1 ENTERPRISE

1.1 The nature of business activity

What do businesses do?

- identify the needs and wants of customers
- Purchase necessary resources to allow production to take place
- Produce goods and services which satisfy customers needs and wants usually with aim of making profit

Factors of production needed by businesses

- Land: place of operations including renewable and non renewable resources of nature (coal)
- Labor: manual and skilled workforce of business
- Capital: finance needed to set up and pay for continuing operations (capital goods being manufactured
resources used in operations (computers))
- Enterprise: initiative and coordination done by risk taking entrepreneur

The concept of adding value

- producing goods and services and selling them for higher price than the cost of bought in materials
- Done through unique selling point, quality improvement, branding and customer service
- Benefits business as can lead to higher profits, customer loyalty and market share

Economic activity and the problem of choice

- as we cannot satisfy all wants we must chose the ones that benefit us the most
- Business decisions involves selecting from various options such as product lines, marketing strategies
or investment opportunities
- Businesses often face constraints like budget, time and and resources like space or technology

Opportunity cost
- the next most desired option which is given up
- Recognizing opportunity cost helps businesses and individuals make more informed decisions by
considering value of sacrifices alternative

Dynamic business environment

- setting up new business is risky due to constantly changing environment
- New competitors entering market
- Legal changes such as new safety regulations
- Economic changes such as interest rates or inflation (less money to spend)
- Technological changes that make products of business outdated
- Business must continually adapt their strategies to remain relevant and competitive (adaptation and
innovation)

Why businesses succeed

- good understanding of customer needs leading to sales targets being achieved and to long term
success
- Efficient management of operations keeps costs under control

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 - Flexible decision making to adapt to new situations
- Appropriate sources of finance preventing cash shortages and allows expansion

Why businesses fail

- poor record keeping
- Can lead to financial mismanagement, cash flow issues, inability to track expenses or revenue
- Eg. Next delivery of fresh flowers, whether flowers for wedding were paid and ordered,
how many hours employee worked for
- Lack of cash
- Business not having enough cash to run on day to day operations
- Cash flow problems reduced if
- Cash flow forecast is made and kept up to date
- Sufficient capital is injected into business at start to keep up with day to day
operations
- Good relations are kept with bank to allow overdraft extensions
- Effective credit control over customers account to make sure the pay on time
- Poor management skills
- Managers not developed skills in leadership, decision making, cash handling and management,
planning, coordinating, communication, marketing, promotion and selling
- This could be solved by managers having training or advice from successful business owners

Local, national and international business

- local business operate in small parts of country and they have owners which more likely do not plan to
expand not attracting customers from across the whole country (benefiting from strong connection with
local customers, lower operational costs)
- National businesses have branches or operations across the country however they make no intention
to sell in other countries or internationally (challenges include more competition, higher operational
costs)
- International businesses sell products in more than one country mostly done by the use of foreign
agents or online selling
- Multinational businesses have operations in more than one country meaning they have established
base for either producing or selling products outside their own domestic economy

1.2 The role of entrepreneurs and intrapreneurs

Role of entrepreneurs
- have an idea for new business
- Create business plan
- Invest some of their own savings and capital
- Accept the responsibility of managing the business
- Accept the possible risk of failure
- Ability to be flexible and adaptable

Qualities of successful entrepreneurs and intrapreneurs

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 - innovation: be able to identify and fill a gap in the market, attract customers in innovative ways and
promote their business as being different demo other in the same market
- Commitment and self motivation: have ambition to succeed and discipline to continue
- Multi skilled: make product, promote it, sell it, and keep accounts (many qualities needed)
- Leadership skills: entrepreneur must lead by example to employees and have personality that
encourages and and motivates
- Self confidence and ability to bounce back: even after fail not be discouraged and bounce back to learn
from ,is takes
- Risk taking: willing to take risks often meaning investing their savings into the firm

Barrier to entrepreneurship
- lack of business opportunity: entrepreneurs struggling to find innovative ideas that can be profitable
- Obtaining sufficient capital and finance: obtains finance barrier due
- Insufficient savings (limited personal savings)
- No knowledge of financial support (grants available)
- Poor business and finance plan to convince banks and investors
- Cost of good locations: some start from home which has drawbacks
- Not close to area with the biggest market potential
- Lacks status
- Can cause family tensions lacking formality and stable operating times
- Difficult to separate private life from working life
- Competition: newly operating business will be immediately compared to established firms with greater
resources and market knowledge
- Lack of customer base: new firm must establish itself in make quickly and build up customer numbers
quickly to survive

