Business and Management for the IB Diploma

284 Pages·2014·11.43 MB·English

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Business and
Management
for the IB Diploma
Peter Stimpson and
Alex Smith
Cambridge University Press’s mission is to advance learning,
knowledge and research worldwide.
Our IB Diploma resources aim to:
• encourage learners to explore concepts, ideas and
topics that have local and global signifi cance
• help students develop a positive attitude to learning in preparation
for higher education
• assist students in approaching complex questions, applying
critical-thinking skills and forming reasoned answers.
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© Cambridge University Press 2011
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no reproduction of any part may take place without the written
permission of Cambridge University Press.
First published 2011
Printed in the United Kingdom at the University Press, Cambridge
A catalogue record for this publication is available from the British Library
ISBN 978-0-521-14730-9
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the content is in no way connected with or endorsed by the International
Baccalaureate Organization.
Contents
Topic 1 Business organisation and environment
1 The nature of business activity 1
2 Types of organisation 8
3 Organisational objectives 22
4 Stakeholders 39
5 External environment 45
6 Organisational planning tools 57
7 Growth and evolution 68
H 88 Change and the management of change 82
99 Globalisation 89
Topic 2 Human resources
10 Human resource planning 96
11 Organisational structure 108
12 Communication 119
13 Leadership and management 129
14 Motivation 140
H 1155 Organisational and corporate cultures 156
H 1111666 Employer and employee relations 163
H 1111777 Crisis management and contingency planning 171
Topic 3 Accounts and fi nance
18 Sources of fi nance 174
19 Investment appraisal 185
20 Working capital 195
H 2211 Budgeting 205
2222 Financial accounts 212
23 Ratio analysis 226
Topic 4 Marketing
24 The role of marketing 240
25 Marketing planning 250
26 Product 271
27 Price 281
iii
Contents
28 Promotion and place (distribution) 293
29 International marketing and e-commerce 307
Topic 5 Operations management
30 Production methods 316
31 Costs and revenues 324
32 Break-even analysis 335
33 Quality assurance 342
34 Location 353
H 3355 Innovation 364
33366 Production planning 369
H 3377 Project management 383
Topic 6 Business strategy
H 3388 Business strategy 393
Examination skills
39 Examination skills 407
Glossary 426
Index 439
Acknowledgements 448
iv
1 BUSINESS ORGANISATION AND ENVIRONMENT
01
The nature of business activity
This chapter covers syllabus section 1.1
On completing this chapter
you should be able to: SETTING THE SCENE
● understand what business
activity involves Dulip starts his business
● identify inputs, outputs and
Dulip lives in a large country which has many natural resources such as coal
processes of a business
and timber. He plans to start a business growing and cutting trees to sell as
● identify and explain the main timber. He wants to buy a forest from a farmer and cut down a fi xed number of
business functions trees each year. As Dulip is concerned about the environment of his country,
he will plant two new trees for each one he cuts down.
● identify and explain the main
sectors of industry He has contacted suppliers of saws, tractors and other equipment to check on
prices. He plans to employ three workers to help him with much of the manual
H ●●● aanalyse the impact on
work. Dulip has also visited several furniture making companies to see if they
bbusiness activity of changes
would be interested in buying wood from him and he has even visited furni-
iin economic structure.
ture shops to see which types of wood sell best. He has arranged a bank loan
for much of the capital that he will need to get started.
Points to think about:
● Why do you think Dulip decided to
own and run his own business rather
than work for another fi rm?
● What resources (or inputs) does Dulip
Photo 1.1
need to run his business successfully?
● What do you think are the essential
differences between these three
businesses: Dulip’s forestry business;
a furniture manufacturer; a shop
selling furniture?
111111
01
The nature of business activity
Introduction
● Land – this general term not only includes land itself
This chapter explains what a business is and what busi- but all of the renewable and non-renewable resources
nesses do. It outlines the main business functions (or of nature, such as coal, crude oil and timber.
departments) and explains the differences between ● Labour – manual and skilled labour make up the work-
primary, secondary and tertiary sectors of industry. force of the business. Some fi rms are labour intensive,
Higher Level additional material analyses the impact that is they have a high proportion of labour inputs
on business activity of changes in economic structure. to other factors of production, e.g. house cleaning
services.
What is a business?
● Capital – this consists of the fi nance needed to set up
A business is any organisation that uses resources to meet a business and pay for its continuing operations as
the needs of customers by providing a product or service well as all of the man-made resources used in produc-
that they demand. There are several stages in the prod- tion. These include capital goods such as computers,
uction of fi nished goods. Business activity at all stages machines, factories, offi ces and vehicles. Some fi rms
involves adding value to resources such as raw mate- are capital intensive, that is they have a high propor-
rials and semi-fi nished goods and making them more tion of capital to other factors of production, e.g. power
desirable to – and thus valued by – the fi nal purchaser. stations.
Without business activity we would all still be entirely ● Enterprise – this is the driving force of business,
dependent on the goods that we could make or grow provided by risk-taking individuals, which combines
ourselves – as people in some communities still are. the other factors of production into a unit that is
Business activity uses the scarce resources of our planet capable of producing goods and services, It provides
to produce goods and services that allow us all to enjoy a a managing, decision-making and co-ordinating role.
much higher standard of living than would be possible if Without this essential input, even very high quality
we remained entirely self-suffi cient. land, labour and capital inputs will fail to provide the
goods and services that customers need.
