Business Markets and Operations: Semester 1 Report

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PRINCIPLES OF BUSINESS

Table of Contents
INTRODUCTION...........................................................................................................................................2
AC1.1: EXPLAIN THE CHARACTERISTICS OF DIFFERENT BUSINESS MARKETS..............................................3
AC1.2: EXPLAIN THE NATURE OF INTERACTIONS BETWEEN BUSINESSES WITHIN A MARKET.....................3
AC1.3: EXPLAIN HOW AN ORGANIZATION’S GOALS MAY BE SHAPED BY THE MARKET IN WHICH IT
OPERATES....................................................................................................................................................4
AC1.4: DESCRIBE THE LEGAL OBLIGATIONS OF A BUSINESS........................................................................5
AC2.1: DEFINE BUSINESS INNOVATION.......................................................................................................5
AC2.2: EXPLAIN THE USES OF MODELS OF BUSINESS INNOVATION............................................................6
AC2.3: IDENTIFY SOURCES OF SUPPORT AND GUIDANCE FOR BUSINESS INNOVATION..............................6
AC2.4: EXPLAIN THE PROCESS OF PRODUCT OR SERVICE DEVELOPMENT..................................................7
AC2.5: EXPLAIN THE BENEFITS, RISKS AND IMPLICATIONS ASSOCIATED WITH INNOVATION.....................8
AC3.1: EXPLAIN THE IMPORTANCE OF FINANCIAL VIABILITY FOR AN ORGANIZATION...............................8
AC3.2: EXPLAIN THE CONSEQUENCES OF POOR FINANCIAL MANAGEMENT..............................................9
AC3.3: EXPLAIN DIFFERENT FINANCIAL TERMINOLOGY..............................................................................9
AC4.1: EXPLAIN THE USES OF A BUDGET...................................................................................................10
AC4.2: EXPLAIN HOW TO MANAGE A BUDGET..........................................................................................11
AC5.1: EXPLAIN THE PRINCIPLES OF MARKETING......................................................................................11
AC5.2: EXPLAIN A SALES PROCESS.............................................................................................................11
AC5.3: EXPLAIN THE FEATURES AND USES OF MARKET RESEARCH...........................................................12
AC5.4: EXPLAIN THE VALUE OF A BRAND TO AN ORGANIZATION.............................................................12
AC5.5: EXPLAIN THE RELATIONSHIP BETWEEN SALES AND MARKETING...................................................13
CONCLUSION.............................................................................................................................................15
REFERENCES..............................................................................................................................................16
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INTRODUCTION
This assignment will help to understand various types of markets and their characteristics. It
will also explain how businesses interact with each other in different markets along with the
effect of these markets on the organizational goals and the legal obligations of the businesses.
The assignment will provide an understanding of business innovation along with explaining the
use of models, sources of support and guidance for business innovation. It will also help to
understand the process of product and service development along with the risks and benefits
involved with innovation. Then the assignment will help to understand the importance of
financial viability along with the consequences of poor financial management. Some jargons
and terminology used in finance can also be understood from this assignment. The assignment
will also help to understand the uses and management of budget along with principles of
marketing. Features and uses of market research and the value of a brand to an organization
can also be assessed with this assignment. The assignment will further explain the process of
sales and the relationship between sales and marketing. Altogether the assignment will be able
to help to understand the business markets and the tools and techniques available as well as
necessary to run a successful business in such markets.
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AC1.1: EXPLAIN THE CHARACTERISTICS OF DIFFERENT BUSINESS
MARKETS
Business markets are primarily divided into two types based on the level of competition;
perfect competition and imperfect competition. Perfect competition has a large number of
sellers and buyers and all the sellers sell identical goods at similarly competitive prices. There is
no entry and exit barriers in such markets and no externalities could affect the businesses. Such
businesses have absolutely zero transactional costs and the buyers are well informed and
rational. In perfect competition market, the price is set by market forces of demand and supply
thus no single player can influence the prices in such market (Homburg et al., 2010). On the
other hand, Imperfect markets have limited sellers and buyers. It is further classified into 5
types: Monopoly, Monopolistic, Oligopoly, Monopsony, and Oligopsony; based on the number
of the buyer, sellers and their price influence. In Monopoly, only a single seller sells to multiple
buyers with full autonomy of price of the product, whereas in Monopsony only a single buyer
had many sellers of the goods and thus a price war is usually seen. Oligopoly market has only a
few sellers and many buyers so sometimes this sellers form a cartel to exploit market and
influence price whereas in Oligopsony only a few buyers and many sellers exist and thus
competition is usually high. In Monopolistic competition many sellers sell a slightly
differentiated product to many customers thus every firm has its own product to ask for a
different price than their competitors.
