Introduction to Business Management Lecture 2 PDF

Introduction to Business Management Introduction to Business Management Dr. Weal Elgharib College of Commerce, Ain Shams University Lecture (2) – English Section  Chapter (2) Motives and Functions of a Business What is the goal of a business? Businesses are...

Introduction to Business Management Introduction to Business Management Dr. Weal Elgharib College of Commerce, Ain Shams University Lecture (2) – English Section  Chapter (2) Motives and Functions of a Business What is the goal of a business? Businesses are established to serve the needs (a product or service) of consumers by owners who seek to make profits. Where the Profits Come From? Some firms, such as AT&T, Microsoft, and IBM, provide both products and services to customers. A business receives revenue when it sells its products or services. It incurs expenses from paying its employees and when it purchases machinery or facilities. The difference between the revenue and the expenses is the profit (or earnings) generated by the business. 1–4 For example, assume that you have decided to offer to tutor other students in the basics of developing a website because you know that many students would be willing to pay for this service. During this year, you receive $5,000 from students for tutoring, and you pay a total of $1,000 in expenses to advertise your service in the college newspaper. Your profit is shown below: Revenue 5,000 Expenses (1,000) Profit 4,000 1–5 Note: The profits that you earn from your new business are dependent on three conditions: ❑ First, there needs to be a demand for the service that you offer. If there is no demand, you will not generate any revenue and, therefore, will not earn a profit. ❑ Second, you need to attract customers, meaning that they choose you instead of your competitors. If you offer a better service or a lower price than your competitors. ❑ Third, to earn high profits, you need to keep your expenses low. 1–6 Nonprofit Businesses Not all business are created to make a profit. A nonprofit organization is an organization that serves a specific cause and is not intended to make profits. When its revenue exceeds its expenses in a particular period, the profits are reinvested in the organization. Common examples of nonprofit organizations include some hospitals, schools, charitable organizations, mosques, and churches. 1–7 Note: ❑ Although a nonprofit organization is not totally focused on making profits, it is still run like a business. For example, consider the business of a nonprofit hospital. It charges prices for its services just like a for profit hospital. The hospital will still bill the patient’s insurance for services rendered and bill the patient for any amounts not paid by the insurance company. If the hospital provided all of its services for free, it would quickly use up all the funds that were donated to finance it as well as any accumulated profits it had generated. Its employees earn salaries just like the employees of for profit hospitals. If the hospital does not pay competitive salaries, its doctors, nurses, and other staff will seek employment else where. Like for-profit hospitals, if it wants to expand and needs more money than it has received from donations or accumulated over time, the hospital may even obtain financing from creditors. 1–8 Resources Used to Produce Products or Services The most obvious natural resource that is commonly used by Natural resources businesses to produce products or services is land. Agricultural businesses rely on land to grow crops. Other businesses rely on land to establish a site for their production. Human resources Are the people who are able to perform work for a business. They may contribute to production by using their physical abilities or mental abilities. Capital includes machinery, equipment, tools, and physical facilities.. Entrepreneurship the creation of business ideas and the willingness to take risk (the profits of the business may not be as high as expected. In fact, if expenses exceed revenue). 1–9 Key Stakeholders in a Business ❑ Every business involves transactions with people. ❑ Stakeholders: people who have an interest in a business; the business’s owners, creditors, employees, suppliers, and customers ❑ Five types of stakeholders are involved in a business: Owners The investors who purchase stock are called stockholders (or shareholders) of those firms. Creditors financial institutions or individuals who provide loans. Employees Firms hire employees to conduct their business operations. such as General Motors and IBM, have more than 200,000 employees. Suppliers Companies responsible for providing raw materials. Customers The individuals who receive the goods and services provided by the firm. 1–10 Exhibit Stakeholders in a Business 1–11 Key Types of Business Decisions The key types of decisions involved in running a business can be classified as management, marketing, and finance decisions. Management is the means by which employees (HR) and other resources (such as machinery) are used by the firm. Marketing is the means by which products (or services) are developed, priced, distributed, and promoted to customers. Finance is the means by which firms obtain and use funds for their business operations. 1–12 Exhibit How Business Decisions Affect a Firm’s Earnings 1–13 The Business Environment The success of a business is generally dependent on the business environment. Its entrepreneurs and managers must continually monitor the environment so that they can anticipate how the demand for its products or its cost of producing products may change. The business environment can be segmented into the following parts: 1. Social environment 2. Industry environment 3. Economic environment 4. Global environment  Social Which includes demographics (characteristics of the human population or Environment specific segments of the Population) and consumer preferences, represents the social tendencies to which a business is exposed. Industry Represents the conditions within the firm’s industry to which the firm is Environment exposed. For example, the demand for cell phones is very high. However, industries that have a high demand for their products also tend to have substantial competition because many firms enter the industry. Economic Economic conditions have a strong impact on the performance of each Environment business. When the economy is strong, employment is high, and compensation paid to employees is also high. Since people have relatively good income under these conditions, they purchase a large amount of products. Global The global environment may affect all firms directly or indirectly. Some Environment firms rely on foreign countries for some of their supplies or sell their products in various countries. Q1: Choose the correct answer for the following sentences: (1) An enterprise that provides products or services that customers desire is a(n): A. institution. B. market. C. agency. D. business. (2) The ______ creation of business ideas and the willingness to take risk: A. owners. B. creditors. C. Entrepreneur. D. customers. (3) The stakeholders of a firm include all of the following except: A. owners. B. creditors. C. suppliers. D. government officials. (4) When an entrepreneur allows other investors to invest in the business, they become: A. creditors. B. brokers. C. employees. D. stockholders. (5) A certificate of ownership of a business is a: A. bond. B. contract. C. stock. D. mutual fund. (6) Many firms that need funds borrow from financial institutions or individuals, who provide loans called: A. debtors. B. creditors. C. collateral. D. investors. (7) Employees responsible for making key business decisions are: A. stockholders. B. owners. C. managers. D. creditors (8) All of the following describe the products or services provided by successful firms except: A. obsolete. B. adequate quality. C. desired by customers. D. customer satisfying. (9) A nonprofit organization is one that: A. has a profit motive. B. does not have stakeholders. C. serves a specific cause. D. invests only in technology products. (10) A factor that contributes to business failure is: A. employing too many human resources. B. investing in marketing. C. investing in technology. D. producing high-quality products. (11) Business decisions regarding which products are created, priced, distributed, and promoted to customers are _____ decisions: A. finance. B. accounting. C. management. D. marketing. (12) Business decisions involving the efficient use of employees and other resources (such as machinery) are _____ decisions.: A. finance. B. accounting. C. management. D. marketing. (13) Business decisions that focus on strategies to make the product more appealing to customers and improve the firm’s revenue are _____ decisions: A. finance. B. production. C. manufacturing. D. marketing. (14) _____ summarize(s) the firm’s financial condition (such as balance sheet) for use in making various business decisions: A. manufacturing. B. accounting. C. management. D. marketing. (15) Business decisions involving how to obtain the necessary funds to be used by the firm are _____decisions. A. finance. B. accounting. C. management. D. marketing. (16) The key types of business decisions can be classified as management, marketing, and : A. finance. B. production. C. information systems. D. accounting. (17) The _____ environment includes changes in consumer preferences over time: A. industry. B. social. C. economic. D. global. Thank You