Business Management Notes - Castelletti

BUSINESS MANAGEMENT Demand Supply Firm Finance Money...

BUSINESS MANAGEMENT Demand Supply Firm Finance Money Capital Revenue Investment Organisation Production Companies Service Wages International trade Employees Importation and exportation Marketing Taxes Fiscal and monetary policies Commercial Activity Hierarchy Competitivity Sustainability Resource allocation Innovation Enterprise Sales Stock exchange WHAT IS BUSINESS? The creation of goods and services that satisfy the needs and wants of the customer The factors of production: a combination of the following factors of production make business Land Labour Capital Enterprise  What are the TYPES OF ORGANISATIONS LIMITED COMPANIES: SOLE TRADER: PARTNERSHIP: - Owned by shareholders A person who is the exclusive A business formed by two or - Run by directors owner of a business, this means more people to carry on a - The business is a separate legal person he is entitled to keep all profit business together, with shared from the owners, therefore when the from the business after the capital investment and usually business fails the owners only lose the business paid its taxes but is shared responsibilities money they invested in the business, liable for all losses they do not lose their personal Deed of Partnership = formal possessions. Shareholders have Limited Advantages: of being a sole agreement between all partners Liability. trader are that you are the boss and is not a legal requirement. of the business so you can do Provides agreement on issues Private limited companies: whatever you want, you keep all such as voting rights, Businesses where directors own and run the profits generated, and the distribution of profits, the company as they own the majority start-up costs to raise the management role of each of shares because the company isn’t business are low since you are partner, and who has authority publicly traded. These owners are not alone. to sign contracts. personally responsible for the company's debts, and their investment Disadvantages of being a sole Advantages: is protected. The company is considered trader are that you have - Partners may specialise in its own entity, separate from the unlimited liability for debts as different areas of business and owners, and can do things like own there's no legal distinction management property and make contracts between private and business - Shared decision-making assets, your capacity to raise - Additional capital injected by Advantages: capital is limited, and all the each partner - Benefits of lower taxation responsibility for making - Business losses shared - Higher business profile day-to-day business decisions is between partners - Freedom to retire yours. retaining high-calibre - Greater privacy and fewer - Personal income flexibility employees can be difficult. legal formalities than corporate - Protected business name organisations - Limited liability Disadvantages: - Unlimited liability for all Disadvantages: partners - High set-up costs - Profits are shared - Must be registered with the Registrar - As with sole traders, no of companies community and the partnership - Shared ownership will have to be reformed in the - Maintaining contracts held with other event of the death of one of the shareholders partners - All partners are bound by the decisions of any one of them Public limited companies: - Not possible to raise capital by Limited companies are owned by selling shares various shareholders, not just directors. - A sole trader, taking on partners, will lose the Advantages: independence of - PLCs can gain capital from public decision-making investments and mutual funds. - Shares in PLCs are easily transferable, attracting more investors. - PLCs offer legal protection, separating personal liabilities from the company's debts. - Being publicly traded enhances credibility and visibility. - PLCs receive favorable financing, allowing for expansion into new markets. Disadvantages: - Vulnerability to shareholder actions and market shifts may impact decision-making. - Majority shareholder influence limits owner control after going public. - Expanded legal obligations during PLC setup and ongoing operations SOCIAL ENTERPRISES: CO-OPERATIVES: Association of people (an For-profit: organisation) that is owned and An operator in the social economy controlled by the people to meet whose main objective is to have a social their economic and social needs impact rather than make profit for their and wants through an owners or shareholders. Social enterprise, such as fish and enterprises seek to maximize profits farming markets while maximizing benefits to society and the environment, and the profits are Advantages: principally used to fund social programs - One of the major strengths of a cooperative business is that Advantages: each member holds equal power. - Sustainable Impact - Cooperatives can play a crucial - Scalability role in local economic - Attracting investment development. They often - Innovation reinvest in their communities, create jobs, and contribute to Disadvantages: the sustainability of local - Mission Drift economies. - Complexity - Many cooperatives distribute - Market competition profits to their members based - Measuring Impact on their level of participation or usage, effectively returning Non-profit: money to the people who Company formed for the primary contribute to the cooperative's purpose of serving the public interest or success. pursuing a specific