AC1.2: EXPLAIN THE NATURE OF INTERACTIONS BETWEEN BUSINESSES
WITHIN A MARKET
In perfect competition market, all the sellers offer the same product to a large number of buyer
and price of the product is decided by the market, therefore, no one single seller try to ask for a
differentiated price if he plans to stay in the long term competition. In Monopoly market there
is only a single seller thus he doesn’t have to think about the competition and thus decides the
price as per his wish and only government sometimes regulates such sellers (Grönroos, 2011).
In Monopolistic market, many sellers have similar yet not identical products and thus they
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compete to sell their product and demand affects the price of their products. In the Oligopoly
market, all the sellers mostly form a cartel to decide the standard prices of the products to end
the price war between companies to serve a limited number of buyers. Monopsony is the exact
opposite of the Monopoly market, here the single buyer dictates the price since he has many
options to buy from. In Oligopsony market few sellers have many options and thus sellers try to
lure buyers by providing various schemes and price benefits.
AC1.3: EXPLAIN HOW AN ORGANIZATION’S GOALS MAY BE SHAPED BY
THE MARKET IN WHICH IT OPERATES
Organizations in the perfect competition market have primary organizational goals of profit
maximization and increasing profitability by decreasing the cost of goods and increasing sales.
They also try to improve their service level and ensure customer satisfaction to attract more
customers. The additional organizational goals in perfect competition market are growth and
development along with achieving a state of imperfect competition where the seller can
influence price, gain more market share and expand its product range (Zellweger, 2013).
Organizations in the imperfect competition market have slightly different primary goals along
with profit maximization, increasing sale and profitability and growth like internationalization,
satisfying stakeholders, improving returns on capital employed and service levels as well as
customer satisfaction. The additional goals of such organizations include the welfare of society,
as well as to gain more power over the market by upgrading themselves to oligopoly or
monopoly. Various interconnected factors affect the organizational goals like demand and
supply of goods affects the sales and efforts of the organization along with helping with the
production and cost-cutting measures, equilibrium of demand and supply along with other
market forces decides the price of the product, elasticity of demand and supply decides the
response of the buyers towards any change in factors like price of the product, income of the
consumers etc., orientation decide the main drivers of the organization whether it is societal
good or profit etc., profits decide the future organizational goals of the organization as
organizations with high profit plans expansion and organizations with low profit plans survival
and growth.
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AC1.4: DESCRIBE THE LEGAL OBLIGATIONS OF A BUSINESS
Based on the type of ownership organizations are divided into 5 major categories and every
type has their own legal obligations. First is sole proprietorship where a business has only a
single owner with unlimited liability which means his personal assets can be used to meet the
firm’s liability. The Second is Partnership where two or more people come together to run a
business and have a share in the capital and profit (Picciotto, 2017). They also have unlimited
liability unless other partners agree to exclude any partner’s liability. The third is Private limited
company, here less than 50 people invest in a business and have limited liability of the capital
invested in the firm. The fourth is a social enterprise which includes NGO’s and voluntary
organization etc. such enterprises receive capital from donations and they are not allowed to
involve in any profit-oriented activity, still if they earn any profit then they have to reinvest it.
The fifth type is a public limited company, such companies raise capital from a larger audience
and the investors (also called shareholders) have limited liability to the amount invested in the
company. Apart from these, public limited companies also have many regulations to follow like
reporting the financial performance to the shareholders, holding meetings of the board etc. The
business also has to adhere to much general legislation to successfully run a business like
paying taxes, preparing financial statements and accounts of the activities of the businesses.
They also have to adhere to employment laws, environmental laws; intellectual properties law
and comply with the safety and other standards of the government.
AC2.1: DEFINE BUSINESS INNOVATION
Business innovation is a creative process which helps in developing a new product or process
and find new ways to increase the efficiency and profitability of the business. Innovations refer
to the generation of a new idea and thus business innovation helps in successfully exploiting
new ideas to gain a competitive advantage for the business (Johnson, 2010). Innovation also
helps in value addition to the products and thus leads to the enhancement of customer
experiences. It also helps to differentiate the business from its competitors and helps to reach
oligopoly or monopoly type of competition.
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AC2.2: EXPLAIN THE USES OF MODELS OF BUSINESS INNOVATION
The three main models of innovation include industry model innovation, revenue model
innovation, and enterprise model innovation. In industry model innovation, businesses redefine
the value chain, move into a new industry or create a new industry. This innovation helps the
business to stand apart in the crowd and become the pioneer of the industry. Business with
industry model innovation enjoys first-mover advantages in the market. In Revenue model
innovation, the businesses re-configure their services, products and pricing strategy to a well-
defined and standard one. This model helps in standardizing the business processes and
services to ensure customer engagement and satisfaction (Teece, 2010). In the Enterprise
model innovation, businesses change their internal and external processes and connections.
