EDBA
BUS 150
INTRODUCTION TO
BUSINESS ADMINISTRATION
MAZLOMI INURUL AKMAR BT. MOHD. NOR
1
CHAPTER 1
THE NATURE OF BUSINESS
2
WHAT IS BUSINESS?
• An individual or organization that provides
goods, ideas and services to others who
want or need them
• The outcome are products: tangible
intangible
• The product provides satisfaction and
benefits
3
BASIC CONCEPTS OF BUSINESS
• Profit
• Entrepreneurship
• Risk taking
4
GOAL OF BUSINESS
• To maximize profits
• Balance the needs of stakeholders
• Not all organizations are business
5
PURPOSE OF BUSINESS
• To supply goods and services to
customers, rather than to supply jobs to
workers and managers, or even dividends
to stockholders
• To have healthy and growing sales
• New product development or new services
• Cost control or lowering of costs
• To create wealth for shareholders,
employees, customers and society at large6
RATIONALE OF BUSINESS
• Make or provide good and quality goods,
ideas and services
• Make or provide reasonably-price goods,
ideas and services
• To fulfill the needs of consumers
7
BUSINESS FIRM
• An organization under one management
• Set up for earning profit
• Providing goods, ideas and services
• Sale in market
8
BUSINESS ENVIRONMENT
•
•
•
•
•
•
Economics condition
Legislation
Technological process
Socio-cultural environment
Competition
Globalization
9
CHAPTER 2
THE ROLE OF PROFIT IN BUSINESS
10
DEFINITION OF PROFIT
• The difference between what it costs to
make and sell a product and what a
customer pays for it
• The reward for the risks they take in
providing products
11
THE IMPORTANCE OF PROFIT
• To earn profit, an organization needs:
– Management skills
– Marketing expertise
– Financial resources
• Business must produce quality products,
operates efficiently
12
CHAPTER 3
CONTRIBUTIONS OF BUSINESS
TO SOCIETY
13
CONTRIBUTION OF BUSINESS
TO SOCIETY
• Employment creation
• Economic growth (GDP)
– GDP measures both the total income earned
in the economy and the total expenditure on
the economy’s output of goods and services
– Level of real GDP is a good gauge of
economic prosperity
– Growth of real GDP is a good gauge of
14
economic progress
CONTRIBUTION OF BUSINESS
TO SOCIETY
• Improved standard of living
– The amount of goods and services people can
buy with the money they have
• Improved quality of life
– The general well-being of a society in terms of
political freedom, a clean natural environment,
education, health care, safety, free time and
many others that leads to one’s happiness and
satisfaction
• Peace and prosperity
15
CHAPTER 4
EXPLOITATION OF SOCIETY
BY BUSINESS
16
BUSINESS ETHICS
• Principles and standards that determine
acceptable
conduct
in
business
organization
• Acceptability of behaviour in business is
determined by customers, government,
interest group, competitors
• The organizational culture must be strong
• Relates to an individual’s or work group
• Relates to the culture in which a business
17
operates
SOCIAL RESPONSIBILITY
• Business’s obligation to maximize its
positive impact and minimize its negative
impact on society
• Concerns the impact
business’s activities
of
the
entire
18
STAKEHOLDERS OF BUSINESS
• People or parties that stand to gain or lose
by the policies and activities of a business
– Shareholders
– Customers
– Suppliers
– Bankers
– Government agencies
– Competitors
19
ETHICAL ISSUES IN BUSINESS
• Ethical issue is an identifiable problem,
situation or opportunity that requires a
person to choose from among several
actions that may be evaluate as right or
wrong, ethical or unethical
20
ETHICAL ISSUES IN BUSINESS
• Abusive and intimidating behaviour
– Physical threats, insults, profanity, yelling
• Conflict of interest
– Whether to advance a person’s personal
interests or those of others
– Separate personal financial interests from
business dealings
– Example: bribes
21
ETHICAL ISSUES IN BUSINESS
• Fairness and honesty
– Relate to the general values of decision
makers
– Not to harm customers, clients or competitors
• Communications
– False and misleading advertising
– Truthfulness about product safety
• Business relationship
– Behaviour
of
businesspersons
toward
customer, suppliers and other in workplace 22
IMPROVING ETHICAL BEHAVIOUR
IN BUSINESS
• Code of ethics
• Policies on ethics
• Ethics training programs
23
NATURE OF
SOCIAL RESPONSIBILITY
• Economics
– Earning profits
• Legal
– Obeying the law
• Ethical
– Doing what is right, just and fair
• Voluntary
– Being a good citizen
24
SOCIAL RESPONSIBILITY ISSUES
• Relations with owners and stockholders
• Employee relation
• Consumer relation
• Environmental issues
• Community relations
25
CHAPTER 5
TYPES OF BUSINESS
26
