Teaching guide: Understanding Business (podcast)

These podcast teaching guides cover topics from our AS and A-level Business specifications. You can download them below.

Podcast 1: Understanding Business

This podcast covers the specifications' first subject area, ‘What is business?’. It includes: Understanding the nature and purpose of business; Understanding the different types of businesses; and Understanding that businesses operate within an external environment.

Transcript

Hello and welcome to the AQA AS and A-level Business podcast, supporting your teaching of our new specifications, available from September 2015.

We believe that our holistic approach to the study of business equips students with the academic as well as the practical skills they need to succeed – and helps students of today develop the fundamental skills needed by the business leaders of tomorrow.

This podcast is the first of six, and covers the first subject area in the specification: ‘What is business?’ including the following topics:

• Understanding the nature and purpose of business;
• Understanding the different types of businesses; and
• Understanding that businesses operate within an external environment.

Topic one: Understanding the nature and purpose of business

From the very start of this course we want students to appreciate that businesses can come in many different shapes and sizes. They can vary enormously in terms of ownership, how they operate and what they are trying to achieve.

Throughout the course it’s important to try and relate topics to different situations to help students realise that a one size fits all approach does not work in the world of business. We want you to encourage your students to think about the particular situations of businesses and why they matter.

One of the most important questions your students will ask themselves during the course is: “what if?” What if… the situation was different – how would this affect the decision? What if… it was a government owned organisation rather than a private business? If it was a retailer rather than service provider? If it was cash rich or heavily indebted? How would it change what was happening?

It is also important for students to appreciate that there are as many different types of objectives as there are businesses. Typically if you ask students why an organisation exists, many will answer “profit!” This is the same mind-set that can lead students to jump to the conclusion that as individuals we exist only to earn money.

It is good to try and start the discussion early about the role and importance of profit, but also to plant the idea that there are other objectives as well as profit. Explore the idea that businesses may have several different targets at any moment and that managers will consider not just how much profit might be made but what needs to be done to earn it, as well as how much risk is involved.

A useful way of exploring this topic is to raise this question: whilst we might need to earn money we also balance work with leisure and family life. What are your students prepared to do to earn money; no doubt there are some jobs they simply wouldn't do? Relate this to the fact that managers juggle many demands: profit is just one of the possible objectives at any moment.

Some examples to consider include:

• a business starting up may be happy to survive its first year
• a multinational with outside investors may have pressures to get the share price up
• some owners and managers will be very concerned about the environmental impact of the business’s actions and will take a very ethical stance
• some will be long term, whilst others may much focus on short term profits.
• Some other areas of discussion could include:
• how short term profit may be sacrificed for growth
• how businesses may need cash in the bank and so may be willing to accept lower profits through lower prices if it brings cash in quicker
• how businesses may reject some profitable projects if they do not fit with the brand image or ethical position of the business.

When discussing the idea of profit as an objective, there might be a good opportunity to consider revenue and different types of costs. You may keep this as an overview to ensure students are familiar with the terminology and appreciate the impact of revenue and cost changes on profits, and could then cover more detailed analysis in the finance topics. Alternatively some of you may want to look at profit in some depth at this stage as a lot of the later analysis links to the impact on costs and revenues.

This topic considers the types of objectives that a business might have: profit, survival, growth and social responsibility. We also want students to think about why objectives matter. Why set targets? Why do we want to have something measurable to aim for?

Students can relate this to their own situation – when they say “I want to do well”, what does this mean in reality? How could they actually assess whether they are doing this? They need to set more specific, measurable, time-bound targets. Only by expressing targets numerically can all parties see if they are thinking on the same lines – your “working hard” and my “working hard” may mean very different things! Only with this approach can everyone start to then plan and assess the resources that would be needed.

Of course, the objectives are linked to what the business wants to achieve (in the same way as how much you want to study is linked to how important grades are to you in relation to other issues). This again comes back to why organisations exist and is there more to life than profit. It might be worth getting students to look at the mission of organisations as diverse as the BBC, the NHS, Johnson and Johnson, Google, Facebook and Wikipedia to get a sense of the reasons these organisations exist and what they value.

Topic two: Understanding the different types of businesses

In this section we want to consider the reasons why the owners of a business might choose a particular legal form. What would make the owners of a business turn it into a company? Why change from a private limited company to a public limited company. The advantages and disadvantages of each form need to be discussed and considered in the context of a particular organisation. There may be some friends, family or relatives who have taken the plunge to set up a company: why not ask them to come in and speak? There is usually an interesting flotation about to happen but if not you can look at examples such as Facebook and Alibaba.

One area to consider in relation to companies is the role of shareholders. Why do people and organisations buy shares in companies? What are their objectives? What determines the value of a share? Why does it matter if the share price increases or decreases in value? You may look at the share ownership of a PLC as you will usually find that most of the shares are held by relatively few shareholders.

This is a good starting point for a discussion of what these owners might want and how some stakeholders are more important than others.

You should also consider the impact that ownership might have on how the business functions, what it aims for and the decisions it takes. Again, you’ll find yourself returning to the big “what if?”

Imagine a family business bringing in outside investors, for example – what would this do to the mission and objectives of the business? What if it was a bank reporting to external shareholders compared to a building society reporting to its savers? What impact does this difference in ownership have? How might a business becoming a PLC affect the way it functions?

Topic three: Understanding that businesses operate within an external environment

It is important for students to appreciate that businesses do not exist in isolation – they will inevitably interact with their environment. In this section we will consider some of the external factors that can impact on the costs and sales of a business.

A few examples you could discuss include:

• what happens if new competitors enter a market?
• what happens if interest rates increase?
• what happens if the economy grows faster or slower?
• what is the impact of greater environmental awareness by consumers, investors and employees?

Early on in the course the analysis may involve fairly broad strokes but as students’ own understanding of the internal functions develop they will be able to extend their analysis. There should be plenty of stories in the news and it is fairly easy for students to research an external change and its impact on a business or industry.

As ever the impact of change will depend on factors such as the type of business and the decisions made by managers. All change will create different challenges and opportunities for businesses. A growing or shrinking population and demographic changes such as an ageing population will affect businesses in different ways. Consider the impact on different industries that have diverse customer groups: the sportswear industry, schools or the cruise ship industry.

Thank you for listening to this AQA business podcast. You can find information on the specifications and the resources available to support your teaching of them on the AQA website: just visit aqa.org.uk/business