mission, without the goal of generating profits for individuals Disadvantages: or shareholders - Capital limitations hinder expansion and growth due to restricted fundraising options like share sales. Advantages: - Slower decision-making due to - Nonprofits often benefit from public cooperative consensus-building, trust and credibility due to their causing delays in actions. mission-driven nature and transparency. - Internal conflicts stemming - Nonprofits can focus on addressing from divergent member important social, cultural, or charitable opinions, leading to issues and can have a positive impact on time-consuming dispute society. resolutions - Nonprofits can attract donations, grants, and philanthropic support from individuals, foundations, and government agencies. Disadvantages: - Nonprofits often rely on donations and grants, which can be unpredictable and insufficient to cover all expenses, leading to financial instability. - Nonprofits can focus on addressing important social, cultural, or charitable issues and can have a positive impact on society. - Nonprofits can attract donations, grants, and philanthropic support from individuals, foundations, and government agencies All businesses are unique, but they can have similar characteristics. For example, all businesses have these FUNCTIONS: 1. Human resources: functions and evolution of human resource management, organisational structure, leadership and management, motivation, organisational (corporate) culture, industrial/employee relations 2. Finance and Accounts: sources of finance, costs and revenues, break-even analysis, final accounts, profitability and liquidity ratio analysis, efficiency ratio analysis, cash flow, investment appraisal, budgeting 3. Marketing: the role of marketing, market planning sales forecasting, market research, the four P’s - product, price, promotion and place, the extended marketing mix of seven Ps, international marketing, e-commerce 4. Operations management: the role of operations management, production methods, lean production and quality management, location, production planning, research and development, crisis management, and contingency planning What are the BUSINESS’S OBJECTIVES Mission statement = a statement of a business’s core aims, phrased in a way to motivate employees and to stimulate interest by outside groups. Vision statement = a statement of what the organisation would like to achieve or accomplish in the long term. Common Business Objectives: Profit maximisation and Satisficing Growth Protecting Shareholder Value Ethical Objectives Strategic and Tactical Objectives Tactical Objectives: Survival Maximising short-term sales revenue Strategic Objectives: Market Standing Image Increasing market share WHY WOULD EACH DEPARTMENT CONTACT THE OTHER? Why would the Human Resources department talk to: - Finance: HR provides payroll information, which is essential for finance to calculate salaries and deductions accurately. - Operations: HR collaborates with operations to ensure there is an adequate workforce to meet production or service demands. - Marketing: HR works with marketing to understand the skills and talents required in the workforce to support marketing strategies effectively. Why would the Finance and Accounts department talk to: - HR: Finance relies on HR data for payroll and benefits calculations. Understanding HR's hiring plans is crucial for budgeting. - Operations: Finance assists operations in budget planning and resource allocation, ensuring adequate funds for production and expansion. - Marketing: Finance sets budgets for marketing campaigns and monitors expenses to ensure marketing efforts align with financial goals. Why would the Operations and Management department talk to: - HR: Operations collaborates with HR to plan for workforce needs, recruitment, and training to meet production or service goals. - Finance: Operations provides data on production costs and resource requirements that finance needs for budgeting and financial analysis. - Marketing: Operations ensures the availability of products or services based on marketing strategies and customer demand. Why would the Marketing department talk to: - HR: Marketing and HR work together on employer branding and talent acquisition strategies to attract top talent. - Finance: Marketing provides sales forecasts and revenue projections that are essential for financial planning and budgeting. - Operations: Marketing communicates product or service demands, which operations must meet to avoid shortages or overproduction. Common objectives between departments include Profit maximisation Growth Increased market share Survival Maximising short-term sales revenue Internal and external STAKEHOLDERS Employees: What They Want: Employees want job security, fair wages, a safe working environment, opportunities for career growth, and a positive workplace culture. Potential Conflict: Conflict can arise if Tesla faces financial difficulties and needs to cut costs, potentially leading to layoffs or reduced benefits. Managers and Directors: What They Want: Managers and directors aim for company success, which can translate into career advancement and financial rewards. Potential Conflict: Conflict may occur if they need to make tough decisions that affect employees, like layoffs, which could go against employee interests. Shareholders: What They Want: Shareholders desire a return on their investment in the form of stock price appreciation and dividends. Potential Conflict: Tesla might prioritize reinvesting profits into growth and R&D rather than paying dividends, which could disappoint income-focused shareholders. Customers: What They Want: Customers seek high-quality electric vehicles, excellent customer service, and value for their money. Potential Conflict: Tesla may face criticism or conflict if quality issues arise in their vehicles or if prices are deemed too high.  