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Business Studies For Dummies®

Visit www.dummies.com/cheatsheet/businessstudies to view this book's cheat sheet.

Table of Contents

Introduction

About This Book

Foolish Assumptions

Icons Used in This Book

Beyond The Book

Where to Go from Here

Part I: What Is Business?

Chapter 1: Understanding Business and Business Studies

Defining Business

Why Study Business?

Knowing How to Study Business

Thinking for yourself

Putting theory into practice

Considering the Role of Business

Seeing the economic side of business

Understanding the social perspective

Understanding Business Risks

Situating the Business in Its Environment

Thinking about Beneficiaries and Stakeholders

Recognising Present Business Pressures

Chapter 2: Identifying the Internal and External Influences on Business

Considering Internal Influences: An Inside Job

Directors and top managers

Technology and expertise

Ethics and the work ethic

Drives and pressures

Crises and emergencies

Exploring External Influences: Looking Beyond Your Walls

Trade and the trading environment

Environmental issues

Chapter 3: Using Business Analyses

Starting with the Basics of Analyses

Figuring Out Three Principles of Business

Analysing the Environment

PESTEL analysis

Five Forces analysis

Competitor analysis

Analysing the Organisation

SWOT analysis

Locations

Costs and returns

Value

Analysing Products and Services

Product and service lifecycles

Product and service clusters

The Ford Matrix

Analysing Customers and Clients

Analysing Risks

Chapter 4: Making Decisions

Following the Decision-Making Process

Understanding Real-World Business Decisions

Reviewing the Role of Top Management in Decisions

Stakeholder pressures

Managerial pressures

Part II: How Business Works

Chapter 5: Structuring and Evolving Organisations

Identifying the Various Structures and Types of Organisations

Commercial organisations

Public service bodies

NGOs and quangos

The not-for-profit sector

Other organisational forms

Outsourcing Work to Other Companies and Countries

Changing Ownership and Activities

Takeovers and mergers

Privatisation

Chapter 6: Meeting Stakeholder Demands

Knowing Who the Stakeholders Are

Backers

Staff

Customers and clients

Suppliers

The public and the media

Pressure groups

Understanding Stakeholders’ Priorities

Considering Ethical Issues

Chapter 7: Organising for Success

Building the Foundations for Organising for Success

Understanding the Nature of Organisation

Considering Locations of Work

Weighing up a location

Working via the Internet

Organising Work and Work Groups

Departments, divisions and functions

Spans of control

Dealing with Staffing Issues

Investing in Technology and Assets

Part III: How to Be a Business and Do Business

Chapter 8: Understanding Business Strategy

Knowing What Strategy Is (and Isn’t)

Defining Your Organisation’s Strategy

What do you do?

When do you do it?

Where do you do it?

Why do you do it?

For whom do you do it?

