Business organisation and environment

Table of Contents

1. Topic pack - introduction
2. 1.1 Nature of business activity - notes
   1. The nature of business
   2. What is a business?
   3. Inputs: Factors of production
   4. Processes: Business functions
   5. Outputs: Goods and services
   6. Sectors of the economy
3. 1.1 Nature of business activity - questions
4. 1.2 Types of organisation - notes
5. 1.2 Types of organisation - questions
6. 1.3 Organisational objectives - notes
7. 1.3 Organisational objectives - questions
8. 1.4 Stakeholders - notes
9. 1.4 Stakeholders - questions
10. 1.5 External environment - notes
11. 1.5 External environment - questions
12. 1.5 External environment - simulations and activities
13. 1.6 Organisational planning tools - notes
14. 1.6 Growth and evolution - notes
15. 1.7 Growth and evolution - questions
16. 1.7 Growth and evolution - simulations and activities
17. 1.6 Change (HL only) - notes
18. 1.9 Globalisation - notes
19. 1.9 Globalisation - questions
20. Print View

The nature of business

A business is set up because the founders believe they have found a product or service, which will both satisfy customers and provide a level of returns to meet their needs.

Customers have needs and wants. A need is generally a product or service required for survival, such as food, clothing or shelter. In addition, customers have wants, which are things they would like to have, but are not necessary for immediate survival, such as cars, television and laptops. Of course the nature of needs and wants varies from country to country, and region to region. In hot climates the need to keep cool, will mean most buildings are fitted with air conditioning systems, whereas in cold climates, the need will be for better insulation and heating.

The resources used to produce goods and services are scarce as they are limited in supply, but the needs and wants of customers are infinite. Therefore, resources must be rationed in some way and this occurs through the business charging a price for their outputs. The success of a business is measured by whether customers are willing to pay this price, and also whether after paying for all the costs of the business the owners can make a profit that justifies the risks of setting up the business in the first place.

Markets, customer and consumers

A market is a place or a process which brings together buyers and sellers so goods, services and information can be exchanged. Markets vary in size, range, and location. They may be physical in the sense of a shop or restaurant, or may be virtual as in the case of an e-commerce transaction.

The purchasers of the product in the market place are customers. However, those who enjoy the product or serve are consumers. In most cases these are one and the same. If you buy and then eat an ice-cream, you are both the customer and the consumer. However, if a parent buys an ice-cream for their child, the parent is the customer and the child is the consumer. This is a very important distinction in business, because when a firm is planning how to market their product they have to decide whether the customer or the consumer is most influential in the purchasing decision.

Business activity

In this, the first section of the IB course, we look at business organisations and the various different types and classifications of organisation that exist. All of these organisations take part in what is called Business Activity. Think about what business activity means to you and what it involves and then follow the link above to see how your thoughts compare with ours.

So let's start to look at this in more detail. We are now aware of what business activity is, but let's examine what we mean by a 'business'. First, what do you think a Business is? Have a think about this and then move on to the next page where we will look at this in more detail.