Business risk and uncertainty

- Business risk
- All business decisions involve risk
- Chance new business selling clothing will fails as in past year 10 were successfully established
but 3 failed
- Entrepreneur reduces risk by studying why 3 failed and avoiding their errors
- Business uncertainty
- Cannot be foreseen, measured or calculated
- Covid 19 caused small businesses to close as they failed due to low number of customers
- Events that are impossible to forecast and very difficult for any business to prepare for

Role of enterprise in country’s economic development

- employment creation: new business creating jobs lower unemployment rates on national level and if
successful possibility of expansion creating more jobs
- Economic growth: increase in output of goods from start up business will increase the GDP of the
country (economic growth) possibly leading to increased living standards for the population and higher
tax revenues for government
- Business survival and growth: some startups survive and many expand, employing large number of
workers, boosting economic growth and taking place of businesses that decline or fail

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 - Innovation and technological change: new businesses are usually innovative adding to dynamism in the
economy, creativity stimulating other businesses to competitiveness
- Exports: when start ups expand and export products outside of country, this increases the value of
nation’s exports and improves its international competitiveness
- Personal development: starting and managing business can aid in development of useful skills
- Increased social cohesion: unemployment often leads to problems which can be reduced if there is
successful and expanding small business sector, by creating job opportunities

The role of intrapreneurship

- process of encouraging risk taking and enterprise by employees within a business to help create and
develop new opportunities
- Benefits of intrapreneurship in business
- Injected creativity and innovation into the business
- Developing new ways of doing business
- Driving innovation and change within the business
- Creating competitive advantage
- Encouraging original thinkers and innovators to stay in business

Key differences between entrepreneurs and intrapreneurs

Entrepreneur
- starting up a new business
- Risk taken by entrepreneur
- Rewards the entrepreneur
Intrapreneurs
- develops an innovative product or project writing an existing business
- Risk taken by business
- Rewards the business

1.3 Purpose and key elements of business plans

Business plan purpose

- obtain finance for start up
- Potential investors or creditors will not provide finance unless details about business proposal have
been written down clearly

Main elements of business plan

- executive summary: overview of the new business and its strategies
- Description of the business opportunity: entrepreneurs skills and experience, nature of product and
targeted market
- Marketing and sales strategy: details of why entrepreneur thinks customers will buy the product and
how the business will sell to them
- Management teams and personnel: details of entrepreneurs skills and people they intend to recruit
- Operations: production facilities and IT systems
- Financial forecast: future projections of sales, profit and cash flow for future year ahead

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Benefits of business plans
- Provides evidence to investors and lenders
- Forces the owner to think about proposal, its strengths and weaknesses
- Gives the owner and managers a clear plan of action to guide their actions and decision in the early
months and years of the business
- Higher chances of survival due to clear purpose and direction, marketing strategy and plan for future

Limitations of business plans

- plan may lead entrepreneurs to be inflexible (dynamic business throws up new opportunities which are
not in the plan these could be rejected)

2 BUSINESS STRUCTURE

2.1 Economic sectors

Primary, secondary, tertiary, quaternary economic sectors

- Firms that extract natural resources so that they can be used and processed
- Firms that manufacture and process products from natural resources
- Firms providing services to consumers and other businesses
- Firms providing information services

Changes in relative importance of economic sectors

- importance of sectors changes over time
- In Ghana primary sector reduced and secondary increased
- Relative importance of each sector is measured in terms of employment levels or output levels
(as proportion of whole economy)
- Industrialization
- Industrialization is the growing importance of secondary sector manufacturing industries in
developing countries
- Benefits of industrialization
- GDP (total national output) increases raising average standard of living
- Increasing output of goods can result in lower imports and higher exports of such
products
- Expanding manufacturing businesses will result in more jobs created
- Expanding and more profitable firms will pay more tax to government
- Value is added to country’s raw materials, rather than just exporting these as
basic products
- Problems of industrialization
- Movement of people from countryside to towns causing housing and social
problems due to chances of work in manufacturing
- Imports of raw materials are often needed increasing country’s import costs
- De industrialization
- decline in importance of secondary sector activity and increase in the tertiary sector