What do businesses do?
Businesses identify the needs of consumers or other fi rms. Businesses have many other needs before they can
They then purchase resources, which are the inputs of successfully produce the goods and services demanded by
the business, or factors of production, in order to produce customers. Figure 1.1 shows the wide range of these needs.
output. The ‘outputs’ of a business are the goods and
Business functions
services that satisfy consumers’ needs, usually with the
aim of making a profi t. Business activity exists to produce Most businesses have four main functional departments.
goods or services, which can be classifi ed in several ways: These will be staffed by people with specifi c qualifi ca-
consumer goods, consumer services and capital goods. tions and experience in the work of the functional areas.
KEY TERMS MARKETING
consumer goods the physical and tangible goods sold to the This department is responsible for market research
general public. They include cars and washing machines, and for analysing the results of such research so that
which are referred to as durable consumer goods. Non- consumer wants can be correctly identifi ed. This infor-
durable consumer goods include food, drinks and sweets mation will then be discussed with other departments of
that can only be used once. the business so that the right product decisions are made.
consumer services non-tangible products that are sold to the Once a product is available for sale, the marketing func-
general public and include hotel accommodation, insurance tion will have to make important decisions concerning
services and train journeys its pricing, how and where to promote it and how to sell it
capital goods physical goods that are used by industry to aid in and distribute it for sale.
the production of other goods and services, such as machines
and commercial vehicles FINANCE
This function has responsibility for monitoring the fl ow
What are business ‘inputs’?
of fi nance into and out of the business, keeping and
FACTORS OF PRODUCTION analysing accounts and providing fi nancial informa-
These are the resources needed by business to produce tion to both senior management and other departments.
goods or services. Firms will use different combinations Without adequate fi nance, no effective decisions can be
of inputs, depending on the product being produced and made within the other functional areas, so fi nance is a
the size of the business. There are four main inputs: key division of any business.
2
1 BUSINESS ORGANISATION AND ENVIRONMENT
Site for Raw
buildings materials Finance Factories/offices
Land Capital Machines
Roads/Rail/Airports
Customers
A business Law and
Government
needs order
Suppliers
Schools/Colleges
KEY TERMS
Labour Enterprise
Skilled Permanent Risk Decision Coordinators
Unskilled Temporary takers makers
Figure 1.1 What businesses need
HUMAN RESOURCE MANAGEMENT from the other parts of the business. Nothing could be
Human resource (HR) management identifi es the work- further from reality! Effective strategic decision-making
force needs of the business, recruits, selects and trains develops from the functions working closely together.
appropriate staff and provides motivational systems to Good communication, co-operation and close interrela-
help retain staff and encourage them to work product- tionships between functions are essential before major
ively. It also draws up contracts of employment and decisions are taken. For example, the decision by Peugeot
covers the redundancy or redeployment of staff if these Citroen in 2010 to launch the world’s fi rst hybrid diesel
become necessary. car required interaction between:
OPERATIONS MANAGEMENT ● marketing – will consumers be prepared to buy this
Once known simply as the ‘production function’, oper- car and at what price?
ations management has responsibility for ensuring ● fi nance – do we have the capital needed to develop and
adequate resources are available for production, main- produce it?
taining production and quality levels and achieving high ● HR management – do we need to recruit additional
levels of productive effi ciency. engineers before this project can be turned into a
market-ready car?
INTERRELATIONSHIP OF FUNCTIONS ● operations management – can we produce this product
It should not be assumed that all business decisions taken at a cost which allows the marketing department to set
within these departments are separate and unconnected a profi table price level?
3
01
The nature of business activity
Sectors of industry
Some people also refer to a fourth sector – the ‘quaternary
All production can be classifi ed into three broad types sector’ – which is focused on information technology (IT)
of business activity, or sectors of industry. These businesses and information service providers, but this
categories are also the three stages involved in turning distinction is not made in the IB syllabus.
natural resources, such as oil and timber, into the The balance of the primary, secondary and tertiary
fi nished goods and services demanded by consumers. sectors in the economy varies substantially from
The stages are the primary, secondary and tertiary country to country. It depends on the level of indus-
sectors of industry. trialisation in each country. The balance between the
sectors is often referred to as a country’s ‘economic
KEY TERMS structure’. Table 1.1 shows the different economic
primary sector business activity fi rms engaged in farming, structures of three countries.
fi shing, oil extraction and all other industries that extract
natural resources so that they can be used and processed by
other fi rms Country Primary Secondary Tertiary
secondary sector business activity fi rms that manufacture and
United Kingdom 2 17 81
process products from natural resources, including computers,
China 40 28 32
brewing, baking, clothing and construction
tertiary sector business activity fi rms that provide services to Ghana 53 21 26
consumers and other businesses, such as retailing, transport,
Table 1.1 Employment data 2010 – as percentage of total employment
insurance, banking, hotels, tourism and telecommunications
Primary production – dairy cattle following milking Secondary production – clothing factory in India
Tertiary sector – the breathtaking
Burj Al Arab hotel in Dubai
4