INTRODUCTION TO BUSINESS

DR. TUĞBA KARABOĞA

Basic Concepts and Definitions
 Course Plan
1. Business
2. Entrepreneur
3. Manager
4. Factors of Production
a. Natural Resources
b. Labor
c. Capital
d. Entrepreneurship
5. Business Functions
6. Business Environment
 BUSINESS
• Delivering goods and services
• Medium to earn money
• Includes managing resources
• Done for basic purpose;
* For profıt
* Not-for-profıt/to serve publıc

BUSINESS : consists of all activıties to serve goods and services to

the community with the purpose of profit, for surviving, or
excelling and sometimes for purposes other than profıts

4
Goods and Services
Examples of goods are tangible items such as cars, televisions, computers,
buildings.

Examples of services (action or work performed for monetary compensation)

are healthcare, insurance, entertainment, cleaning or transportation.

Businesses can generate profits from the sale of goods and/or services
Factors of Production
Resources and Factors of
Production
Resources are the inputs used to produce the outputs
(goods and/or services).

Resources are also called factors of production.

Understanding Factors of Production
• Natural Resources: any natural resource, land, plants, livestock, wind, sun,
water, etc.
Some countries are richly endowed with natural resources and specialise in their extraction and
production
• Labor: any human service—physical or intellectual. Also referred to
as human capital.
An increase in the size and the quality of the labour force is vital if a country wants to achieve
growth.
• Capital: anything that’s manufactured in order to be used in the production
of goods and services—for example, equipment.
Here capital refers not to money (which is not a factor of production), as you might expect, but to
manufactured resources such as factories and machines. These are man-made goods used in
the production of other goods.
• Entrepreneurship: the ability to recognize a profit opportunity, organize
the other factors of production, and accept risk.
Entrepreneurs will usually invest their own financial capital in a business and take on the risks.
Their main reward is the profit made from running the business
Entrepreneur
• Entrepreneur refers to a person who creates an enterprise, by taking
financial risk in order to get profit. S/he is also a person who establishes
business unit and utilizes the other factors of production like land, labor
and capital.
 Owns his/her own company
 Invests his/her own money
 He/she acts as an innovator
 Takes full risk for losses
 Gets full return or profit
 ENTREPRENEURS
BUSINESS PEOPLE WHO TAKE RISKS AND FORM BUSINESS FROM SCRATCH TO
SERVE THE NEEDS OF THE COMMUNITY WHILE EARNING PROFIT

• BEING THEIR OWN BOSS

• CREATIVE PERSONALITIES
ENTREPRENEURS

• HAVING INTERNAL LOCUS OF CONTROL

• HAVING SELF CONFIDENCE
• OPTIMISTIC PEOPLE
• PEOPLE WITH HIGH ENERGY
• PEOPLE WITH VISION
• PEOPLE WITH TOLERANCE FOR FAILURE
• PEOPLE WITH TOLERANCE FOR AMBIGUITY
• PEOPLE WITH A NEED TO ACHIEVE

0 50 100
Manager
• Manager is an individual who takes the responsibility of controlling and
administering the organization. S/he is also a person responsible for
planning and directing the work of a group of individuals, monitoring their
work, and taking corrective action when necessary.
 Is an employee in a company
 Has a regular salary
 Does not share the business risk
 Keeps running business on the established lines
 Is not directly respnsible for losses
 MANAGER NON-MANAGERS
PERSON WHO COMBINES ALL THE (Employees)
RESOURCES FOR TASK WORKING PEOPLE(EMPLOYEES) WHO
ACCOMPLISHMENT DO THE JOBS IN BUSINESS

• WHITE-COLLAR • BLUE-COLLAR
• MANAGEMENT WORKERS
WORKERS
LEVELS
*TOP MANAGERS
*MIDDLE MANAGERS
*FIRST-LINE MANAGERS
 TOP
LEVEL
MANAGERS

Managers
Employees
And
Non-Managers MIDDLE
(Employees) LEVEL
MANAGERS

Employees

LOWER
LEVEL
MANAGERS

Employees

EMPLOYEES
 Managers and Required Skills
• Technical Skills
Understanding of, and proficiency in, the performance of specific tasks including mastery of methods,
techniques, and equipments involved
• Human Skills
Ability to work with and through other people
• Conceptual Skills
Managers’ thinking, processing, planning, organizing, controlling abilities or cognitive ability to see the
organization as a whole and relationship among its parts