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 - Causes of this change include
- Rinsing incomes associated with higher living standards leading consumers to spend
more on services rather than goods
- Growth in tourism, hotels, restaurants
- Manufacturing businesses in developed countries face more competition due to global
industrialization
- Rivals in other countries are more efficient due to cheaper labor leading to more
imports
- Consequences of deindustrialization
- Job losses in agriculture, mining and manufacturing industries
- Movement of people towards cities
- Job opportunities in service industries (tertiary and quaternary)
- Increased need for retraining to allow workers to find employment in service industries
- Importance of sectors varies between economies
- UK percentage of total employment 2019
- Primary: 1.2
- Secondary: 18.1
- Tertiary and quaternary: 80.7
- Ghana percentage of total employment 2019 (2008)
- Primary. 33.8 (52)
- Secondary: 18.6 (14)
- Tertiary and quaternary: 47.6 (33)

Public sector and private sector of the economy

Public sector enterprises: pubic corporations
- In most mixed economy countries important goods and services and provided by government owned
organizations (health, education, police force, energy, water supply)
- Public sector organizations do not often have profit as their objective
- Advantages of public corporations
- Managed with social objectives rather than profit objectives
- Loss making services might still keep operating due to social benefits
- Disadvantages of public corporations
- Tendency towards inefficiency due lack of strict profit targets
- Subsidies from government support inefficiencies
- Government intervention for political reasons (opening new branch to gain popularity)

2.2 Business ownership

Sole trader
- Single owner of the business (likely to employ workers)
- Usually remain small business
- advantages of sole trader
- Easy to set up (no legal formalities)
- Owner has complete control

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 - Owner keeps all profit
- Owner can choose schedule for working
- Owner can establish close relations with staff and customers
- Business is likely to be based on interests and skills of the owner
- Disadvantages of sole trader
- Unlimited liability (all of the owner’s assets are at risk of being taken to pay off business’s debts)
- Often intense competition from bigger firms
- Difficult to raise additional capital
- Long hours are often necessary to make business profitable
- Lack of continuity (when owner dies business dies)

Partnership
- formed in order to overcome disadvantages of sole trader
- Usual to draw deed of partnership (agreements on issues like voting rights, distribution of profit,
management roles and authorities to sign contacts)
- Advantages of partnership
- Partners may specialize in different areas of business management
- They share decision making
- Additional capital is injected by each partner
- Fewer legal formalities compared to corporate organizations
- Disadvantages of partnership
- All partners have unlimited liability
- Profits are shared
- No continuity
- Not possible to raise capital from selling shares
- Loss of independent decision making (possible disagreements)

Limited companies
- business in which ownership is divided into shares
- There are 3 key differences between limited companies and unincorporated businesses (sole traders
and partnerships)
- Limited liability: shareholders are only responsible for the amount they have invested into
company
- Legal personality: limited company is considered as separate legal entity from its owners
- If firm sells unsafe products company is held responsible not the owners
- Continuity: limited company doesn’t end if owner dies
- Ownership continues through transfer of shares

Private limited companies

- shares most likely owned by original sole trader, relatives or friends
- New issues of shares cannot be sold on open market
- advantages of private limited company
- Shareholders have limited liability
- Company has separate legal personality
- There is continuity

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 - Original owner still likely to remain in control
- Company able to raise capital from selling shares to employees or family
- Company has greater status that unincorporated business
- Disadvantages of private limited company
- Legal formalities needed during establishment
- Capital cannot be raised by sale of shares to public
- End of year accounts must be sent to government and are available to public inspection (less
private)

Public limited companies

- Firm has shares which can be sold to public through stock exchange (allowing anyone to buy and own
part of the company)
- Advantages of public limited company
- Shareholders have limited liability
- Company has separate legal identity
- There is continuity
- It is easy for shareholders to buy and sell shares encouraging investment
- Existing shareholders may also quickly sell their shares if they wish to
- Disadvantages of public limited company
- Legal formalities needed during establishment
- Share prices are likely to fluctuate sometimes beyond business’s control (government or
economy situation)
- Disclosure of information to shareholders and public (publication of detailed reports and
accounts)
- Risk of takeover due to availability of shares on stock exchange

