective

 They are set up for some other social purpose

 Examples include:
 Local sports clubs
 Government organizations
 Charities
For-Profit Vs Not-For-Profit
For-Profit Vs Not-For-Profit

1. For a for-profit business, the primary goal is to___.

1. Maximize profits for the owners
2. Fulfill its mission
3. Contribute to society
2. Both kinds or organizations, nonprofit and for-profit
can ___.
1. Have charitable tax status
2. Have shareholders
3. Earn revenues
3. Which of the following is an example of a for-profit
business?
1. Walmart
2. Make-a-Wish Foundation
3. Internal Revenue Service
Case Study: Wikipedia

1. Explain the transformation process that Wikipedia

provides.
Takes words and ideas and turns them into useful
information for people
Assembles ideas and text and “curates” it to turn it into
a more accessible format
2. Discuss the ways in which the success of
Wikipedia might be measured.
Number of users; number of times accessed; the
accuracy of its information; the number of topics
covered
Case Study: EnNatura

1. Explain why the government might have been

willing to invest in EnNatura.
Environmentally friendly; helps entrepreneurs; helps
innovation and job creation
2. Discuss whether businesses are good for society.
As shown by this business, they can create products
that improve society and are environmentally friendly
Plus they create jobs, lead to new products and meet
our needs
Some businesses may exploit, overcharge, mislead and
be dangerous
Case Study: The Big Issue

1. Explain how The Big Issue helps homeless people.

It helps them with their dignity (they have a job selling
the paper); helps them integrate with society by
having a job; raises revenue giving them an income.
2. Discuss the ways in which The Big Issue would
measure its success.
Number of people helped with a job; revenue raised;
papers sold; number of people who go on to stop
being homeless.
The Triple Bottom Line

 Elkington suggested business performance should

be measured by examining 3 Ps:
 Profits
 Treatment of People
 Impact on the Planet

 This is known as the Triple Bottom Line (Profit,

Planet, People).
Math Moment

 You decide to give 1.5% of your sales to charity.

 If your sales are $520,000 this year, how much
would you give to charity?
$7,800
Step 1: 520,000 x 0.015 = 7,800
Test Your Learning

 Do the practice test on page 13