Nature and purpose of business

Welcome to Management of Business!

Hello there! Welcome to the first step in your H2 Management of Business (9587) journey. Don't worry if this seems like a lot to take in at first—business is something you interact with every single day, from the phone in your hand to the cafe where you buy your snacks. In this chapter, Nature and Purpose of Business, we are going to look at why businesses exist, who they care about, and what they are trying to achieve. Think of this as the "DNA" of a company. Let's dive in!

1. The Primary Purpose: Creating Value

At its simplest level, a business doesn't just exist to "make stuff." Its primary purpose is to create value for its various stakeholders. But what does "value" actually mean? Think of it as making someone’s life better, easier, or more profitable.

Why is Value Important?

If a business doesn't create value, people won't buy its products, employees won't want to work there, and investors won't provide money. Value is the "glue" that keeps all the people involved with the business happy.

How do we measure Value?

Value isn't just about the numbers on a bank statement. It is measured in two ways:
1. Financial Measurement: This is the "money" side. It includes profit, rising share prices, and high sales revenue. For a shareholder, value is often seen as a fat dividend check!
2. Non-financial Measurement: This is the "feeling" and "impact" side. It includes brand reputation, high customer satisfaction, employee happiness, and even a business's positive impact on the environment.

Analogy: Think of a business like a high-end restaurant. The financial value is the price you pay for the meal. The non-financial value is the amazing taste, the great service, and the memories you make while eating there. Both are important!

Quick Review: Value = (Benefits received by stakeholders) minus (Costs or efforts they put in).

Key Takeaway: Businesses exist to create both financial and non-financial value. If they stop creating value, they eventually stop existing.

2. Stakeholders: The People Involved

A stakeholder is any individual or group that has an interest in or is affected by the activities of a business. They are the people who have a "stake" in the game.

Who are the Stakeholders?

According to your syllabus, you need to know these specific groups:
- Customers: They want quality products at fair prices.
- Shareholders/Owners: They want the business to be profitable so their investment grows.
- Suppliers: They want to be paid on time and have regular orders.
- Employees: They want fair wages, job security, and a safe work environment.
- Government Agencies: They want the business to follow laws and pay taxes.
- Public Interest Groups & Local Communities: They want the business to be socially responsible and not pollute their neighborhood.
- Trade Associations & Unions: They protect the rights of businesses or workers.
- The Media: They look for stories, whether the news is good or bad!

Common Mistake to Avoid: In the 9587 syllabus, Competitors are NOT considered stakeholders. While they are definitely interested in what a business does, they don't have a "stake" in its success—in fact, they usually want it to fail!

Influence on Decision-Making

Stakeholders aren't just bystanders; they influence decisions. For example, if Employees (via a Union) threaten to strike, the business might decide to raise wages even if it lowers profit. If Customers demand eco-friendly packaging, the business must change its operations to keep them happy.

Conflict of Interest

This is a very important concept for your exams! Different stakeholders often want different things. This is called a Conflict of Interest.
Example: Employees want higher wages (which increases costs), but Shareholders want higher profits (which requires lower costs). The business manager has to juggle these conflicting priorities.

Mnemonic: To remember the main stakeholders, think of "C-S-E-G": Customers, Shareholders, Employees, Government.

Key Takeaway: Management is often a "balancing act" between the different needs and influences of various stakeholders.

3. Business Objectives: The Goals

An objective is a specific target that a business aims to achieve. Without objectives, a business is like a ship without a compass—it has no direction!

Common Business Objectives

1. Survival: The most basic goal. Usually the focus for new businesses or during an economic crisis (like a pandemic). It means having enough cash to keep the lights on.
2. Profit Maximisation: Trying to make the absolute highest amount of profit possible. This is often the goal for shareholders.
3. Profit Satisficing: This is a funny word! It means aiming for a "good enough" level of profit that keeps the owners happy but allows the managers to focus on other things (like being eco-friendly or treating staff well).
4. Growth: Aiming to increase the size of the business, such as opening more branches or increasing market share.

The Hierarchy of Objectives

Objectives happen at two levels:
- Strategic Level: Big, long-term goals set by top directors (e.g., "Become the #1 airline in Asia").
- Functional Level: Short-term, daily goals for specific departments like Marketing or Finance to help reach the strategic goal (e.g., "Increase social media followers by 10% this month").

Why do Objectives Change?

Objectives are not set in stone. They change over time and across different stages of the business:
- Startup Stage: Objective = Survival.
- Established Stage: Objective = Growth or Profit Maximisation.
- Economic Recession: Even big companies might switch back to Survival mode.

Did you know? Many modern businesses are moving away from only profit maximisation and are now focusing on "Social Objectives" to improve their brand image and satisfy Public Interest Groups.

Quick Review Box:
- Survival: Stay alive.
- Maximisation: Get the MOST.
- Satisficing: Get ENOUGH.
- Growth: Get BIGGER.

Key Takeaway: Objectives give a business direction and help managers make decisions. These goals evolve as the business grows and as the external environment changes.

Final Summary of Chapter 1.1

To wrap it all up, remember that the Nature and Purpose of Business is a cycle:
1. The business sets Objectives (like Growth or Survival).
2. It makes Decisions to reach those objectives.
3. These decisions affect various Stakeholders (who often have conflicting interests).
4. The ultimate goal is to Create Value (both financial and non-financial) for everyone involved.

Great job! You've just covered the foundation of Business Management. Keep these concepts in mind, as we will use them in every other chapter of the syllabus!