AS

BUSINESS AND IT’S

ENVIRONMENT
STRUCTURED BY MISS. DEWMI KALUTARA

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Content
Purpose of business activity
Economic resources( Factors of production)
Economic Problem
Concept of creating / adding value
Why business fail early on
THE ROLE OF THE ENTREPRENEUR
Role of business enterprises in the development of a country
SOCIAL ENTERPRISE

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Purpose of business activity
Business is a major economic activity.
It can be defined as the production of goods and services needed by
people in this world to meet their basic needs.
Its purpose is to identify and satisfy the needs and wants of the
people with the overall aim of earning profit.
To produce the goods and services the business will be using scarce
resources( resources that are limited in supply)

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 LAND
LABOUR
CAPITAL
ENTERPRISE

FACTORS OF
PRODUCTION
NEEDS AND
WANTS
EFFICIENTLY AND
EFFECTIVELY

BUSINESS
PRODUCT
MAXIMUM RIGHT
OUTPUT FROM COMBINATION
MINIMU INPUT OF GOODS

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Economic resources( Factors of
production)
Business enterprises are established where
entrepreneurs combine productive resources (factors
of production) to produce an output.

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 Factors of production
Land: All natural resources provided by
nature such as fields, forests, oil, gas, metals Labour: The people who are used produce
and other mineral resources. It includes goods and services. Labour is rewarded with
renewable and non-renewable resources. The a wage/salary
reward for land is rent

PRODUCTION RESOURCES

Capital: Finance, machinery and equipment needed to Enterprise: The skill and risk taking ability of the
produce goods and services. NB there is also intellectual person who brings together all the other factors of
capital which refers to the intelligence of the workforce. It
refers to the ability of the workforce to develop new
production together to produce goods and services.
ideas, find new solutions to problems and spot business Usually the owner or founder of a business. In return
opportunities. The reward for capital is interest the entrepreneur will make a profit (or a loss)

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Division of labour / Specialisation
Because there are limited resources, we need to use them
the most efficient way possible. Therefore, we now use
production methods that are as fast as possible and as
efficient (costs less, earns more) as possible. The main
production method that we are using nowadays is known as
specialization, or division of labour.

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"Division of Labour is Specialisation: is
when the production when a person,
LEADS TO
process is split up into firm or economy
different tasks and each concentrate only
task is done by one on the tasks it is
person or by one best at.
machine
+ -
Specialized workers are good at one task Boredom from doing the same job lowers
and increases efficiency and output. efficiency.
Less time is wasted switching jobs by the No flexibility because workers can only
individual. do one job and cannot do others well if
Machinery also helps all jobs and can be needed.
operated 24/7. If one worker is absent and no-one can
-repeating the same job can make the replace him, the production process
worker more skilled stops.
-the business can enjoy economies of -Breakdown of a machine at one stage
scale will affect all successive stages
-Use of machines may lead to
unemployment

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 Goods and services
these are the tangible goods which PRODUCTS They are non tangible
are sold to the general public. This products for the public to
include durable and non durable satisfy their wants. They
goods. Durable goods such as could be commercial or
machinery, garments and mobiles can Goods Services personal services.
last for a longtime while non durable Commercial services include
goods such as edible things soon banking, insurance,
become damaged. Consumer transportation which are
goods done on a large scale.
they are physical products, Personal services are one to
manufactured specifically to be one services such as hair
sold to other industries for Capital dressing, teaching, lawyer etc
production of other goods and
services like commercial vehicles.
goods

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NEEDS AND WANTS
NEEDS WANTS

Are the things that we cannot survive without -The Are the things that we can survive without e.g cell
basic human needs can be classified as: phones, radios, jewellery etc. Human wants are
(a) Social -entertainment unlimited but the resources to satisfy them are
(b) Physical -food, warmth, shelter limited in supply. This gives rise to the basic
(c) Status -sense of achievement, good job, large economic problem
house etc.
(d) Security -privacy, steady job, secure homes etc.

