Stephen Barnes extols the virtues of business in the curriculum as a ‘wonderfully complex and creative subject’

If you’ve ever been to a car boot sale, you’ll know there is a bit of specialisation by car boot. Some sell mainly clothing, others have lots of glass and china and still others focus on books, toys, vinyl and CDs or crates full of old computer games. And there’s usually a table selling a pot pourri of everything. It is not a scene of great distinction or coherence.

And so to the specifications for Business ‘A’ level: the link is worryingly obvious. There is a small display of ‘objectives and strategy’. Next door is the ever popular marketing stall, all four ‘Ps’ available. And there’s all the other functions – wobbly tables for operations, finance, HR and the catchily named ‘external environment’. Something, somewhere is synoptic.

In the beginning it was different. You might understandably link 1969 with Apollo 11 or possibly even with Woodstock. But that year also saw the first Business Studies ‘A’ level examination – promoted by the Cambridge Business Studies Project. This course worked through the traditional business functions but in the context of a rigorous model – ‘scientific decision making’. Vestiges of this legacy can be found in today’s OCR spec.

Unsurprisingly faith in scientific decision making waned. And the search for academic rigour shifted to ‘strategy’. This would be fine were not the ‘A’ level notion of strategy so limp and ill-defined. A run through the DfE’s ‘subject content’ is telling. Strategy is there. But key questions are not addressed. Does business have any common, unifying objective? Can generic strategies be identified with a clear rationale? What makes one strategy better than another? And in this subject content, where are the related concepts running like shafts of meaning through each theme?

A good model for Business should be systemic, organic, holistic. Regrettably the actual approach is anatomical – linear, pedantic, convergent: it is like dissecting a rat. All the parts are named and their functions explained. We know so much and understand so little?

The problem, of course, is that the rat remains dead. We can see its parts but we can’t see an ingenious living entity fighting for survival in an ever-changing and often hostile environment. And so it is for business, mostly (but not always) more noble than the rat and full of creative people searching for new ways to add value and almost always against the environmental odds.

Now imagine ‘A’ level physicists deciding that since they have plenty of credible material, they’ll not bother with ‘energy’, ‘particles’ or ‘gravity’. Absurd? Well, yes, but what do we do with ‘competitive advantage’? With ‘added value’? Or with ‘opportunity cost’? The answer is not much.

The purpose of all business activity is to add value. This is the starting point for understanding strategy. So what do firms do? Using their distinctive capabilities, firms buy resources, combine them in a unique formula and aim the resulting product at a chosen market. The goal is a value of sales that exceeds the corresponding cost – and opportunity cost – of those resources. This is the meaning and magic of added value. Firms that are successful in this goal will grow and often take over the resources of other firms are who are less successful.

The generation of added value is a small – or a large – miracle. Every sale of every firm is achieved against the opposition of opportunity cost. Added value only starts when opportunity cost is defeated. How is it done? The answer is by achieving a competitive advantage. This means the ability to generate returns greater than total costs, including the opportunity cost of capital. To achieve this feat, the firm must be able to resist the competitive forces that would otherwise reduce this advantage to zero (the concept explained by Porter in his Five Forces model).

If all this is sounding abstract, then it can be clearly and enjoyably demonstrated through a simple classroom simulation (it works from Year 10 to degree level.) Ask the students to imagine a village fete! The organiser has agreed to allow students – in pairs – to sell fizzy lemonade. The drinks can be bought in a generic brand from the cash and carry at 40p per can. On the day of the fete the students run competing stalls offering the same product. But at what price? Each pair of students must secretly write down their opening price and only disclose it when asked. There will probably be a fair range. Since the products are identical, the buyer (you!) will make all your purchases from the stall offering the lowest price. All the other stalls sell nothing.

Now run the simulation a second time with stalls able to change their price – but nothing else. The result should be convergence on a lower price where the margin is slim but just enough to make the whole effort worthwhile (it may take three or four ‘rounds’ to reach this point.) Now allow the students to change price and any aspect of product offering, including its marketing. At once, all kind of ingenious ideas will kick in. Some buy in bulk, others chill their drinks and others offer BOGOFs or fun customer service.

The students have discovered two concepts at the heart of Business. First, when generic products with standard costs compete on price alone, it’s a race down to rock bottom margins with no chance to add value. Second, the only escape for any firm is differentiation in the product or the costs of its production.

In this way the simulation can be extended to explore strategy. Strip out the floss and gloss and every firm must have a plan for using its unique resources to add value in a competitive market. This is seriously no mean achievement. With capabilities endlessly morphing and markets endlessly expanding, dissolving and emerging, searching for that crock of gold that is added value can be distinctly lacking in rainbows…

But while we should all recognise that the mechanical precision of scientific decision making is a chimera, making strategy is neither whim nor fancy. Every firm, without exception, must find that source of competitive advantage and then exploit it, defend it and – if remotely possible – extend it. That means building the right alignment of distinctive capabilities with business formula and target market. An X-ray though any firm will always reveal this underlying pattern.

So our subject, Business, is not a soft option. It’s a wonderfully complex and creative subject with real academic rigour. And any resemblance to a car boot sale is purely fictitious.

Stephen Barnes was a teacher and examiner of Business. His specialism is curriculum development and he is the author of several texts. Currently he is working on a new book about the core principles of business activity.