SOLE PROPRIETORSHIP
• Owned by one person
• Advantages:
– Total independence in making decisions
– Sole ownership of profits
– Pay only personal income tax and not
business tax
– Low set-up cost
27
SOLE PROPRIETORSHIP
• Disadvantages:
– Entirely responsible for debts and risks
– Unlimited personal liability
– Limited access of capital
– Limited skills and capabilities
– Feeling of isolation
– Short life of business
28
PARTNERSHIP
• Owned by two or more persons
• Partners are joint owners of the business
and share profits, loses and risks
• Not a separate legal entity from its owner
• Types of partners:
– Limited partner
– General partner
29
PARTNERSHIP
• Advantages:
– Easy and cheap set-up cost
– Able to raise more capital
– Tax advantage
• Disadvantages:
– At least one partner has unlimited liability
– Lack of continuity
– Difficulty to raise large sum of capital
– Bound by the act of one partner
30
CORPORATION
• Legal entity separate from its constituent
members
• Formed by several persons who are able
to own property, draw contracts and
employ people
• Three types of corporation:
– Limited by shares
– Limited by guarantee
– Unlimited corporation
31
CORPORATION
• Advantages:
– Limited liability
– Easy to raise capital through sale of shares
– Able to transfer ownership
– Relative permanence of existence
– Increase expertise and skills
– Able to delegate authority
32
CORPORATION
• Disadvantages:
– Activities limited by law
– Costly incorporation process
– Double taxation
– Loss of control by the founder
– Regulation
33
SMALL BUSINESS
• Independently owned and operated
business that is not dominant in its
competitive area and does not employ
more than 500 people
• Advantages:
– Independence
– Costs
– Flexibility
– Focus
– Reputation
34
SMALL BUSINESS
• Disadvantages:
– High stress level
– High failure rate
• Undercapitalization
• Managerial inexperience or incompetence
• Inability to cope with growth
35
MULTINATIONAL CORPORATION
• Firms having operations in more than one
country, international sales and a
nationality mix of managers and owners
• Examples:
– International computer goods
– Electronics goods
– Consumer goods
• Depends on the international market for a
large percentage of their total revenue
36
CONGLOMERATES
• A company that consists of multiple
distinct businesses
• Unrelated businesses
• Large and can be formed by merging more
than three businesses together
•
• The term may also refer to a multi-industry
37
company
CONGLOMERATES
• Advantages:
– Allow capital to be allocated in a more
efficient way
– More efficient allocation of capital
• Disadvantages:
– Lack of focus and inability to manage
unrelated businesses equally
– Stocks are usually penalized by the market
38
CO-OPERATIVES
• Composed of individuals or small
businesses that have banded together
• The set-up is not to make money
• The creation is to create enough profit to
maintain the organization
• It can help distribute the products of its
members
39
CHAPTER 6
THE BASIC BUSINESS PROCESS
40
INPUT-OUTPUT MODEL
• Inputs
• Transformation or conversion
• Outputs
41
INPUTS
• Labour
• Money
• Materials
• Energy
42
CONVERSION PROCESS
• Combines inputs in predetermined ways
using different equipment, administrative
procedures and technology to create
products
• To ensure that the process generates
quality products, control must be made
43
CONVERSION PROCESS
• Take measurements at various points
• Take actions for any deviation
• Different types of transformation process
take place in different organizations
44
OUTPUTS
• Final products differ from each other
• Human and technological
associated with a service
elements
• Customer services
45
MANAGING
THE BUSINESS PROCESS
• Process focus
• Product focus
• Repetitive focus
46
CHAPTER 7
MANAGING THE OPERATIONS
OF BUSINESS
47
OPERATIONS MANAGEMENT
• Sets of activities that creates goods and
services through the transformation of
inputs into outputs
• Deals with the design, direction, control,
integration and improvement of the
processes
• The main goal is to ensure the efficient
transformation of production
48
OPERATIONS MANAGEMENT
• Doing of work for things like superior
quality, speed-to-market, low costs
• Excellence in operations can become a
competitive advantage
• Closely coordinated with inventory control
49
GOALS OF OM
• Productivity
• Quality
• Innovation
• Customer satisfaction
• Profitability
50
TECHNOLOGY IN OM
• To meet customer requirements, lower
costs and higher quality
• Machines without computer memory but
controlled by magnetic tape which called
numerical control machines
• Robots
• Flexible manufacturing system
51
QUALITY IN OM
• What is quality?