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Nature of economic activity
The nature of economic activity is that there are limited resources to satisfy unlimited wants.
Due to the limited resources everyone has to make choices (individuals, businesses,
governments)

UNLIMITED N/W & ECONOMIC PROBLEM

LIMITED RESOURCES CHOICE OPPORTUNITY COST
/ SCARCITY

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Economic Problem
We have unlimited Needs and wants and there are limited resources. In economic terms we
say the resources are scarce.
Scarcity refers to the fact that people do not and cannot have enough income, time or other
resources to satisfy every desire. Faced with this problem of scarcity, human beings, firms and
governments must make a choice.
Problem of choice: businesses must make a choice on how to use scarce resources to fulfil their
wants. Business must choose on whether to use labour or capital to produce their products. The
business must also choose the types of goods to produce. When something else is chosen, it
means something else is given up (sacrificed). Thus choice leads to opportunity cost.
Opportunity Cost-: this is the next best choice given up in favor of the alternative chosen from
two choices. E.g If a business has a choice of purchasing new machinery and new premises. If
the business chose to buy new machinery because of its greater utility, then the premises will be
the opportunity cost.

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Concept of creating / adding value
Added value -refers to the difference between the selling price of a
product and the cost of the raw materials used to make it.
Creating Value: the increasing the differences between the cost of
purchasing bought-in materials and the price the finished goods are
sold. To add extra features to a product and the customer is willing
to pay more after the value has been added.

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 Creating value
Selling price of a Cost of the raw
product materials used to Added value
make it

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Ways of adding value
Creating a brand: Brands represent quality and sometimes status. Consumers
are prepared to pay more for products which have a strong brand attached to it.
Why does a pair of Nike sell costlier than its counterpart Puma, though the cost
of production may not be much different.
 Advertising: Through advertising the business can create a strong brand
loyalty among its customers and in the process charge more for its goods or
services.
Providing customised services: Business providing better quality personalised
services to their consumers add more value. Consumers are willing to pay a little
extra for customised services

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Ways of adding value cont.
Providing additional features: A product or service with additional features or
functionality can make the consumers pay extra. This is very often seen in
different version of a car model. Toyota has 12 versions of its Innovation model.
The basic engine and build is the same, but the price increase as additional
features are added.

By offering convenience: Consumers love convenience. If you get a product or

service without much effort then you might happily pay a premium for it. For
example, free home delivery of your weekly grocery.

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Benefits to a business of adding value
It can charge more to its customers. This leads to more profitability for the
business in the long run.
A business can differentiate itself from its competitors. By adding more value
to its goods or services a business can stand out among its competitors as
producer providing superior or premium quality.
A business can save the cost on advertising and other promotional activities
once it has created a perception of high quality and brand loyalty among its
customers. Thus, adding value helps cost cutting in the long run.

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 Business environment is dynamic
MACRO PESTEL
ENVIRONMENT
EXTERNAL
ENVIRONMENT Challeng
MICRO Suppliers, marketing intermediaries, competitors, es from
ENVIRONMENT customers etc this
environ
ment
are not
Internal environment refers to the operating easy to
INTERNAL environment of the business. Elements of the control
ENVIRONMENT
internal environment are controllable and these
include the firm’s organisational structure,
leadership and management style, organisational
resources, vision, mission, organisational culture

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What a business needs to succeed
Labour- the business requires different types of workers i.e skilled, unskilled,
temporary or permanent etc
Land.- the business requires the site for buildings. The business also need
renewanle and non renewable resource to produce goods
Capital- the business is need of money to buy factories and machinery
Customers- these are economic agents which then purchases products made by
firms
Suppliers- the business will get raw materials or other services from other
businesses
Government-the government will provide roads, school, law and order and the
business will benefit in one way or the other
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Why business fail early on
Lack of experience Many a report on business failures cites poor management
as the number one reason for failure. New business owners frequently lack
relevant business and management expertise in areas such as finance,
purchasing, selling, production, and hiring and managing employees.
Insufficient capital (money) A common fatal mistake for many failed
businesses is having insufficient operating funds. Business owners
underestimate how much money is needed and they are forced to close before
they even have had a fair chance to succeed. They also may have an unrealistic
expectation of incoming revenues from sales
Poor location Whereas a good business location may enable a struggling
business to ultimately survive and thrive, a bad location could spell disaster to
even the best-managed enterprise.
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Why business fail early on cont.
Poor inventory management Poor inventory management might lead to too much of cash
being blocked as stock. Excess stock also brings in additional cost burden of maintaining it and
the risk of getting obsolete or damaged.
Over-investment in fixed assets Blocking too much of cash in fixed assets can again pose
danger for the business and can contribute to business failure.
Poor credit arrangement management Business might take too much of debt and might find it
difficult to service them. Poor credit management, forward planning and cash flow problems
might contribute to it.
Personal use of business funds Owners of small business usually don’t differentiate between
business funds and their own funds. The risk of utilizing business funds for personal use by the
owner might lead to cash shortage for the business.