Implementing Your Strategy

Formulation

Execution

Measuring the results

Looking for the warning signs

Chapter 9: Creating Great Products and Services

What’s in Your Stable Today? Evaluating Your Existing Products and Services

Offering a range of products and services

Analysing the contribution of products and services

Looking at product and service lifecycles

Paying attention to quality

Creating the New Kids on the Block: Product and Service Development

Finding reasons for development

Producing a prototype or mock-up of your idea

Getting to market

Building on your successes

Abandoning your failures

Chapter 10: Marketing Your Products or Services

Knowing What Marketing Is and What Marketing Does

Targeting Your Piece of the Pie: Market Segmentation

Devising Your Marketing Strategy

Choosing a Marketing Mix

Selecting Your Marketing Media

Branding: Showing Who You Are and What You’re About

Thinking about the brand you want

Building a brand

Doing Market Research

Customer surveys

Focus groups

Meetings with customer groups

Specialist groups involved in new product and service testing

Tracking purchases

Tracking Internet buying habits

Putting It All Together

Part IV: Money, Money, Money

Chapter 11: Understanding Finance

Knowing What Finance Is and Where It Comes From

Capital and shares

Loans

Retained profits

Using Finance

Investing in the business

Bonuses and rewards

Dividends and returns

Structuring Finance

Using loan capital

Drilling down to the core: Strength and integrity

Understanding assets and liabilities

Allocating Resources

Budgeting

Knowing why budgets matter

Looking at different kinds of budgets

Developing a budget

Keeping your eye on the figures

Apportioning Costs

Chapter 12: Structuring Accounts

Getting to Grips with the Basics of Accounting

The accounting cycle

The accounting equation

Double-entry bookkeeping

Depreciating your assets

Understanding Financial Statements

Gathering the important financial statements

Taking a snapshot: The balance sheet

Making money: The profit-and-loss account

Keeping more money than you spend: The cash flow statement

Audits: The Key to Accuracy

Chapter 13: Investing in the Present and in the Future

Understanding the Purpose of Investment

Doing Your Due Diligence

The cost of capital

Returns on investment

Future effects

Focusing on Financial Forecasting

Analysing Performance

Variance analysis

Ratio analysis

Cost/volume/profit analysis

Reading an Annual Report

Chapter 14: Using Numbers in Business

Delving into Data

Finding the data you need

Making use of the data

Recognising what numbers tell you, and what they don’t

Sidling Up to Statistics

Knowing the statistics that are relevant to your business

Using statistics to your business’s advantage

Defining Business Analytics

Calculating Risk

Accepting and mitigating risk

Don’t go there: Avoiding risk

Part V: The Awkward Bit: The People!

Chapter 15: Knowing People

Oh, Behave! (How People Behave)

Communication Nation: Seeing the Importance of Communication

Channels of communication

Types of communication

What we have is a failure to communicate: Barriers to communication

Culture Club: Considering Your Organisation’s Culture and Values

Understanding the characteristics of culture

Seeing how culture evolves

Oh, Captain! My Captain! Looking at Leadership

Motivation: Why People Do What They Do

The hierarchy of needs

The two-factor theory

Building the Work Ethic You Want

Go, Team!

Managing across Cultures, Borders and Time Differences

Chapter 16: Managing Human Resources

Recruiting New Employees

Defining the job

Setting a salary

Finding the cream of the crop

Sorting through the applications

Interviewing candidates

Checking references

Ranking your candidates

Welcome aboard! The first few days and weeks

Training and Development: Helping Your Employees Learn and Grow

Developing at all levels

Using performance appraisal

Atta Boy! Atta Girl! Rewarding Your Employees

Identifying the difference between intrinsic and extrinsic rewards

Making rewards and incentives pay off

Feeling Good: Health and Safety

Chapter 17: Handling Employee Relations

Policies and Procedures: Putting Them on Paper

Handling Conflict in the Workplace

Getting Employees Involved in the Organisation

Disciplining and Dismissing Employees

Discipline: Wearing the proverbial dunce cap

Dismissal: You’re outta here!