Legal formalities in setting up a company

- commonly required documents by governments before business may be established
- Memorandum of Association
- Articles of Association

Cooperatives
- all members can contribute to running the business and sharing workload, responsibilities and decision
making
- All members have one vote at important meetings
- Profits are shared equally among members
- Advantages of cooperatives
- Buying in a bulk
- Working together to solve problems and take decisions
- Good motivation for all members to work as hard as possible as they benefit from shared profits
- Disadvantages of cooperatives
- Poor management skills (no professional managers)
- Capital shortages due to shares not being able to be sold to non members
- Slow decision making as all members need to consult and come to agreement

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Franchise
- agreement between franchisor and franchisee
- Contrast allows franchisee to use name, logo and marketing methods of franchisor
- Advantages of franchise
- Fewer chances of new business failing because it is already an established brand name and
product
- Advice and training are offered by franchisor
- Franchisor pays for national advertising
- Supplies are obtained from established and quality checked suppliers
- Franchiser agrees not to open another branch in the area
- Disadvantages of franchise
- Share of the profits or revenue has to be paid to franchisor
- Initial franchise fee can be expensive
- Franchisee cannot chose which supplier or supplies to use (limitation)
- Strict rules over pricing and layout of the outlet reducing franchisee’s control over their own
business

Joint ventures
- when two or more businesses work closely together on a project
- Reasons include
- Different companies might have different strengths and experiences (fit well together)
- Access to new markets by partnering with local or more established company
- Gaining access to new skills or capabilities that one of the businesses may lack
- Sharing of resources, expertise and technology to achieve a common goal
- Risks include
- Potential conflicts between businesses due to differences in management styles, goals or
cultures
- Unequal contribution of resources or effort leading to imbalance and tension
- Sharing profits reducing overall financial benefit for each firm
- Loss of control as decision must be made jointly (slow process)
- Business failure of one partner would put whole project at risk
- Mistakes might lead to one company blaming other

Social enterprise
- aiming to make profit in socially responsible way
- They directly produce goods or provide services
- They have social aims and use ethical ways of achieving them
- They need to make profit to survive as they cannot rely on donations as charities do

Changing the form of business ownership

- advantages
- Access to more finance
- Gaining legal identity
- Protecting owner’s capital though limited liability
- Disadvantages

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 - Legal costs and formalities
- Some loss of control
- Profits are shared

3 SIZE OF BUSINESS

3.1 Measurements of business size

Usefulness of measuring business size

- government wishing to give assistance to small firms
- Customers may wish to deal only with large businesses due to greater security of supply
- Competitors compare business performance (identify size to classify into groups)
- Business wishes to determine growth potential

Problems with attempting to measure business size

- different ways give different comparative results meaning business might appear large by one measure
but small by another
- No internationally agreed definition of small medium large business

Different measure of business size

- Number of employees: total workforce employed in business
- Revenue or sales turnover: total money generated from sales (unfair due to high and low value
production (jewels - cleaning))
- Capital employed: total value of company’s assets used in business (unfair optician and hairdresser)
- Market capitalisation: only for public limited companies (share price of company)
- Market share: percentage of total market sales that business controls

3.2 Significance of small business

What is small business

- firm which employees few people and will have low annual revenue
- Economic benefits of small businesses
- Create employment (collectively)
- Often ran by creative entrepreneurs with new ideas creating consumer choice
- Create competition for larger businesses
- Often important suppliers to larger firms
- All great businesses were small at one time meaning they can expand and become large

Advantages of being small business

- can be managed and controlled by owner
- Quick adaptation to meet changing customer needs
- Offer personal service to customers to help build customer loyalty
- If family owned business culture often informal (motivated)

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 - Started up with low capital investment

Disadvantages of being small business

- limited access to source of finance
- If important workers are absent other employees may not have the necessary skill to operate business
- Owner has to carry large responsibility
- Big competition from larger businesses

Family owned businesses

- firms owned and managed by at least 2 members of family
- strengths
- Commitment: members show dedication in seeing the business grow therefore many show
incentive to work harder and goal to grow long term
- Reliability and pride: family name associated with business therefore members strive to increase
quality to avoid bad reputation
- Knowledge continuity: priority is to pass knowledge and skills to next generations and therefore
many start working from young age
- Weaknesses
- Continuity problem: high rate of failure only 15% passing onto 3rd generation
- Informality: inefficiencies and conflicts rising from informality
- Tradition: lack of innovation due to family members wanting to follow procedures and practices
traditionally
- Conflict: problems within family may affect the business

