Primary production: this involves acquiring raw materials. For example, metals and coal have to be mined, oil drilled from the ground, rubber tapped from trees, foodstuffs farmed and fish trawled. This is sometimes known as extractive production. Secondary production: this is the manufacturing and assembly process. It involves converting raw materials into components, for example, making plastics from oil. It also involves assembling the product, eg building houses, bridges and roads. Tertiary production: this refers to the commercial services that support the production and distribution process, eg insurance, transport, advertising, warehousing and other services such as teaching and health care.
Stakeholders are people or organisations that have a financial interest in a business [Employees, Suppliers, People who owe the business money (Creditors), Customers, Managers, Owners]. The best types of objective are SMART. Smart stands for:
Specific: clearly state what is to be achieved, eg increased profits. Measurable: the desired outcome is a number value that can be measured, Agreed: all staff are involved in discussing and agreeing an aim. Realistic: the target is possible given the market conditions and the staff and financial resources available. Timed: the target will be met within a given period of time, eg 12 months.
The usual objectives for the owners of businesses are survival, profit, growth. Businesses in their early years often state that they aim to survive, as the first few years in business are the hardest. At this stage, businesses are attempting to penetrate the market and obtain a share of the market for their goods and services. That means they wish to try and attract some sales from the existing businesses. To begin with, a business may have the objective to break even. This means that sales revenue will equal the total costs. No profit will be made but there will be no loss either. Objectives usually change after the early years. After the first year, objectives are usually to make or increase the profit. A business may then wish to expand. This expansion can be by increasing either the range of products or the number of locations. This will hopefully lead to maximising sales and maximising profit. Maximising means making the most of something. Sole traders may have different objectives and may be more interested in satisficing [reaching a certain level or target but not necessarily making the most of anything]. Other stakeholders’ objectives:
Managers may have the same objectives as the owners, especially if they are rewarded for achieving profit. If they are not directly rewarded then they may want to increase their own status. Suppliers are likely to want to the business to be reliable to have repeat orders and so that the business can pay the credit bills when they are due. Employees will want reasonable pay and good, safe working conditions. They will want the business to survive because they want to keep their jobs. Creditors will want to be paid the money that is owed to them. Customers will want a good product and value for money. They will also want the business to survive – they want the business to be reliable so that they can have after-sales service should anything go wrong.
Conflicts in objectives:
Employees want more pay. Customers want a high quality product. Owners want to reduce costs. Customers want low prices. Owners want more profits.
Suppliers want to be paid on time. Owners want to delay payment. GROWTH:
Comparing Size: A business can be measured in size in a variety of ways: sales turnover, number of employees, value of the business, by capital employed. Growth: If a business is able to grow, it may benefit from economies of scale. For example, savings may be made in buying raw materials if they are bought in large quantities. A business may have market domination as its aim. That means...