Addressing Employee Grievances

You’re in the Union, Jack: Appreciating the Role and Function of Trade Unions

Consulting and Negotiating with Your Staff

Flex Those Muscles! Flexible Working Conditions

Following the Letter of the Law

Part VI: Putting It All Together

Chapter 18: Examining Operations

Identifying the Nature of Production and Service Activities

Integrating the Efforts of Your Employees

Considering the Scales of Production and Service Delivery

Classifying production and service delivery

Seeing how technology helps

Making Quality Your Top Priority

Uniformity

Differentiation

Access and convenience

Tackling Organisational Issues

Managing alienation

Keeping control

Considering location

Balancing efficiency and effectiveness

Moving On Up: Growing and Diversifying

Chapter 19: Delivering Great Projects

Considering the Nature of Project Work

Getting to grips with the basics

Recognising the benefits of project work

Ticking off the trade-offs of project work

The Circle of Life: Looking at the Project Lifecycle

Phase 1: Design and conception

Phase 2: Building and delivery

Phase 3: Use and value

Time after Time: Setting and Meeting Deadlines

Critical paths

Some absolutes

Managing Projects Like a Pro

Following top management tips

Designing and structuring project organisation

Chapter 20: Using Technology to Your Best Advantage

Seeing What Technology Is and What It Can Do for You

Recognising the value of technology

Using technology

Focusing on Information Technology

Bringing Technology to Bear on Your Products and Services

Keeping Up with the Competition in the Technology Age

Keeping Current with Technology

Part VII: The Part of Tens

Chapter 21: Ten Tips for Succeeding at Business School

Contribute

Ask Questions

Go to Classes That Aren’t on Your Course (In Addition to Those That Are!)

Listen to Guest Speakers

Attend Conferences

Make the Most of Group Work

Join Societies

Read

Volunteer

Enjoy!

Chapter 22: Ten Ways to Put Your Knowledge to Work Outside the Classroom

Taking Internships

Working Outside of Your Studies

Volunteering

Visiting Companies and Organisations

Considering Customer Service

Networking

Evaluating Your Own Behaviour

Reading

Learning from Mentors

Creating a Winning Curriculum Vitae

About the Author

Cheat Sheet

Connect with Dummies

Introduction

There’s never been a more important, exciting or vital time to be studying business. So much has happened in the past: achievements and successes, but also mistakes and business conduct that, excellent though it may have been then, is no longer suitable or effective. And so much is going to change in the years to come, such as increased competition in a world that’s electronically charged and linked; industrial and commercial revolutions in countries such as Brazil, Russia, India and China; and the commercialisation of public services like health, education and security.

So it’s clearly time to take a step back and think about just what business is, how it’s conducted and how it should be conducted, and the benefits that it should be delivering for society at large, as well as for companies and organisations. And that’s where Business Studies For Dummies comes in: it’s a concise point of reference for everyone who wants to know and understand what business is and what it ought to be, and how to succeed in business now and in the future.

About This Book

This book provides the basis for acquiring and developing the substantial body of knowledge, skills and understanding that’s required of anyone who comes to study business. This knowledge forms the base upon which you can build practical excellence and expertise, and relate the lessons learned to what goes on in the world.

This book is full of vital and useful information. Everything included in the book is tried and tested. Of course, I introduce organisation and management theories, and I also introduce the distinctive disciplines of business – marketing, finance, numeracy and the understanding of people and their behaviour. I concentrate on what’s useful and valuable. All these aspects give you a firm foundation on which to build your professional knowledge, understanding and expertise.

I also include lots of real-world examples that I hope inspire you to understand the expertise and principles on which they’re based, and learn from the failures also, so that you can make sure you never make these mistakes yourself.

I also place an emphasis on providing practical information – so you’ll find lots of tips and guidance you can apply to your own career in business. Becoming fully professional and expert in business is terrifically rewarding and fulfilling, whatever sector you go on to work in.

Always put in your best effort! Remember that the best directors and managers in the world have reached their positions because of their personal and professional commitment, as well as their expertise. In addition to working very hard, they have read books like this and many others so that they know as much as they possibly can about everything to do with business.

Foolish Assumptions

In my line of work, everyone I meet has an active interest in business, companies and organisations, how they work, and what causes some of them to be profitable and effective, while others fail. In this book, therefore, I assume that you’re studying business on a course, or else actively interested and/or involved in business – what it is, how it works and how it can be improved.

I assume that you need and want comprehensive basic information about every aspect of what business is and the different elements – organisation, people, marketing, sales, accounts and finance – that together make up the whole.

I also assume that, whatever your occupation, rank or level of qualification, you can get something out of this book – just a few insights, or a pearl of wisdom, or a different approach to reviewing those things with which you’re familiar. As you work your way through this book, you’re able to access both the whole of what business is, and also those specific parts that are of greatest value to you (feel free to browse the table of contents if you’re looking for a particular topic to dive into).