Importance of small businesses in the economy

- help generate economic growth
- Creating jobs (80% of all new jobs in developing countries are created by small business)
- Often innovative creating competition in their market

Role of small businesses in some industries

- offering specialist services such as research, repair and maintenance facilities
- Be used as outsourcing businesses such as recruitment and training of employees so larger firms can
focus on their core product reducing overall costs

3.3 Business growth

Reasons why small businesses want to expand

- increased profits by achieving higher sales
- Increased market share (higher power in suppliers or retailers)
- Reduced risk of being taken over

Organic internal growth

- Involves expanding business’s own operations rather than turnovers of mergers such as opening new
branches

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 - Reason may include that firm sees new trend or demand in the market and therefore works internally to
seize this opportunity

External growth
- Integration as it brings together 2 or more businesses
- horizontal integration is integration with business in same industry and same stage of production
- Advantages
- Eliminates one competitor increasing market share
- Increases power over suppliers possibly obtains lower prices
- Potential economies of scale (as firm grows the cost per unit decreases)
- Disadvantages
- Rationalization bringing bad publicity and redundancies
- Customer opposition to less choices
- Increased risk of monopoly
- Cultural conflicts disrupting productivity
- Impact on stakeholders
- Consumers have less choices and possibly pay higher prices
- Workers may lose job security as result of rationalization
- Suppliers offer lower prices to bigger integrated businesses

- forward vertical integration is integration with business which operates closer to the customer base
- Advantages
- Business able to control promotion and pricing of their products
- Higher profit margins as business cuts intermediaries like retailers
- Disadvantages
- Business may lack experience in this sector of industry
- Lower performance due to business trying to specialize in number of productions leading
to inefficiencies
- Impact on stakeholders
- New job opportunities and better job security
- Customers benefiting from lower prices and better quality as the firm controls everything
without intermediaries

- backward vertical integration is integration with business which is closer to supplier in the supply chain
- advantages
- Gives control on delivery times of supplies
- Encourages research and development into improved quality of components
- Disadvantages
- Business may lack experience of controlling supplying company
- Reduced focus due to managing new operations can divert resources from core
objectives and main business activities
- Impact on stakeholders
- Workers have more career opportunities
- Consumers obtain higher quality

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 - conglomerate integration is integration with businesses from different industry
- Advantages
- It diversifies business from original industry and markets
- Possibly take business to bigger market meaning higher demand
- Disadvantages
- Lack of management experience in acquired business sector
- Lack of clear focus now that business is spread between two industries
- Impact on stakeholders
- Workers have more career opportunities
- Profits could rise to benefit shareholders
- Customers may be introduced to innovative products increasing the demand

Why a merger or takeover might fail to achieve objectives

- when two businesses integrate possibly the newly combined larger business will be more profitable and
more effective than two separate companies
- Objectives of merger are to increase efficiency and profitability
- Integrated businesses will share research facilities and ideas to achieve better results
- Operating on larger scale such as buying supplies in larger quantities enables average costs
cuts
- Businesses can save on marketing and distribution costs by using the same ones
- Reasons for merger or takeover to fail achieve its objectives
- Integrated firm is too big to be managed effectively (diseconomy of scale)
- Different business culture
- Little benefit from combined facilities (businesses producing different products)
- Rate of growth is too rapid to be managed effectively

Problems of growth through mergers and takeovers

- financial
- takeovers can be expensive which might not be the best option for business
- Additional capital will be needed
- It can lead to negative cash flow and long term loans
- managerial
- Lack of coordination between divisions
- Existing management struggling to cope with double the size compartments

Strategies to overcome problems

- Use internal sources of finance such as retained earnings
- Raise finance from share issues
- Offer shares and not cash to pay for takeover
- New management systems are needed (delegations)

Joint ventures and strategic alliances

- strategic alliance is form of external growth that not involve complete integration or changes in
ownership
- Once objective of alliance has been reached it often ends

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4 BUSINESS OBJECTIVES

4.1 The importance of business objectives

Purpose of managers setting clear objectives

- create sense of direction and purpose for all employees, which will increase their motivation
- Provide specific targets for future business strategies to aim for
- Give means of assessing success or failure when business performance is judged