Managerial Levels Management Skills

Top

ve

c al
an
niti

i
Hum
Middle

Techn
Cog

Lower
S.K.Mirze 2013 ©2004 S.K.Mirze
14
 Managerial Positions

• Chief Executive Officer

• Chief Financial Officer
• Executive Vise President
Top • Governor, Chancellor, Mayor

• Regional Manager
• Division Head
Middle • Director, Dean

• Supervisor
Lower
• Group Leader
• Section Chief
 Managerial Roles (Expected Behavior)
• Collecting Information
• Distribution of Information (Inside)
Informative Role
• Providing Information (Outside)

• Representation
Interpersonal Role • Leadership
• Liaisons

• Entrepreneur
• Problem Solving
Decision-making Role • Resource Allocator
• Negotiator
 ORGANIZATIONS
DELIBERATELY ESTABLISHED GROUPS WORKING TOGETHER IN A
SYSTEMATIC WAY FOR COMMON PURPOSE

• PROFIT-SEEKING • NOT-FOR-PROFIT
ORGANIZATIONS ORGANIZATIONS
Understanding Functional Areas
Functional Area Functions

Management Plans, organizes, controls, leads

Operations Transforms resources into products

Works to identify and satisfy customer

Marketing/Sales needs

Finance Plans, obtains and manages company funds

Provides knowledge and ideas that help a

Research and
company keep up and ahead of the
Development competition
 Management Functions
• Planning is the process of
anticipating future events and
conditions and determining the
course of action for achieving
organizational objectives.
Planning
• Organizing refers to the
means by which managers blend
human and material resources
through a formal structure of Inputs Control Management Organizing Outputs
tasks and authority Functions

• Executing/Directing is a
management task of guiding Executing
and motivating employees to to
accomplish organizational goals.
Staffing: identifying human resource needs, filling the organizational
• Controlling is the function of structure and keeping it filled with competent people.
evaluating an organization’s
performance to determine Coordinating: is the unification, integration, synchronization of the
whether it is accomplishing its efforts of group members so as to provide unity of action in the
objectives.
pursuit of common goals.
Operations
Operations are where inputs (factors of production) are converted to outputs
(goods and services).

Operations is the heart of a business, pumping out goods and services in a

quantity and of a quality that meets the needs of customers.

The operations manager is responsible for overseeing the day-to-day

business operations, which can include ordering raw materials or scheduling
workers to produce tangible goods.
Marketing
Marketing identifies customers’ needs and designs products and
services that meet those needs.

The marketing function includes:

•Promoting goods and services
•Determining how the goods and services will be delivered
•Developing a pricing strategy to capture market share while
remaining competitive
•Building and overseeing businesses’ Internet presence
Finance
Finance involves planning for, obtaining, and managing a company’s
funds.

Finance managers plan for both short- and long-term financial capital
needs and analyze the impact that borrowing will have on the financial
well-being of a business.

The finance department answer questions about how funds should be

raised, the long-term cost of borrowing funds, and the implications of
financing decisions for the long-term health of the business.

Accounting is a crucial part of the Finance functional area. Accountants

provide managers with information needed to make decisions about the
allocation of company resources.
Research and Development (R&D)
Research and Development is the lifeblood of manufacturing
businesses. R&D is staffed with scientists, thought-leaders,
subject-matter experts and industry analysts striving to provide
the organization with knowledge and ideas to keep up and
ahead of the competition.