• Why is it important?
• Two ways quality can improve profitability
– Market gains
– Reduced costs
52
QUALITY MANAGEMENT
• Reflects the degree to which a good or
service meets the demands and
requirements of customers
• Quality control refers to the processes an
organization uses to maintain its
established quality standards
53
QUALITY MANAGEMENT
• TQM involves coordinating efforts to:
– Improve customer satisfaction
– Increase
employee
participation
and
empowerment
– Form and strengthen supplier partnerships
– Foster an organizational culture of continuous
quality improvement
• TQM should be incorporated throughout
the transformation process
54
POINTS FOR IMPLEMENTING
QUALITY IMPROVEMENT
•
•
•
•
•
•
•
•
Create consistency of purpose
Lead to promote change
Build quality into the produce
Build long-term relationships
Continuously improve
Start training
Emphasize leadership
Drive out fear
55
POINTS FOR IMPLEMENTING
QUALITY IMPROVEMENT
•
•
•
•
•
•
Break down barriers between departments
Stop haranguing workers
Support, help and improve
Remove barriers to pride in work
Institute a vigorous program
Work on the transformation
56
QUALITY MANAGEMENT
• Establishing standards – ISO
• Inspection
• Sampling
• Benchmarking
• Continuous improvement
57
BUSINESS PROCESS
REENGINEERING
• Time-function mapping
• Work-flow analysis
– Request
– Negotiation
– Performance
– Acceptance
58
HIGH-TECH MANUFACTURING
• Computer-aided design
• Computer-aided manufacturing
• Computer-integrated manufacturing
59
BENEFITS OF CAD/CAM
• Product quality
• Shorter design time
• Database availability
• New range of capabilities
60
JUST-IN-TIME
• Eliminates manufacturing wastes
• Also known
stockless
as
lean
production
or
• Can be implemented with high level of
commitments
61
INVENTORY MANAGEMENT
• Functions of inventory:
– Provide a stock of goods
– To permit operations to continue smoothly
– To take advantages of quantity discounts
– To protect against shortages
• Types of inventory:
– Raw material inventory
– Work-in-process inventory
– Maintenance/Repair/Operating supply
– Finished goods inventory
62
SUPPLY CHAIN MANAGEMENT
• A supply function of operations
• Connecting and integrating all parties /
members of the distribution system, to
satisfy customers
• Also known as logistics
• Includes all activities and get them to
customers
• Integrates firms into seamless flow of
information and products
63
SUPPLY CHAIN MANAGEMENT
• To control inventory by managing the
flows of materials
• Involves overseeing and controlling
materials, information and finances
• Involves coordinating and integrating the
flows both within and among companies
• Material
suppliers
manufacturer
distributors
wholesaler
retailer
customers
64
SUPPLY CHAIN MANAGEMENT
• Purchasing
• Managing inventory
• Outsourcing
• Routing and Scheduling
65
PURCHASING
• Buying
all
organization
materials
• Materials of desired
quantities, lowest cost
needed
quality,
by
right
• Either make some components, purchase
or lease
66
PURCHASING STRATEGIES
• Many suppliers
• Few suppliers
• Vertical integration
• Keiretsu networks
• Virtual companies
67
MANAGING INVENTORY
• Every raw material, component, completed
or partially completed product, must be
accounted
• Three basic types of inventory:
– Finished-goods inventory
– Work-in-process inventory
– Raw materials inventory
68
MANAGING INVENTORY
• Inventory control:
– Process of determining how many supplies
and goods needed
– Keeping track of quantities on hand
– Where each item is
– Who is responsible for it
• Economic Order Quantity Model
• Just-in-Time Inventory Management
• Material-requirements Planning
69
OUTSOURCING
• Contracting of manufacturing or tasks to
independent companies
• Cost-cutting tactic
• Allows organizations to boost productivity