Objectives of private sector businesses

- profit maximization: producing goods or service at a level of output where the greatest positive
difference between total revenue and total costs is achieved
- Essential for rewarding investors and for financing further growth
- Important also to persuade business owners to take risks
- Limitations of this business objective
- Short term focus meaning firm will not benefit i the long run (cutting quality and customer
service)
- Profit satisficing: aiming to achieve enough profit to keep the owner satisfied
- Common for small businesses who wish to live comfortably but do not work for long hours to
gain as much as profit possible
- Growth: benefits include firm having lower chance of being taken over, benefiting from economies of
scale and motivated employees due to higher salaries
- Limitations of this business objective
- Too rapid expansion can lead to cash flow problems
- Using profits to finance growth can result in lower short term return to shareholders
- Sales growth might be achieved at the expense of lower profit margins (decrease in the
percentage of revenue that remains as profit)
- Increasing market share
- Benefits of being brand leader with highest market share
- Retailers will want to stock and promote the best selling brand
- Higher profit margins due to products being supplied to retailers at lower prices
- Survival: key objective of any start up business to survive for 2 years of trading and then other
objectives can be established
- Corporate social responsibility: objectives about social, environmental and ethical issues
- Attracting consumers as they have better brand image and reputation due to considering the
interest of society (taking responsibility for the impact on environment, stakeholders and
communities)
- Maximizing short term revenue
- Beneficial when salaries and bonuses are dependent on sales revenue levels
- However if increased sales are achieved by reducing prices the overall profit of business fails
- Increasing shareholder value: striving for strategies to increase returns to shareholders
- By increase in profit business will increase dividends payed to shareholders which increases the
share prices

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Objectives of social enterprises (triple bottom line)
- economic: make profit to reinvest back into business and provide some financial return to owners
- Social: provide jobs and support for locals
- Environmental: protect environment and manage business in environmentally sustainable way

Objectives of public sector businesses

- provide efficient, reliable service to public
- Encourage economic and social development
- Create employment
- Meet financial targets set by government (not necessarily profit)

Most effective objectives are SMART

- S: specific
- M: measurable (objectives which have quantitative value)
- A: achievable (motivating staff)
- R: realistic and relevant (relevant to departments)
- T: time limited

Factors that determine business objectives

- business culture: way of doing things that is shared within all
- If managers push for profit it can be different to when managers are more society centered
- Size and legal form of business
- Smaller businesses may focus on and profit satisficing rather than maximization
- Private or public sector
- Public sector might focus on quality of service rather than profit
- Number of years business has been operating
- Newly formed business focuses on survival rather than growth

Relationship between mission statement, aims, objectives, strategy and tactics

- Aim
- Mission
- Business objectives
- Divisional objectives
- Departmental objectives
- Individual targets

Business aims
- core central purpose of business’s activity (what business hopes to achieve in future)

Mission statements
- Short statement which condenses the central purpose of business's existence
- Benefits
- Inform groups outside the business what the central aim and vision are
- Motivate employees as they are associated with the positive qualities statement refers to

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 - Help to establish what business is about for benefit of other groups
- Limitations
- Too vague and general therefore cannot be used as actual targets
- Lacking in detail so two different firms could have same mission statements

Objectives, strategies and tactics

- aims and objectives provide the focus for business strategies (long term plans of business)
- Without clear objectives managers will be unable to make important strategic decisions for business as
whole or separate departments
- Strategy are plans or approaches outlining ow business achieves its objectives
- Once strategy has been decided small scale tactical decision must be taken (short term actions)

4.2 Objectives and business decisions

The role of objectives in the stages of business decision making

1. Set objectives to provide focus for strategic decisions
2. Assess and clarify the problem that requires strategic action
3. Gather data about the problem and identify possible strategic solutions
4. Analy the likely impacts of all decision options on the chance of achieving business objectives
5. Make strategic decision
6. Plan and implement the decision
7. Review its success against the original business objectives

How objectives might change over time (reasons)

- New start up may have satisfied the survival objective and now sets objective on growth or increased
profit
- Entry of powerful rival may force business to change its objective to survival from original objective of
survival

Translation of objectives into targets and budgets

- role of senior management to convert objectives into targets for individual departments
- These will be time limited