Icons Used in This Book

We use icons next to blocks of text to draw your attention to particular nuggets of information throughout the book.

tip.eps The bull’s-eye highlights a good idea or shortcut that can save you time or trouble.

remember.eps This icon draws your attention to a piece of information about business that you shouldn’t forget.

warning_bomb.epsThis icon indicates information that can help you to avoid disasters.

realworldexample.eps The world of business is full of inspirational stories of business successes and failures, and this icon highlights them.

pearlofwisdom.eps This icon shows vital lessons to learn, based on the experiences of others.

technicalstuff.eps This icon draws your attention to the main things that you’ll likely learn and apply as you study business and develop your knowledge and expertise.

pointofview.eps Everyone in business has their own point of view on all aspects of what is good and best practice, and this icon highlights the best of these.

Beyond The Book

As you make your journey into the world of business studies, you can supplement what you discover in this book by checking out some of the bonus content available to you at Dummies.com.

You can locate the book's e-cheat sheet at www.dummies.com/cheatsheet/businessstudies. Here you can find handy hints about the importance of people in everyday business, identifying and assessing risk, and relating your studies to real-life business.

Be sure to visit the book's extras page at www.dummies.com/extras/businessstudies for an extra Part of Tens chapter and many other interesting articles.

Where to Go from Here

The beauty of a book broken up into easily identifiable and manageable chunks is that you can start anywhere in your reading. Being new to business studies, you may want to start at the beginning and work your way through to the end. Then, later on, you can delve into the book, finding topics that are useful at different stages. A wealth of information and practical advice is waiting for you. Simply turn the page and begin!

Part I

What Is Business?

9781118348116-pp0101.eps

pt_webextra_bw.TIF For Dummies can help you get started with lots of subjects. Visit www.dummies.com to learn more and do more with For Dummies.

In this part . . .

check.png Get to grips with business. Identify whether studying business is for you and get advice on exactly how to go about doing this.

check.png Apply a business-like approach to all business activity in order to improve the running of your commercial, public sector or not-for-profit business.

check.png Acclimatize yourself to your business’s environment by learning about the internal and external influences on your business.

check.png Optimize your business analyses skills to evaluate opportunities, constraints, drives and pressures from all parts of your business environment.

Chapter 1

Understanding Business and Business Studies

In This Chapter

arrow Understanding why and how people study business

arrow Thinking about the part that business plays socially and economically

arrow Considering the risks facing businesses

arrow Looking at the bigger picture: the business environment

arrow Seeing what pressures businesses contend with

Welcome to the world of business and business studies!

The world of business is truly exciting. It provides everything that you need, want, consume and use in every part of your life. But the world of business can also be a scary one – times are uncertain, and this uncertainty is causing great changes in how companies and organisations conduct their affairs, how people organise their working and domestic lives, and how essential services (such as housing, energy and transport) are provided, delivered and paid for.

So, people knowing as much as possible about business is vital – how business is organised and structured, and how it goes about delivering what it’s supposed to produce.

That’s where you come in! Whether you’re studying business in order to get qualifications, or whether you’re doing so purely out of interest, you will acquire much greater knowledge, insight, understanding – and, ultimately, expertise – in everything to do with business and how business is conducted by reading this book!

In this chapter, I start you off on your business studies path by laying down the basics of this field of study, from defining business and understanding why people study it and how, to looking at the role of businesses, risks, the business environment, beneficiaries and stakeholders and, finally, the pressures that businesses face.

