Purpose and nature of business activity
Definition and Purpose of Business Activity
- A business is an organisation that combines resources to produce goods or services in order to meet customer wants and needs.
- The key purposes of a business include to provide goods and services, generate profit for owners, create jobs, and help economic growth.
- A core objective of most businesses is to make a profit. This profit can be retained within the business for development or distributed to the business's owners/shareholders.
Production of Goods and Services
- Production involves the process of creating goods or services.
- This process involves transforming resources (inputs) into goods or services (outputs). Resources include raw materials, labour, and capital.
- Businesses use several production methods, including job, batch, flow, and lean production.
- Businesses also make decisions about the scale and mix of production - this involves choosing what, how much, and how often to produce.
The Business Environment
- Businesses operate in an external environment that impacts their activities. This environment includes factors like technology, legislation, economy, and market competition.
- Business activity also impacts the environment. It can result in job creation, wealth generation, impacting the natural environment (pollution), as well as changing social and cultural norms.
- Corporate Social Responsibility (CSR) is increasingly important as businesses are held accountable for their impact on society and the environment.
The Economic Problem and Resource Allocation
- The economic problem is about scarcity: limited resources but unlimited wants. This creates the need to make choices about how to best use resources.
- Resources (land, labour, capital, and enterprise) need to be allocated efficiently to solve the economic problem.
- Businesses play an essential role in resource allocation through the decisions they make about what and how to produce.
- Markets and pricing mechanisms also influence resource allocation decisions.
Role of Enterprise
- Enterprise is a key factor of production involving risk-taking and innovation. It combines the other resources (land, labour, and capital) in the production process.
- Entrepreneurs are individuals who show enterprise. They initiate, manage, and accept the financial risks of a new business venture.
- Innovation and enterprise are crucial for a business' competitiveness and growth in the market.
Understanding Consumers
- Consumers influence business activities since demand for goods and services affects what, how, and how much businesses produce.
- Successful businesses understand consumer needs and wants, and strive to satisfy them better than their competitors.
- Market research, including surveys and focus groups, can help businesses understand their customers better.