Communicating objectives
- Employees and managers have greater understanding of both individual and company wide goals
- Employees understand overall plan and how their goal fits into it

Ethical influences on business objectives and activities

- Short term effects of business following strict ethical code in decision making
- Using ethical and fair trade suppliers can add to business costs
- Less competitive pricing as higher costs leads to higher prices (other firms don’t)
- Long term benefits
- Avoiding potentially expensive court cases reduces the cost of fines

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 - Acting unethically leads to bad publicity, losing consumer loyalty and long term reduction in
sales
- Ethical businesses are more likely to be awarded government contracts
- Ethical businesses attract ethical customers (increasing due to corporate social responsibility)

5 STAKEHOLDERS IN A BUSINESS

5.1 Business stakeholders

Stakeholders rights and responsibilities

roles rights responsibilities

customers - purchase goods - receive goods - pay for goods

and services and services that bought
- Provide revenue meet local laws - Not to steal
from sales which regarding health - Not to make false
allows the and safety and claims about poor
business to performance service
function and - Be offered
expand replacements or
repairs in the
event of failure

suppliers - supply goods and - be paid on time - supply goods and

services to allow as stated in services ordered
the business to service by business
offer its products agreements
to its own between business
customers and suppliers
- To be treated
fairly and not to
be exploited by
customer
business

emplyoees - provide manual - be offered - to meet

and other labor employment conditions and
services to contracts that requirements of
business meet legal employment
according with standards contract
employment - Be treated and - To cooperate with
contract to allow paid in the ways management in
goods and described in the all reasonable
services to be employment requests
provided to contract
customers - Be allowed to join
trade union if
desired

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 local community - provide labor - be consulted - to cooperate with
services required about major business
by the business changes that
affect it
(expansion plans)

local government - provide local - not have - meet reasonable

services and community’s lives requests from
infrastructure to badly affected by business for local
business to allow business’s services such as
it to operate, activities public transport
produce and sell for employees
within legal limits and waste
disposal

government - to pass laws that - to expect the - to treat business

restrain many business to meet equally under the
aspects of all legal law
business activity constraints (pay - Prevent unfair
- Provide law and taxes on time) competition that
order and could damage
economic stability chances of
to allow business business survival
activity to take
place

lenders - provide finance to - to be repaid on - to provide the

the business in agreed date agreed amount of
different forms - To be paid finance on the
finance like agreed date for
interest on loans the agreed time
period

managers - to control, - to have contract - report

command and of employment (to stakeholders to
direct resources have sufficient act legally and
authority to fulfil ethically
roles)

owners/shareholders - provide finance - to receive a share - set targets for

of profits (receive managers
accurate reports
on business
performance)

5.2 Importance and influences of stakeholders on business activities

Impact of business decisions on stakeholders and their reactions

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 Business decisions employees local community customers

build new factory to impact impact impact

expand business - more job - more jobs for - greater efficiency
opportunities local residents might result in
- New working - Disruption caused lower prices
methods in this by increased Reaction
factory might traffic and - buy more
require new skills pollution products if prices
Reaction Reaction are lower for
- more potential - bans large trucks same quality
employees - Organizes
seeking a job petitions
- Trader unions
might demand
higher pay for
more skilled work

horizontal integration impact impact impact

takeover - combined - if business - economies of
business is more expansion is on scale could lead
secure and there the existing site, to lower prices
are more career local jobs and - reduced
opportunities incomes might competition and
- Rationalization increase choices could
may occur to cut Reaction have the opposite
costs (jobs might - encourages effect and might
be lost) government to result in higher
Reaction ban the takeover prices
- possible industrial if rationalization is Reaction
action if jobs are threatened - Consumer
under threat boycott if prices
are raised due to
less competition

purchase of IT controlled impact impact impact

automated machines - training and - local suppliers of - more efficient and
promotion IT services could flexible
opportunities benefit from production
might be offered increased orders methods resulting
- Redundant for - Only specialist in improved
those who are not workers needed quality and more
trained Reaction product variety
Reaction - demand Reaction
- industrial action retraining - increased
by workers to be programmes for demand if product
made redundant unskilled quality is high
unemployed

Business accountability to stakeholders and how stakeholder aims impact business decisions

19
Conflicts arising from different stakeholder aims

Impact on stakeholders of changing business objectives

20