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THE ROLE OF THE ENTREPRENEUR
An entrepreneur is an individual
who organizes and operates a business or
businesses, taking on financial risk to do so.
 ‘a person who brings together the factors of
productions to produces goods and services.’
It is one of the factors of production.

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Characteristics of successful
entrepreneurs
Self motivation They are also often very passionate about their ideas that
drive toward these ultimate goals and are notoriously
difficult.to.steer.off.the.course.
Positive attitude There might be initial hurdles and failures in ventures. A
successful entrepreneur learns from his mistakes and does not get dismayed by
initial failures. He always sees the light at the end of the tunnel and continues
with his journey. Positive attitude also helps in making a strong team which
might be very instrumental in the ultimate success of the venture.
Risk taker "nothing ventured, nothing gained". Successful entrepreneurs are
risk takers who have all gotten over one very significant hurdle: they are not
afraid of failure.

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 Characteristics of successful entrepreneurs
cont.
Excellent leadership qualities A successful entrepreneur must have excellent leadership qualities. It
earns the trust and respect of his team by demonstrating positive work qualities and confidence. They
foster a positive environment and then proliferates these values through the team.
Innovator Successful entrepreneur are innovators and usually have an ‘out of the box’ approach to
solving problems. They usually identify gaps in consumer demands or needs which have been ignored
for long. They welcome change and are consistently innovating with the changing demand patterns.
Dependable Successful, sustainable business people maintain the highest standards of integrity
because, at the end of the day, if you cannot prove yourself a credible business person and nobody
will do business with you, you are out of business. Therefore, a successful entrepreneur should have
Strong sense of basic ethics and integrity. In short, he should be dependable.
Resourceful Most new businesses have limited resources such as money, information and time.
Successful entrepreneurs figure out how to get the most out of these resources. They are masters at
stretching a dollar and making a few resources go a long way.

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 Characteristics of successful entrepreneurs
cont.
Communicators A successful entrepreneur must be a good communicator.
Excellent inter-personal and networking skills go a long way in business success.
Achievement oriented Successful entrepreneurs are achievement oriented.
They value accomplishment and the intrinsic rewards that go along with
achieving difficult goals.

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Role of business enterprises in the
development of a country
Business enterprises provide employment
They pay taxes
They increase the GDP of the country
They satisfy the needs and wants of the people
They bring foreign currency if the products are sold outside the
country Reducing poverty levels

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Major challenges faced by entrepreneurs
Identifying successful business opportunities
Sourcing capital
Determining suitable location
Competition from established firms
Building customer base

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SOCIAL ENTERPRISE
Refers to a business with mainly social objectives that reinvests
most of its profits into benefiting society rather than maximising
returns to owners.
Social enterprises are businesses whose primary purpose is the
common good.
They use the methods and disciplines of business and the power of
the marketplace to advance their social, environmental and human
justice agendas.

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 THEY SELL PRODUCTS SUCH AS T
SHIRTS, SLIPPERS, KEY TAGS AND
OTHER STATIONARIES, DOG
ACCESSORIES AND ESSENTIALS ETC.

THEY DO MAKE A PROFIT BUT THEY

REINVESTS MOST OF THEIR PROFIT
IN HELPING STREET DOGS.

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THE RANGES AND AIMS OF SOCIAL
ENTERPRISES
Basically these are the characteristics of social enterprises
They operate for the well being of the society
Making profit is not the main aim
Main aim is to solve social problems faced by people
Profit is kept to provide more services
They normally provide education and health
Generate the majority of their income through trade

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Triple bottom line
•Social enterprises have three main objectives.
•These aims are often referred to as the triple bottom line.
•Triple bottom line is used to measure the performance of a business:
a. Economic (Profit)
b. Social (People)
c. Environment (Planet)

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Benefits of Social Enterprises
Social enterprises produce higher social returns on investment than other
On one hand, they produce direct, measurable public benefits.
A classic employment-focused social enterprise, for example, might serve at least four public
aims:
Fiscal responsibility: It reduces the myriad costs of public supports for people facing barriers,
by providing a pathway to economic self-sufficiency for those it employs.
Public safety: It makes the community in which it operates safer, by disrupting cycles of
poverty, crime, incarceration, chemical dependency and homelessness.
Economic opportunity: It improves our pool of human capital and creates jobs in communities
in need of economic renewal.
Social justice: It gives a chance to those most in need.

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THANK YOU

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