Defining Business

Business students must know the answers to two key questions:

check.png What is business? Answer: the provision of products and services for consumption, in return for an agreed-upon price, charge or fee, or for having paid taxes and charges at some point (usually for public services – this also applies to direct debit payments for electricity, gas and water).

check.png What is a business? Answer: an entity – an organisation – that conducts a particular set of activities, the purpose of which is to provide something – products, services or both – that’s of value to all or part of the community.

tip.eps Ultimately, think of all organisations as businesses, whether they work on purely commercial lines, or whether they’re government departments, public service providers or charities. This makes studying business much more straightforward. Besides, all public service and charitable organisations are now run very much on ‘business lines’, with the kinds of pressures on their resources that have always occurred in commercial activities.

Why Study Business?

Business provides a fundamental structure for every part of society, affecting every walk of life and part of life. Most of what you do relates to businesses of one sort or another.

Obviously, businesses provide work, but they also provide plenty of other things that people need, such as holidays, cars, clothes, food and furniture. If you need healthcare, or want an education, or even water, gas or electricity, then schools and hospitals and the utility companies – businesses by any other name – exist to provide these services. And, of course, you expect businesses to be business-like – professional and expert. For example, you want healthcare or education to be delivered by experts, not just by people who fancy the job.

So you have an immediate rationale for studying business – without business, you’d have a hugely different life. People depend on businesses of all kinds for every part of their daily lives. Business delivers work, income, energy, transport, communications, food and drink, leisure activities and more. Organisations run along business lines deliver healthcare, education, security and defence. So business really is at the core of everything people do and are.

You study business, then, because you need to understand the following:

check.png How everything about the world that you live in operates and the position business has in making sure that the world works as well as possible

check.png How organisations can be improved for the benefit of everyone, and how those improvements can best be made

check.png Whether people are getting the best possible services from public businesses like utility companies, and the best possible value from the taxes and charges that they pay to support the public businesses

You also study business because businesses directly affect your quality of life and your ability to do the things that you need and want to do. For example, think of your reaction

check.png To increases in car parking charges.

check.png When you read of waste in government circles – for example, when it overspends by £40 billion on defence contracts, or writes off £14 billion on computer projects for the UK National Health Service (NHS).

Happy? No! It is, after all, your money that’s been increased or written off, so you have a vested interest in how businesses operate.

remember.eps Business studies is about:

check.png Looking after money

check.png Making progress as an individual and for everyone

check.png Organisations, and creating the conditions in which you can be business-like

check.png People – in their roles as workers, customers and clients, and as they go  about their daily lives

check.png Products, services and service

check.png Resources and their usage

check.png The law

Knowing How to Study Business

If you want to study medicine, you go to medical school. And so the superficial answer to the question ‘How to study business?’ is ‘Go to business school.’

Well, business school can teach you a lot, but to really find out about business, you need to take a wider view. Business is all-pervasive (much more so than medicine, which, although critical, is only one part of life and, therefore, only one part of business life). You observe business all the time, and so you have the opportunity to make up your own mind and begin to form your own opinions, whether you go to business school or not. And as with the study of medicine, studying in a school, college or university isn’t enough! How you apply your knowledge and, therefore, build your expertise, is crucial.

remember.eps Tom Peters, one of the great business gurus, said in a televised lecture on Channel 4:

‘The number of business school graduates has been rising at exactly the same time that the country’s real-world share of goods and services has been falling. So something is going wrong at business school. You need practical experience as well as theoretical knowledge, and the two have to go together.’

Thinking for yourself

You need to study and observe how organisations conduct themselves. In doing so, you form your own opinions that you apply in all your business dealings. So, you ask:

check.png Why is company X so successful, but company Y isn’t?

check.png Why do I always use one supermarket but not the others?

check.png Why do I like (or hate) working here?

. . . and so on. In this way, you begin to develop an enquiring mind. You build knowledge and understanding of your own behaviour, attitudes, values, prejudices and preconceptions that you have about businesses overall, how they conduct themselves and what you expect from them. And you then use this knowledge, understanding and insight to form the basis of your own expertise.