and remain competitive
• May create conflict
70
ROUTING AND SCHEDULING
• Routing is the sequence of operations
through which the product must pass
• Scheduling assigns the tasks to be done
to departments or specific machines,
workers or teams
• Approaches to scheduling:
– Trial and error
– PERT
71
CHAPTER 8
BUSINESS STRATEGY
72
WHAT IS STRATEGY
• Ideas, plans and support
organizations
employ
to
successfully against their rivals
that an
compete
• To help organizations achieve competitive
advantage
73
STRATEGY CONCEPT
• Distinctive competence
– Enable a firm to distinguish itself from its rival
– Examples:
special
capabilities,
skills,
technologies
• Terrain
– Environmental
setting
in
which
an
engagement with an adversary takes place
– Targeting market segments and to win
customers
74
FACTORS THAT SHAPE A
FIRM’S STRATEGY
• Societal, Political, Regulatory, Citizenship
Considerations
• Competitive Conditions and Overall
Industry Attractiveness
• Firm’s market opportunities and external
threats
• Personal ambitions, business philosophies
and ethical beliefs of managers
• Influence of shared values and company
75
culture on strategy
LEVELS OF STRATEGY
• Corporate strategy
• Business strategy
• Functional strategy
• Operating strategy
76
CORPORATE STRATEGY
• The moves made to establish business
positions in different industries
• The approaches used to manage the
company’s group of businesses
• Involves four kinds of initiatives:
– Establish positions
– Initiating actions
– Capture cross-business strategic fits
– Establishing investment priorities
77
BUSINESS STRATEGY
• Also known as business-level strategy
• Managerial plan for a single business
• Core elements:
– R&D strategy
– SCM strategy
– Manufacturing strategy
– Financial strategy
– Human Resources strategy
78
FUNCTIONAL STRATEGY
• Managerial plan for a particular functional
activity, business process or key
department within a business
• Support the business strategy
• The manager of a particular business
function
works
closely
with
key
subordinates
79
OPERATING STRATEGY
• Strategic initiatives and approaches for
managing key operating units and
handling daily operating tasks
• The bottom
pyramid
of
the
strategy-making
• Support the higher-level strategies
80
STRATEGIC MANAGEMENT
PROCESS
• A management process designed
achieve firm’s vision and mission
to
• Consists of four steps:
– Analysis
– Formulation
– Implementation
– Adjustment/Evaluation
81
ANALYSIS OF
BUSINESS STRATEGY
• PEST Analysis
• Porter’s Five Forces Model
• SWOT Analysis
• Value Chain Analysis
82
PEST ANALYSIS
• Stands for Political, Economic, Social, and
Technological analysis
• Strategic tool for understanding market
growth or decline, business position,
potential and direction for operations
• The model's factors will vary in importance
to a given company based on its industry
and the goods it produces
83
PORTER’S FIVE FORCES MODEL
• Potential entrants
• Competitors
• Buyers
• Suppliers
• Substitutes
84
SWOT ANALYSIS
• Strengths
• Weaknesses
• Opportunities
• Threats
85
VALUE CHAIN ANALYSIS
• Primary activities
– Inbound logistics
– Operations
– Outbound
– Marketing/Sales
– Services
• Support activities
– Infrastructure
– Human Resources Management
– Technology development
– Procurement
86
GENERIC BUSINESS STRATEGIES
• Low-cost leadership strategies
• Differentiation strategies
• Focus strategies
87
LOW-COST LEADERSHIP
STRATEGIES
• Firm’s ability to provide a product or
service at a lower cost than its rival
• To acquire a substantial cost advantage
over other competitors that can be passed
on to consumers to gain a large market
share
• The products or services are standardized
and not customized to an individual
customer’s tastes, needs or desires
88
LOW-COST LEADERSHIP
STRATEGIES
• Advantages:
– Strong relationship between high market
share and high profitability
• Risk avoidance by customers
• Strong market presence
• Disadvantages:
– High level of asset commitment
– Cost reduction methods are easily imitated or
copied by other firms
89
DIFFERENTIATION STRATEGIES
• Based on providing buyers with something
different or unique
• Customers are willing to pay higher price
for a product that is distinct
• Customers more loyal
• Products
more
innovative
design,
produced using advanced materials or
quality process
90
DIFFERENTIATION STRATEGIES
• Advantages:
– Allows firms to insulate themselves from
competitive rivalry in the industry
– Customers are less sensitive to prices
• Disadvantages:
– Other firms may attempt by providing a similar
or better product
– Difficulty in sustaining a price minimum
91
FOCUS STRATEGIES
• To help a firm target a specific niche within
an industry
– Particular buyer group
– Narrow segment of a given product line
– Geographic market
• To specialize the firm’s activities in ways
that other broader-line firms cannot
perform as well
92
FOCUS STRATEGIES
• Advantages:
– Able to carve market niche against larger,
broader-line competitors
– Improve other sources of value-adding
activities that contribute to cost or
differentiation
• Disadvantages:
– Risk that the market niche may shift more
toward characteristics of broader market
93
CORE COMPETENCIES
• Something that a company does well
relative to other internal activities
• Can relate to any of several aspects of its
business
• Gives a company competitive capability
94
OTHER BUSINESS STRATEGIES
• Process-based strategy
• Portfolio management
95
GROWTH STRATEGIES
• Focus on better customers
• Superior new product development
• Channel management
• New markets
• Acquisitions
96
CHAPTER 9
INFORMATION TECHNOLOGY
FOR BUSINESS OPERATIONS
AND DECISION MAKING
97
WHAT IS TECHNOLOGY?
• The process by which humans modify
nature to meet their needs and wants
• Includes all of the infrastructure necessary
• A product of engineering and science
98
INFORMATION TECHNOLOGY
• The collection of computer systems used
by an organization
• Includes hardware, databases, software,
networks and other devices
99
ADVANTAGES OF IT
•
•
•
•
•
•
Communication flows
Sharing knowledge and building ideas
Digital process
Route customer complaints immediately
Decrease cycle-time
Delivery of sales and services
100
NEGATIVES OF IT
•
•
•
•
•
Illegal copying of software programs
Surveillance of employees’ e-mails files
Information anxiety
Job stress
Dehumanization
101
CHAPTER 10
MARKETING
GOODS AND SERVICES
102
WHAT IS MARKETING
• A group of activities designed to expedite
transactions by creating, distributing,
pricing and promoting goods, services and
ideas
• An organizational function for creating,
communicating and delivering value to
customers
• To manage customer relationships
103
WHAT IS MARKETING
• Art of selling products
• Peter Drucker:
– To know and understand the customer so well
that the product or service fits him and sells
itself
– Customer is ready to buy
– To make the product / service available
104
MARKETING ORIENTATION
• Requires organizations:
– To gather information about customer needs
– Share
information
throughout
entire
organization
– Use the information to help build long-term
relationships with customers
• Top Executives, Marketing Managers,
Non-marketing Managers, Customers
105
MARKET SEGMENTATION
• Dividing a big market into smaller groups
of buyers
• Ways of segmenting consumer markets:
– Geographic
– Demographic
– Psychographic
– Behavioural
– Multiple
– Segmenting business market
106
MARKETING MIX
• Product
• Price
• Place (distribution channels)
• Promotion
107
PRODUCT
• Anything that a person receives in an
exchange between marketer and customer