They sometimes also change the level of business in the value chain or re-establishing networks
of suppliers, employees and customers. Such innovation model helps the business to be more
organized, specialized and integrated.
AC2.3: IDENTIFY SOURCES OF SUPPORT AND GUIDANCE FOR BUSINESS
INNOVATION
Business innovation can be supported or guided from many sources. Though generation of a
breakthrough idea is not possible for everyone but many sources can hint the business about
the possible innovation opportunity available. There are primarily two types of sources: internal
and external. Internal sources of innovation support and guidance include market research,
which is done by almost all the departments including Marketing, HR, and IT etc. These
researches provide with new ideas and present the shortcoming of the business where it needs
innovation (Mason and Brown, 2013). Customer focus groups are also excellent at suggesting
innovative approaches which improve their satisfaction as well as the company's profit. Senior
management and board of directors also help in idea generation so as to improve the
profitability and performance of the business. Apart from these, workshops and internal
stakeholders like employees are also the internal sources of support and guidance for
innovation. External sources of guidance for business innovation include partnering with
emerging and new companies and support from promotional councils, trade bodies,
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government and other networking groups of common businesses. External stakeholders like
community groups and concerned authorities can also contribute to business innovation.
Taking inspiration from other similar companies also hints in innovation and business
development.
AC2.4: EXPLAIN THE PROCESS OF PRODUCT OR SERVICE DEVELOPMENT
An 8 step process can help in product or service development for a business. The first step is
idea generation, where analysis and market researches are done, along with collecting
feedback from the target customer. It will also include analysis of the competitive forces and at
last an idea generation. The second step is Idea screening, here target market is analyzed based
on the product and unacceptable concepts are rejected (Hoyer et al., 2010). This step will also
involve assessment of competitive forces, market trends and potential as well as productivity of
the product. The third step is Concept development and testing, this step involves assessment
of products features, benefits, production costs and feasibility. It will also observe the reaction
of the customer towards the new product along with ensuring that the product does not attract
intellectual property issue. The fourth step is Business analysis; it will include estimation of
sales volume, selling price, profitability, ROI and break-even point. The fifth step is Beta and
market testing, it includes testing of the product with the help of a prototype. It will also
include introduction if the product to a focused group and in trade shows to complete pilot
study and ensure that there is no issue with packaging and performance of the product as well
as with its distribution channel. The sixth step is Technical implementation; it involves
estimation of the required resources to finalize the supplier agreement, logistics plan and
quality management system. It will also implement an operational management plan along with
working out a contingency plan. The seventh step is Commercialization, in this step, the
business launches the product and publishes promotional material for advertising of the
product. It will also include working out a critical path analysis and distribution pipeline. The
last step is Review of market performance and product pricing, here the business assess the
response of the customers and competitors to the new product. It will also review the revenue,
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production costs, profits and after-sales services of the new product. Along with them, it will
analyze the impact of the product on the external and internal value of the existing portfolio.
AC2.5: EXPLAIN THE BENEFITS, RISKS AND IMPLICATIONS ASSOCIATED
WITH INNOVATION
Innovation offers immense benefits as it helps in improving the customer experience by
improving the product, services and processes. It also provides smart working practices which
help in organizational growth and improving market reputation. Business innovation also
provides prospects in new markets and help in establishing a USP for the brand which leads to
brand recognition in the market. Business innovation also attracts many risks along with the
benefits like resistance form the employees to change, unsupportive systems and processes
and lack of leadership might endanger the firm's plans from innovation (Pérez-Luño, 2011).
Failing to meet sufficient sales levels and a decrease in customer preference towards the
products might also make it tough to get returns on investment from the business. Apart from
these, there is also a probability that the business will not produce the desired quality at
projected cost and the resources also might go to waste. Along with the risks and benefits,
there are certain implications of business innovation like it might changes the corporate
strategy and organizational structure to smoothen the get the desired results. It can also affect
the collaboration between internal and external stakeholders along with the price of shares.
Business innovation need new skills and thus staff had to be trained in view of the requirement
of the change, and if the existing staff could not be trained quickly enough to support the plan
then the new staff is employed. Business innovation also changes the perspective of society
towards the business and thus business should employee good corporate social responsibility
activities.
AC3.1: EXPLAIN THE IMPORTANCE OF FINANCIAL VIABILITY FOR AN
ORGANIZATION
Financial viability refers to the firm’s ability to achieve its operating objectives and fulfil its long-
term mission and goals. Financial viability is very important to ensure good cash flow into the
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organization along with ensuring its ability to take any corrective action or make any
investment. It also helps to determine the profitability and solvency of the business (Aubin,
2011). It ensures informed planning and provides adequate resources like working capital,
plant, machinery and equipment, along with other facilities like administration, staff etc. to
maintain operation.