Putting theory into practice

The study of business is full of theories – this book contains plenty of theories – and the test of theories is what they contribute to practice.



remember.eps When it comes to theories, you need to bear in mind two key points:

check.png A theory doesn’t work in every single set of circumstances. If something works well in most sets of circumstances, you’ve a clear guide, of course. However, always be aware that a theory may not work, or work fully, all the time.

check.png If something isn’t working, you should probably change the theory, not the practice. For example, if you’ve bet everything on an Internet marketing campaign for your new product because you can theoretically reach half the world’s population, and yet the campaign has no effect on sales, you should probably try (or at least consider) something else. After all, you don’t want to reach half the world’s population; you want to reach that (probably tiny) part of the world’s population that will buy and consume your products.

Theory never makes life predictable or certain. People have never before had greater access to information and data, and so, theoretically, creating business and businesses with a great deal more certainty of success than in previous times should be possible. But the international, economic, political, financial and business crises of the early part of the 21st century show clearly that success isn’t assured, whatever the availability of data.

remember.eps When studying business – theory and practice – remember that business is:

check.png A huge and complex subject, consisting of many different subjects and facets, and with an awful lot of information on which to base your knowledge and understanding

check.png Ever-changing, as people come up with new ideas and inventions, and new ways of doing things

check.png Unpredictable – you can’t always state that something in business is going to work perfectly in all circumstances

check.png Bounded by people and how they behave, and needs to recognise that their behaviour (collective and individual) changes according to whether they’re being customers, staff, tradespeople, managers, car drivers, public transport passengers or clients of healthcare and other public services

Keep these four bullet points in mind when reading all the books, papers, news media, journals and website articles that come your way. And if you’re studying at business school, approach the syllabus armed with this knowledge and it will help you get the most from your education.

Considering the Role of Business

To study business, you have to form your own opinion of what business and businesses are for. In the earlier section ‘Why Study Business?’, I indicate just how big a part of daily life businesses are. You can split their role into two key areas: economic and social.

Seeing the economic side of business

The economic role of business and businesses reflects the fact that everything that people do has a cost, price or value. However, these economic aspects sit in a wider context:

check.png Costs: The costs incurred relate to everything that any business has to pay in order to be able to operate. Costs exist to the environment in terms of energy and other resources used and consumed. Opportunity costs also come into play – if you choose to do one thing, you forego the opportunity to do something else (at the same time at least). Finally, a business has direct or indirect costs to do with waste and effluent management and disposal, a necessary consequence of being in business.

check.png Prices and charges: Companies and organisations place prices and charges on all goods and services, and these prices reflect the value (see the following bullet point) that they’re deemed to carry. Some companies and organisations are able to charge high prices because of the value that they deliver; others charge high prices because they have captive markets. Customers have to pay for most products and services at the point of order or delivery, but some (especially those provided by public services) are free at the point of order or delivery. (These kinds of products or services are usually paid for through taxation.)

check.png Value: A reflection of the utility that particular products and services have. Note the following two extremes:

• If something has no usefulness or value at all, there won’t be a price low enough that you can sell it for.

• Nothing is absolutely perfect, which means that, ultimately, everything has its price – a price above which people aren’t willing to pay.

realworldexample.eps The following examples are worth noting in support of understanding the economic point of view:

check.png A huge demand for housing – bought and rented – exists in the UK at present, but not at the prices, charges and rents currently on offer.

check.png The success of Ryanair and easyJet proved that huge demand (and, therefore, value) exists for air travel, but not at the prices that were being charged before these companies started up.

Understanding the social perspective

The economic perspective that I explain in the previous section also indicates the social side to business. In particular, the prices paid and the value ascribed to business, products and services are matters of collective and individual (that is, social) choice. No linear or one-dimensional economic rule or theory exists that states ‘Because product X or service Y is only price £Z, I will buy it’, and works in every set of circumstances.