Suppliers: What They Want: Suppliers want reliable partnerships, timely payments, and fair treatment. Potential Conflict: Disputes could arise if Tesla pressures suppliers for lower costs or extended payment terms, impacting supplier profitability. Financiers: What They Want: Financiers aim for a healthy return on their investments in Tesla bonds or loans. Potential Conflict: If Tesla faces financial difficulties, there might be conflicts over the company's ability to repay debts. Pressure Groups: What They Want: Pressure groups advocate for various causes like environmental sustainability and workers' rights. Potential Conflict: If Tesla's practices don't align with the goals of certain pressure groups, they may engage in protests or advocacy campaigns. Competitors: What They Want: Competitors want a level playing field and may seek to protect their market share. They want them to not succeed so that customers will buy their product Potential Conflict: Tesla's disruptive presence in the electric vehicle market can lead to fierce competition and potential legal disputes over market practices. Government: What They Want: Governments desire tax revenue, job creation, and adherence to regulations. Potential Conflict: Tesla may face conflicts if it clashes with government regulations or if it seeks tax incentives and subsidies a) Customers (change from Europe to China), pressure groups b) The workforce, so employees, ‘went on strike over concerns regarding pay and benefits’ against managers who didn’t want to satisfy their demands and their wages c) The conflict could have been minimised by satisfying the employees’ demands before it got to a point where they had to go on strike to make themselves heard. To do this, trade unions could have found a compromise to agree on with the managers, so that the business could cover the costs of higher wages and the pay rise of the workers could satisfy them. By addressing employees' demands before they escalate to strikes,  businesses can demonstrate their commitment to fair labor practices and employee satisfaction, ultimately benefiting both the workforce and the company's success. a) An internal stakeholder is a type of stakeholder who directly works in the business and is not external. An example of this is from Royal Dutch Shell could be their managers, their employees or their owner/s. b) It should to a certain extent. This is because while it is important for all companies to be sustainable and meet environmental groups, if their decision-making is too influenced by these groups the company might not reach its maximum profit As a business grows, it achieves ECONOMIES OF SCALE Economies of scale: as output rises, the unit cost falls Types of economies of scale: Purchasing economies Type of economy of scale achieved via buying in bulk Technical economies A type of economy of scale achieved via technology. That is, larger businesses more readily have the capital to invest in newer and better technology, which can bring them cost advantages smaller businesses are otherwise unable to achieve Financial economies Type of internal economy of scale that enables more favourable rates of borrowing Marketing economies Type of economy of scale that gives a  lower unit cost for advertising and promotion for large firms over smaller firms Managerial economies Type of economy of scale that requires investing in expertise as your organization grows Specialisation economies Type of economies of scale which consists of decreasing the unit cost as, when you’re specialised in something, you know exactly how to use, for example, less material to produce a product resulting in spending less to produce that product. Risk bearing economies When you have less risk in your business, for example by being in many different markets with the products you’re selling, your investments will be more spread out, resulting in the EXTERNAL Economies of Scale: factors that arise from outside the business that lower unit costs Technological progress: Cost savings because of the internet (communication apps, communication software, logistics, market research, etc) Improved transportation networks: Public transport, workers arriving on time, easy access for customers and suppliers. Abundance of skilled labour: specialty know-how in the region, ( e.g. silicon Valley in California or Fashion in Milan). Improvements in education standards. Regional Specialisation a geographical regional provides the perfect environment e.g. Milan and fashion Businesses also may have to face DISECONOMIES OF SCALE The increase of average costs as output rises Companies achieve diseconomies of scale with: 1. Communication: As companies grow, communication becomes more intricate. Complex communication structures can lead to misunderstandings and inefficiencies. For example, messages might be distorted as they pass through layers of management. Inefficient communication can consume time and lower productivity, ultimately raising average costs. This communication challenge is a key contributor to diseconomies of scale. 