AC3.2: EXPLAIN THE CONSEQUENCES OF POOR FINANCIAL
MANAGEMENT
Financial management is a process of three main functions. First is financial planning, it's a
process starting from assessment of resources to analysis of resources then to budgeting and at
the end involve allocation of assets and resources (Taylor, 2010). The second function is
financial control; it involves the monitoring of income and expenses as well as other financial
activities. The third is financial decision making, it involves reviewing the activities and reporting
them along with taking safeguarding actions. Poor financial management can attract many
consequences like it will firstly divert activities from the budget which can affect all the planned
activities in future. It can also attract legal consequences which could affect the reputation and
sales of the company. It might create cashflow problems along with chances of theft which
could even lead to insolvency of the company. The effects of poor financial management on
operations include an increase in wastages and decrease in performance along with halting the
operations.
AC3.3: EXPLAIN DIFFERENT FINANCIAL TERMINOLOGY
There are some financial terminologies or jargons one should be aware of to run a business.
Income refers to the money which is received especially on a regular basis against an
investment or effort. Expenditure is used to note the cost of resources spent on activities.
Transaction refers to the exchange of money against any resource. Cash flow refers to the
amount of money transacted into and out of the business. Capital refers to the amount
invested in the business by the owners to start and run a business (Loughran and McDonald,
2014). Debtors refer to the entity which owes money to the business. Creditors refer to the
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entity to which business owes money. Turnover refers to the total amount of money earned by
the business with its activities. Accounts are the statements with different heads which helps to
record organizational monetary activities. Gross profit refers to the profit earned by the
business after deducting direct expenses for the production from total sales. Net profit refers to
the profit left after deducting all the direct and indirect expenses from the sales of the
company. Profit and loss account is a statement which deducts all the expenses from the
incomes to present the net profit of the business. A balance sheet is a position statement which
presents the value of all the assets and liabilities of the business. Fixed cost is the cost incurred
by the business regardless of the amount of production or any other factors like rent of the
factory, while the variable cost is the cost which varies with change in production like raw
material needed etc. Break-even point is the point where the cost of the goods become equal
to revenue generated thus creating zero profit and zero loss. Assets refer to the valuable
possessions by the business which mostly helps in generating revenue. Liabilities are something
for which business is responsible like a loan to be repaid etc. Depreciation is the cost incurred
due to wear and tear of the fixed assets. Investment is the amount which a business spent to
acquire an asset to either generate income or to help in generating profit. Shares are the part of
ownership which an investor has in a company for his invested money as capital. Stock refers to
the goods available with the business which can be sold or will be able to sell. Accruals are the
incomes or expenses incurred and accumulated by the business but yet not received or paid.
Tax is the duty levied on the businesses by the state to run a business activity. The VAT is the
tax paid by the businesses against the value addition done by them to generate profits.
AC4.1: EXPLAIN THE USES OF A BUDGET
A budget is a financial plan over a definite period; it includes master plan of the all business
activities along with production, sales, marketing, cash flow, expenses as well as capital (Jaimes
et al., 2012). Budget can be used for various purposes like controlling the expenses and income
of the business, to state statistical priorities, to enhance efficiency and to monitor performance.
It is also useful in making informed decisions along with providing direction and coordination of
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activities. A budget also helps in planning activities and supporting innovation and development
activities in many ways like funding training etc.
AC4.2: EXPLAIN HOW TO MANAGE A BUDGET
Management of budget involves identification of activities and prioritizing them on the
timeline, then negotiating and allocating the financial resources. Then it involves recording and
monitoring of the income and expenditure based on plans (Roberts, 2011). And then it asks for
the corrective measure if budgets are not met. Simultaneously it will be investigating any
unaccounted variance and regularly updating the budget. In case of any unforeseen event, it
will negotiate and revise the budget and then communicate it to every concerned person.
AC5.1: EXPLAIN THE PRINCIPLES OF MARKETING
Marketing is the processes that assess and analyze customers’ needs and aims to satisfy those
needs to earn a profit. There are seven key principles of marketing also called 7 Ps of marketing.
First is Product, which involves designing the features and appearances of the goods and
services. The second is Price, which involves pricing the product based on the perceived value
of the product and prices of competitive products. The third is Place; it involves deciding the
location and channel of distribution to make the product available for the customers. The
fourth is Promotion; it decides how the customers will be informed about the product. The fifth
is people, it involves taking care of people who perform all the marketing activities. The Sixth is
Physical presence; it helps to decide the appearance of the business as a whole including the
product, staff, organization, services and brand. The seventh is Process; it decides how products
and services will be delivered to the customers.
AC5.2: EXPLAIN A SALES PROCESS
The process of sales comprises of 6 sequential steps. First is prospecting the sales; this step
identifies the target market and the prospects in any industry based on the objectives of the
business. The second step is approaching; it involves approaching the potential customers to
observe their needs and demands with the help of some questions and answers. The third step
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