Prices charged and paid also reflect personal and collective value. For example:

check.png If you’re offered a Rolls-Royce for £3,000, you’ll probably turn it down because you think something must be wrong with it (a social, not economic judgement).

check.png If a company is offering consultancy services for £10,000 a day, clients have absolute faith (a social judgement) that the services are excellent because of the high prices charged (a social judgement). If the services were no good, the consultancy couldn’t charge these prices (also a social judgement).



Understanding Business Risks

Nothing in business is certain, and risk exists when you can’t know everything about a situation. In business, things go wrong:

check.png You lose money.

check.png Your products, services and customer service lose their competitive edge.

check.png Your technology crashes.

check.png You’re attacked and/or defrauded.

check.png Your costs rise and/or your income falls.

The above are all risks that businesses face. Businesses have to recognise the risks and be prepared to deal with them.

When it comes to identifying risks, businesses need to understand:

check.png The ins and outs of the business

• The company’s products and services, the service that’s delivered and the risks of product and service faults and shortcomings

• How reliable their suppliers and supplies are, and the risks of the loss of a key supplier or supply

• The loyalty of customers, and the risks of losing a particular customer base or group

• The loyalty, expertise and conduct of staff and their collective and individual attitudes, values and behaviour, and the risks to your performance of the loss of key staff or the inability to source good staff for the future

check.png What can possibly go wrong and why, and what the possible consequences are

check.png Some of the behavioural aspects of risk, including complacency, denial and an unwillingness to address the less certain parts of business activities

When a business is aware of a risk, it can mitigate the risk by taking steps to ensure that the bad things don’t happen or, if they do, that plans are in place to deal with consequences.

Two areas of business in particular require risk management:

check.png Accidents at work: Accident prevention is often common sense – you need to keep the workplace clean and tidy, and train people to use equipment correctly. If you do this, you’re certain to cut out about 90 per cent of the accidents that can potentially happen at work.

check.png Crime: You need to be aware of the crimes that can occur at work, including:

• Financial crimes, such as fraud, theft and cheating

• Vandalism, including sabotage of production equipment and information technology

• Violence, especially of staff toward each other

• Bullying, victimisation, discrimination and harassment

• Corporate crime, including insider dealing in shares and commodities

• Infiltrating the security of databases and information systems for criminal gain

• Drug dealing, and drug and alcohol misuse

remember.eps Risk management can be a negative approach to understanding business – you’re always looking out for things that can conceivably go wrong. Nevertheless, if you study business from this point of view, you get an excellent insight into how companies and organisations behave, and how they should behave. You also take a realistic view at all times, giving yourself the discipline of looking at all the constraints, as well as the opportunities.

Situating the Business in Its Environment

The business environment is the part of the world in which business takes place. If you’re to understand business, you have to recognise that a business doesn’t operate in isolation. Instead, business activities are set in the context of how things are in the world, the state of markets, the ability and willingness of customers to spend money on products and services, and the wider state of local, national and international economies (turn to Chapter 2 for more on external influences).

remember.eps All businesses have to be capable of operating successfully and profitably within their environment. Your knowledge of the environment – its pressures and opportunities – is absolutely critical.

You get your immediate knowledge of the business environment from news and current affairs media, company and organisation websites, and knowing about the nature of activities going on and the pressures being faced.

Thinking about Beneficiaries and Stakeholders

The beneficiaries of a business are those people for whom the business is especially important, or for whom the business was constituted. Table 1-1 outlines types of business and their beneficiaries.

Table 1-1 Business Beneficiaries

Type of Business

Beneficiaries

Business organisations

Shareholders, staff, customers and clients

Utilities, including gas, electricity, water, transport, post and telecommunications organisations

Society at large – everyone needs the services provided

Public service organisations (for example, health, education, social care and welfare)

Client groups needing the particular service

Cooperatives

Staff, customers and clients

Convenience organisations (for example, food stores, libraries, local amenities and sports centres)

Those who find the organisation convenient for whatever reason

Mutual benefit associations (including trade unions, churches, political parties, clubs and also cooperatives as above)

Members

Regulatory bodies constituted by government

Society at large – these bodies ensure that the sectors they regulate conduct themselves to legal and ethical standards

Government at all levels

Society at large – in the provision of essential services, for example health and education; also infrastructure, security, law and enforcement

In addition to beneficiaries, businesses have stakeholders: people who have an interest in the business.

tip.eps Look at stakeholders from the point of view of:

check.png Who benefits from the business?

check.png Who takes advantage of the business?

check.png Who’s disadvantaged by the business?

