IB Business Management HLUnit 1.1 — What Is a Business?Paper 1 & 2Core idea~10 min read
What a Business Actually Does
Take away the logo, the offices and the adverts, and every business on earth is doing the same simple thing. It takes things in, changes them, and sells the result for more than the things cost. Once that clicks, most of Unit 1 stops feeling like a list to memorise.
📘 What you need to know
A business takes inputs (resources), transforms them, and sells outputs (goods and services).
Goods are physical and can be stored. Services are not physical and are used as they are delivered.
The four resource inputs are human, physical, financial and enterprise.
Added value = selling price − cost of bought-in materials. It is not the same as profit.
Production can be capital intensive (machines dominate) or labour intensive (people dominate).
The four main functions are human resources, marketing, finance and operations.
Those functions are interdependent — a decision in one creates work in the others.
Every business is a transformation process
A bakery buys flour, yeast and electricity. It uses bakers, ovens and a shop. Out the other end come loaves that people pay for. A bank buys computers and hires advisers, and out comes a mortgage. Different industries, identical shape.
The middle box is where the business earns its keep. If a firm cannot make the output worth more than the inputs, there is no reason for it to exist.
Goods and services
The syllabus splits outputs into two types, and the difference matters more than it looks.
Feature
Goods
Services
Physical?
Yes — you can touch it
No — nothing to hold
Can be stored?
Yes, in a warehouse
No — an empty seat is lost forever
Made before it is sold?
Usually yes
Usually produced as it is consumed
Examples
Trainers, cars, phones, bread
Haircuts, insurance, streaming, flights
The “cannot be stored” point is worth remembering. It is why airlines drop prices at the last minute and why a hotel would rather sell a room cheaply than leave it empty. Once the night has gone, that sale can never be made again.
The four resource inputs
When a case study says a firm is “struggling to expand”, the reason is nearly always that one of these four is missing.
Input
What it means
What it looks like in a case study
Human
The people who do and manage the work
Trained staff, enough of them, with the right skills
Physical
The things you use to make the product
Premises, machinery, vehicles, raw materials
Financial
The money that pays for everything else
Owner’s capital, bank loans, cash to pay bills
Enterprise
The idea, and the nerve to risk money on it
The founder who spots the gap and acts on it
Added value: where the money really comes from
Added value is the difference between what you paid for the bought-in materials and what you sell the finished thing for. It is the reward for doing the transforming.
Added value
added value = selling price − cost of bought-in materials
The green block is added value. Branding, speed, a nice shop and a friendly server all sit inside it — and so do all the wages that still have to be paid.
WORKED EXAMPLE
Calculating added value
A furniture maker buys wood, screws and varnish costing £145 for one table. Wages for the carpenter come to £90 and the workshop costs £40 per table. The table sells for £420. Calculate the added value per table, and the profit per table.
Step 1: added value uses bought-in materials onlyadded value = 420 − 145 = 275Added value = £275 per tableStep 2: profit takes off every costtotal costs = 145 + 90 + 40 = 275profit = 420 − 275 = 145Profit = £145 per tabletwo very different numbers — read the question wording carefully
Capital intensive or labour intensive?
Every transformation process leans one way or the other. Ask which cost is the biggest.
Capital intensive — machinery costs dominate. A power station runs on huge equipment and a small team. High set-up cost, low cost per unit once running.
Labour intensive — wage costs dominate. Clothing factories, restaurants and care homes need lots of people. Lower set-up cost, but wages rise over time.
Why the examiner cares: the choice explains a firm’s behaviour. Capital intensive firms chase high output to spread their fixed costs. Labour intensive firms chase cheap labour, which is why so much clothing is made in South-East Asia.
The four business functions
In a one-person business the owner does all four jobs on the same afternoon. In a large firm each becomes a whole department with its own targets.
This is what “interdependent” means. It is also the easiest way to earn evaluation marks: show how one department’s decision lands on another department’s desk.
🧩 How to answer “explain the interdependence of functions”
Pick one trigger from the case study — new product, falling sales, a big order.
Follow it round the loop. Name each function in turn and say exactly what it has to do.
Say what breaks if one function fails to keep up. That is the analysis mark.
Use the firm’s own words. Generic answers about “communication” score badly.
EXAM-STYLE
Explain how the four business functions are interdependent. [4]
A small brewery decides to launch a low-alcohol beer after research shows demand rising.
Marketing starts it
Research finds the demand and sets the price and packaging.
Finance makes it possible
It has to budget for new tanks and check the firm can afford them.
HR staffs it
Brewers need training on the new process, and an extra shift may be needed.
Operations delivers it
It changes the production line and keeps quality steady at higher volume.
Each one depends on the others doing their partif finance refuses the budget, marketing’s plan dies on the page
💡 Exam tip
Added value questions are traps. Only subtract bought-in materials, never wages or rent, unless the question tells you otherwise.
Name the input type when you explain a problem. “Lacks financial resources” scores better than “has no money”.
Use the firm in front of you. Say “the brewery’s operations team”, not “the operations function”.
Link, do not list. Four separate paragraphs on four functions is a level 1 answer. Chains between them lift it.
Capital or labour intensive is a quick, easy point to make about almost any firm in a case study.
For “define” questions, one clean sentence is enough. Do not write a paragraph for a 2-mark definition.
⚠ Common mix-up
Added value is not profit. Added value happens before wages and rent are paid. Profit is what is left at the very end.
Goods versus services. A restaurant sells both — the meal is a good, the table service is a service. Do not force a firm into one box.
Capital intensive does not mean expensive to run. It means machinery is the biggest share of costs. Running costs per unit are often low.
Enterprise is a resource, not a person. It is the idea plus the willingness to risk money, which is why it sits alongside land and labour.
Outputs are not always physical. An insurance policy is an output even though nothing is delivered in a box.
Interdependence is not the same as teamwork. It is about needing each other’s work, not about getting along.
Up next: Primary, Secondary, Tertiary and Quaternary Sectors — where we follow one product all the way from the field to the finished sale, and see why richer countries look so different from poorer ones.
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