2. Workforce Alienation:  In larger companies, employees may feel less connected to the organization's mission and decision-making. This disconnection can reduce motivation and productivity, leading to higher turnover and lower efficiency. Employee dissatisfaction can result in increased recruitment and training costs, driving diseconomies of scale. 3. Poor coordination: Expanding businesses may face challenges in coordinating different departments and teams. Poor coordination can lead to redundant efforts and wasted resources. For instance, multiple units might independently pursue similar goals, increasing costs. Inefficient coordination hampers the company's ability to adapt quickly to market changes, contributing to diseconomies of scale. 4. Slow decision-making: Larger organizations often introduce more layers of management, slowing down decision-making processes. Delays in decisions can hinder the company's ability to respond promptly to market changes and seize opportunities. Slow decision-making leads to missed chances and increased costs, contributing to diseconomies of scale. THE SIZE OF A BUSINESS How do we measure the size of a business? Having a BIG business… Benefits: Economies of scale: large businesses can benefit from cost savings through bulk purchases and efficient production processes. Global reach: big businesses can expand into international markets, increasing their customer base and revenue Innovation: they have the resources to invest in research and development, fostering innovation and technological advancements. Market dominance: large companies can dominate markets and influence industry standards Drawbacks: Bureaucracy: with more employees and layers of management, decision-making can be slow and bureaucratic. Less Personalized Service: large companies may struggle to provide the same level of personalized service as smaller businesses. Risk Aversion: risk-taking can be limited due to a focus on maintaining stability and protecting existing market share. Lack of Agility: large corporations may find it challenging to adapt quickly to changing market conditions. Having a SMALL business… Benefits:  Independence and Control: small business owners have the freedom to make decisions without the bureaucracy of larger organizations. They can shape their business according to their vision, values, and preferences. Closer Customer relationships: small businesses can provide a more personal and customer-centric experience. They often know their customers by name, understand their preferences, and can tailor their offerings to meet specific needs. Lower Operational Costs: small businesses typically have fewer expenses related to overhead, employee salaries, and infrastructure. This means they can maintain healthier profit margins and financial stability. Drawbacks: Limited Resources: small businesses often operate with constrained financial and human resources. This limitation can hinder their ability to invest in growth, marketing, and innovation. Fierce Competition: small businesses compete with larger corporations that have significant marketing budgets and resources. It can be challenging to gain market share and visibility in the face of such competition. Higher Risk of Failure: smaller businesses are more susceptible to economic downturns and industry-specific challenges. They often lack the cushion of substantial resources to weather tough times, making them more vulnerable to failure. TYPES OF GROWTH: Internal growth: the reinvestment of retained profits External growth: Horizontal integration: expanding by merging with or acquiring similar businesses. Forward Vertical Integration: expanding by controlling distribution or customer-facing businesses (e.g. a smartphone manufacturer might engage in forward vertical integration by acquiring a retail chain or establishing its own stores to directly sell its products to consumers without relying on third-party retailers. This approach enables the company to have more control over its products' presentation, pricing, and customer experience) Backward vertical integration: expanding by controlling suppliers or raw material sources (e.g. an automobile manufacturer might opt for backward vertical integration by acquiring a steel mill or investing in a company that produces key components like engines or transmissions. By doing so, the manufacturer ensures a more stable supply chain, potentially reduces costs, and maintains better control over the quality and availability of essential inputs) Conglomerate integration: diversifying by acquiring businesses in unrelated industries Joint Venture: a partnership between two or more businesses to work together on a specific project or in a particular market. It creates its own division, a separate business or organisation from the two initial businesses Strategic alliance: less formal partnership compared to a joint venture which involves two or more companies collaborating on a specific project. Franchising: a business growth strategy where an existing business (the franchisor) licenses its brand, products, and operational model to independent business owners. Merger: two businesses combining to become one large business. Takeover: one business buying another business. In the case of a company it will be buying the majority of shares to take control a) Economies of scale might not benefit customers when they result in reduced product diversity or decreased competition, meaning that prices could get higher and customers should use more of their disposable income to buy the product. b)