Identify the stakeholders involved as follows:

check.png Staff: They depend on the organisation for salaries, wages and security.

check.png Customers and clients: They depend on the organisation for products, services and service.

check.png Suppliers: They depend on the organisation for their own regularity and assuredness of business.

check.png The media: They have a legitimate interest in covering every aspect of business – successes, failures and scandals.

check.png The community at large: They’re affected by the contribution that business and businesses make.

check.png Legal and regulatory authorities: Their job is to make sure that work is carried out to the highest possible standards.

check.png Shareholders: If the business is a public company, shareholders (or stockholders) are the investors who may expect a financial return on their investment.

When you look at business in this way, you get a clear idea of who the companies and organisations are supposed to exist for and who they actually do exist for.

realworldexample.eps Of course, who businesses are supposed to exist for and who they do exist for ought to be the same! Unfortunately, that isn’t the case in practice:

check.png Over the period 2010–2012 in the UK, the average salary of commercial company directors rose by 49 per cent; at the same time, the average wage of middle and junior management, supervisors and operational staff rose by 6 per cent.

check.png The directors of Lloyd’s Banking Group and RBS received average bonuses in 2013 of £330,000, despite the fact that the performance of both organisations continued to decline.

remember.eps When assessing the actual beneficiaries and stakeholders of business, take the broadest possible view.

Recognising Present Business Pressures

No introduction to business is complete without understanding the pressures that the business is facing at the moment and is likely to have to face in the future. Clearly, pressures and their effects vary among organisations and business sectors. However, some common pressures exist that every business is certain to face at one point or another:

check.png Shortage of money and declining revenues: Shortage of money is invariably the result of not having enough capital to support present and future developments. Declining takings and revenues are caused by falling sales. Whatever the cause, the critical pressure is that all companies and organisations have to know the worst set of circumstances in which they can possibly survive, and what actions they need to take in order to survive.

check.png Rising costs, especially those that the business can’t control: These costs include, above all, energy, fuel, transport and waste, effluent management and taxes.

check.png Declining business volumes: Customers and clients seek ever-greater value for their money and change their spending habits in response to their own environmental pressures.

check.png Increased competition: The overall expansion and globalisation of trade and trading practices means that other companies and organisations have easier access to markets, customers and clients.

check.png Making the most of your staff: This pressure arises from the fact that people and wages are the largest single expense that business has to carry. The consequence is that in many cases everyone is going to be asked to do more and more in return for their wages and salaries.

check.png Additionally, in uncertain times, upward pressures exist on wages and salaries from staff. This is because employees would rather have a big pay increase now than the same rise phased in over two or three years. This, in turn, is because they want to secure their own immediate future and because the company for which they work may not exist in two or three years.

check.png Declining property values: The pressure that arises from declining property values means that premises have to be seen by managers primarily as a place to do work rather than an asset that has value in itself.

check.png Competition for critical supplies and resources: The pressure to secure all supplies at a cost and price that’s more or less assured, at least for the immediate future.

check.png Outsourcing: The pressure to outsource comes from shareholders and backers above all. The advantage of outsourcing is that you know how much a certain service or activity is going to cost you, and so can plan with a degree of certainty.

remember.eps I return to outsourcing at regular intervals throughout the book. (Turn to Chapter 5 especially for different aspects of outsourcing.) Outsourcing is a major aspect of current business practice, and if carried out with integrity, it makes a great and enduring contribution to business viability.