R&D is led by the Chief Technology Officer (CTO) who manages a

Development VP or similar title depending on what technology
products are being produced.
Key People Within Functional Areas
Business Environment
 Internal
Environment

Industry Environment

General Environment
 Political

Competitors Substitutes
Legal
International Employees
Organizational Culture
M anagerial Structure
Labor Systems
Market
Behavior, Relations, group Dynamics
Demographical Internal Environment Economical
Suppliers Customers

Industry Environment
Sociocultural Technological

General Environment
 Porter’s
Porter’s Five
Five Forces
Forces of
of
Competition
Competition Framework
Framework
SUPPLIERS
Bargaining power of suppliers

INDUSTRY
COMPETITORS

POTENTIAL Threat of Threat of

SUBSTITUTES
ENTRANTS
new Rivalry among substitutes
entrants existing firms

Bargaining power of buyers

BUYERS
The
The Structural
Structural Determinants
Determinants of
of Competition
Competition
BUYER POWER
• Buyers’ price sensitivity
• Relative bargaining
power

THREAT OF ENTRY INDUSTRY RIVALRY SUBSTITUTE

•Capital requirements •Concentration COMPETITION
•Economies of scale •Diversity of
•Absolute cost advantage competitors • Buyers’ propensity
•Product differentiation to substitute
•Product differentiation
• Relative prices &
•Access to distribution •Excess capacity &
channels exit barriers performance of
•Cost conditions substitutes
•Legal/ regulatory barriers
•Retaliation

BUYER POWER
• Buyers’ price sensitivity
• Relative bargaining
power
 Threat
Threat of
of Substitutes
Substitutes

Extent of competitive pressure from producers of

substitutes depends upon:

• Buyers’ propensity to substitute

• The price-performance characteristics of

substitutes.
 The
The Threat
Threat of
of Entry
Entry
Entrants’ threat to industry profitability depends
upon the height of barriers to entry. The principal
sources of barriers to entry are:

• Capital requirements
• Economies of scale
• Absolute cost advantage
• Product differentiation
• Access to channels of distribution
• Legal and regulatory barriers
• Retaliation
 Bargaining
Bargaining Power
Power of
of Buyers
Buyers

Buyer’s price sensitivity Relative bargaining power

• Cost of purchases as % • Size and concentration of

of buyer’s total costs. buyers relative to
• How differentiated is the sellers.
purchased item? • Buyer’s information .
• How intense is • Ability to backward
competition between integrate.
buyers?
• How important is the
item to quality of the Note: analysis of supplier
buyers’ own output? power is symmetric
 Rivalry
Rivalry Between
Between Established
Established
Competitors
Competitors

The extent to which industry profitability is depressed by

aggressive price competition depends upon:

• Concentration (number and size distribution of

firms)
• Diversity of competitors (differences in goals, cost
structure, etc.)
• Product differentiation
• Excess capacity and exit barriers
• Cost conditions
– Extent of scale economies
– Ratio of fixed to variable costs
Interpreting Industry Analyses

Low entry barriers

Suppliers and buyers

have strong positions
Unattractive
Strong threats from Industry
substitute products

Intense rivalry
Low profit potential
among competitors

2–34
Interpreting Industry Analyses (cont’d)

High entry barriers

Suppliers and buyers

have weak positions
Attractive
Few threats from Industry
substitute products

Moderate rivalry
among competitors High profit potential

2–35
General Environment
• Dimensions in the broader society that influence
an industry and the firms within it:
 Demographic
 Economic
 Political/legal
 Sociocultural
 Technological
 Global

2–36
The General Environment: Segments and Elements

2–37
 Responsibilities of Businesses
• Responsibilities to the State:

– Businesses are responsible for contributing more to

society by paying more taxes to the state.

• Responsibilities Towards Society:

– Businesses should meet the needs of the society in the

best way by offering the best, quality and cheap goods
to the society.
 Responsibilities of Businesses
• Responsibility to Shareholders

– Businesses must fulfill their responsibilities by distributing

more profits to the capital invested by their partners,
increasing their income and increasing the market value of
the business.
• Responsibilities to Employees

– Businesses should provide the best working conditions and

an athmosphere of peace to human resources and pay
them more.
 Responsibilities of Businesses
• Responsibilities Towards the Environment

– Businesses should protect nature while operating, they

should not pollute, and they should not disturb people's
health with noise.
• Responsibilities to Other Institutions

– While operating, businesses should take into account the

needs of the family institution, political, military and
religious institutions, educational and financial
institutions in the community.
 Responsibilities of Businesses
• Responsibilities to Competitors

– While operating, businesses must respect the rights of

competitors and not engage in unfair competition.
• International Responsibilities

– Businesses should operate in global markets in the

direction of incentives and restrictions of foreign
governments.