In production and manufacturing environments the business would transform inputs (materials, labour, capital) into outputs (physical goods or services).
The main aim is to add value to the product or service in order to generate profits. To obtain this the outputs need to be worth more than the inputs. These are measured in financial terms in order for organisations to generate revenue.
When the sales exceed the costs of providing the products, profits are gained.
The nature of the process in which businesses transfer their inputs into outputs vary. For example, depending of the location, labour costs would be different. The size of the organisation and whether the business is a multi-sites organisation will have an impact.
Whatever the type, the business leaders are continuously looking at improving and adding more value to the products and services. This is to make it more attractive for potential customers and buyers.
This can be achieved by variety of ways. for example changing the processes, sourcing cheaper materials, investing in new technologies, training and educating staff to gain more skills. Lean production have had a significant impact on the manufacturing practices in the recent years. The aim of Lean manufacturing is to reduce waste at all stages of production, for example, by reducing stock levels (Just in Time) that removes the costs of storing of the goods. Continuous improvement techniques (like Kaizen) aim to educate the employees to finding new ways of improving the business performance.
Value also can be added through other business areas. For example, marketing by recognising company by its brand and associated values.
additionally, the product design characteristics can create value. Adding certain new features of benefits to products will generate more value which customers are prepared to pay more for.
Adding value is a dynamic process and organisations need to stay on top of their game to be competitive. Managers need to look at changes continuously and evaluate impacts and changes (both internal and external) that could benefit the organisation or have the "knock-on-effect" on the business.
Business types
Sole trader - is someone who start up their own business and make all decisions. Generally, the decision making is quick and business remain flexible. The accounts are discreet as they do not have to be registered and profits do not have to be declared to third parties.
But small businesses have their disadvantages as it can be challenging to run your own business and knowledge in different areas of business management is required. Additionally, the liability for business problems are personal liability of the person who owns it.
Company - it has a separate legal existence from its owners. In order to start a company in the UK, the owners must register it in the Companies House. Company as a type of business have a limited liability. The accounts of a company have to be checked by auditors.
In the UK we can have private limited companies (ltds) and public limited companies (plcs). Public limited companies are more regulated in what information must be available, because public shareholders are involved. Some plcs have thousands of shares and these are being sold and bought on Stock Market every day.
Partnerships - occur when two or more individuals join together to start a business.
Buying shares
If you buy a share you get a vote for each share you hold, but some shares do not have voting rights. Generally, however, a shareholder can influence what the company does. This can be done for example in a form of dividends. As company become worth more, the shareholders wealth increase. Therefore, there is a higher pressure on managers to deliver great results. This can result in managers only focusing on short term goals to satisfy their investments and avoiding projects which could bring long-term bigger rewards. This may lead to lack of focus of important business areas, like research, development which could be considered too long.
Vision, mission statement
A mission statement is the underlying aim of the business. It often incorporates the believes and culture of the business, as well as their strategy and scope of activities.
Every company is unique and have different reason for their existence. Generally mission statement is published on the company website to give an overall "feeling" on what the company stands for. It inspire and motivate those who read it, but it does not have much practical implications to managers on what their goals are.
Business objectives
Objectives are specific targets. To be effective, the objectives need to be SMART (Specific, Measurable, Achievable, Realistic and Time-bound). Generally, business objectives focus on profits, market share, growth and cash flow.
Additionally, businesses put more focus on quality and sustainability targets to be competitive and reduce the negative impact on the environment.
CRS (Corporate Social Responsibility) focuses on the role business have on citizens and society.
"Companies that behave responsibly accept obligations over and above their legal requirements; they do not do the bare minimum because they see value in doing more and working with others. " (Oxford University Press)
To achieve objectives, managers need to develop strategy. It can involve long term plans of an organisation. A strategy will normally involve relatively large sums of money and be relatively high risk.
Bibliography:
Oxford University Press, 2016, Foundation of economics
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