DIP 14/02 – Introduction to Small Business Management

Lim Sei Kee @ cK

Discussion Qs [In a group of 5] •1. What is a business?

•2. What are the differences between goods and services?

•3. Provide at least five examples of goods & services.

•4. Define ‘stock’.

•5. Who is a supplier?

What is a business?

•A business can be defined as an organization that provides goods and services to others who want or need them.

So, what are goods and services?

•Goods are tangible things that are produced, bought or sold, then finally consumed.

•Examples: •A. HOME: microwave, flat-screen television,

Nintendo Wii console.•B. SCHOOL: projector, desktop, white board.

Services•Services are activities that other people or

businesses do for you.

•When you book a holiday, visit the hairdresser or eat in a restaurant you are consuming one or more services.

•Services are sometimes referred to as intangible, in the sense that you cannot touch or handle them.

•Q: Think about the money that you have spent recently. Did you buy a good or pay for a service?

•There are some important differences in the skills required to run a business making goods compared with services.

GOODS

•Requires a production location – factory

•The output from production is stock – which can be transported and/or stored for future sale

•Production costs will include the costs or raw materials and other inputs into the production process

GOODS•Requires close liaison with suppliers

•Quality can built-in to the product through good design and production processes designed to ensure the right quality is achieved

•Quite costly to set up. The production process needs to be in place and working before goods can be produced.

SERVICES•The location is where the service is provided – either

physically (e.g. a builder) or virtually (e.g. telesales or via a website)

•Service is delivered at a point in time – it cannot be stored! A shop has to be open to sell. A hairdresser has to be there to cut hair

•The main cost of a service business is the people involved

SERVICES

•Require high levels of customer satisfaction

•Quality is measured by the quality of customer service. Harder to manage

Production Process

•Businesses provide goods and services.

•To be able to do this, they need to be able to turn inputs into outputs.

•This is known as the production process.

Production & operations:The transformation process•A good way to think of a business is to imagine

inputs entering an imaginary black box.

•What come out of the box are outputs.

•The black box is the business – what is does how it does it and so on.

•A business needs resources in order to trade.

•The activities of a new business should be designed to turn those resources into products and services that customers are willing to pay for.

•This process is known as the “transformation process”.

Inputs into the production process include:

•Labour•Land•Capital•Equipment•Raw materials•Enterprise•Suppliers

Labour: employees providing their time, effort and skills

Land: the natural resources that are used by the business –

e.g. actual land, energy, and other natural resources

Capital: capital includes physical assets such as machinery and

computers. Capital can also include finance – the investment that is

required in order for the business activities to take place.

Equipment: machinery, buildings, computers and all the other

Raw materials: Physical substances used as inputs (e.g. steel, energy,

ingredients)

Enterprise: The creative energy and force that gets a business

started and drives it forward. The entrepreneur takes the decisions about how much

capital, what kind of labour and how & when they are needed in the business.

•Many of the inputs into the production process are provided by suppliers.

•Suppliers provide the goods and services that a business needs in order for it operate.

What about outputs, then?•The outputs of business activities are reflected in the

products and services sold to customers.

•Traditionally, the outputs from the transformation process will fall into these three groups:

•Primary•Secondary•Tertiary

•Primary • Extraction of natural resources (e.g. oil, gas) and farming activities

•Secondary• Production of finished goods and components (e.g. flat-screen

TVs, computer memory chips, games consoles, industrial equipment, motor vehicles.

• The secondary sector is also often referred to as the “manufacturing sector”.

•Tertiary• Providing a service of some kind. E.g. health, travel, legal, finance,

building, security. • Think of this as any business activity that involves people doing

things for you!

• It is possible for a single business to be operating in more than one sector.

•For example, many farms in Britain (farming = primary sector) also offer holiday accommodation (tertiary sector) and produce processed foods such as cheese and ice-cream from farm supplies (secondary sector).

Outputs from production process•The outputs from the production process are the

finished goods and services.

•Outputs are bought by customers – the people who pay. Customers are often, but not always the same as consumers.

•Consumers are the actual users of the goods or service. For example, a parent might buy a PlayStation 3 console game for a child. The parent is the customer; the child is the likely consumer.

DIP 14/02 Exercise

•21 MCQ•Complete it individually.