• Classification of consumer products:
– Convenience products
– Shopping products
– Speciality products
– Unsought products
108
PRODUCT
• Product items, lines and mixes:
– Product item
– Product lines
– Product line depth
– Product mix
– Product mixed width
• Branding:
– Benefits of branding
– Branding strategies
109
PRODUCT
• Packaging:
– Functions of packaging
• Product life cycle:
– Introduction stage
– Growth stage
– Maturity stage
– Decline stage
110
PRICE
• Amount of money charged for a product or
service
• Factors to consider when setting prices:
– Internal factors:
•
•
•
•
Objectives of marketing
Marketing mix
Operation cost
Size of organization
– External factors:
• Nature of market
• Competition
• Other factors
111
PLACE
• Also known as distribution channel
• Products and services are available to
final customers
• Number of channel levels
• Channel conflict
112
PLACE
• Conventional distribution channels
• Vertical marketing system
• Channel design decisions
113
PROMOTION
• Marketing communication programmes
• Promotion tools:
– Advertising
•
•
•
•
Information advertising
Persuasive advertising
Comparative advertising
Reminder advertising
114
PROMOTION
– Sales promotion
• Consumer promotions
• Trade promotions
• Sales force promotions
– Public relations
•
•
•
•
Speeches
Buzz marketing
Corporate identity materials
Mobile marketing
115
PROMOTION
– Personal selling
•
•
•
•
•
•
Identifying and qualifying potential customers
Gathering information
Approaching customer
Presenting and demonstrating
Closing
Follow-up
– Direct marketing
• Benefits for buyers
• Benefits for sellers
• Forms of marketing
116
MARKETING STRATEGY
• Plan of action for developing, pricing,
distributing and promoting products that
meets the needs of specific customers
• Understanding external environment
• Selecting target market
• Developing marketing mix
• Creating a competitive advantage
117
MARKETING ENVIRONMENT
• Micro environment
– Company
– Suppliers
– Marketing intermediaries
– Customers
– Competitors
– Publics
118
MARKETING ENVIRONMENT
• Macro environment
– Demographic
– Economic
– Natural
– Technological
– Political
– Cultural
119
TARGET MARKET
• Set of customers sharing the same needs
and wants
• Selecting target market segments:
– Undifferentiated marketing
– Differentiated marketing
– Concentrated marketing
– Micromarketing
120
MARKETING PROCESS
• Understand customers
• Design the marketing strategy
• Construct marketing program
• Build strong relationship
• Create customer value
121
CUSTOMER AND
MARKETPLACE CONCEPT
• Customer needs, wants and demands
• Products, services and experiences
• Customer value and satisfaction
• Exchanges and relationships
• Markets
122
EVOLUTION OF MARKETING
• Production concept
• Product concept
• Selling concept
• Marketing concept
• Societal marketing concept
123
CONSUMER MARKET
• Individuals, groups and households who
buy goods or services for own use
• Buyer decision process
– Recognize the need
– Search for information
– Evaluation alternatives
– Purchase
– Post purchase behaviour
124
DIRECT MARKETING
• The use of consumer-direct channels
• One of the fastest growing avenues for
serving customers
• Sales have been growing rapidly
• Sales to consumer market, B2B, fundraising by charitable institutions
125
E-MARKETING
• Application of marketing principles and
techniques via electronic media
• Also known as internet marketing and
online marketing
• The process of marketing a brand using
the Internet
• Give businesses access to the mass
market at an affordable price
126
CHAPTER 11
DOING GLOBAL BUSINES
127
WHY GO INTERNATIONAL
• No country can produce all goods and
services that its society needs
• Resources vary among nations
• Goods that cannot be produced by a
country may be made available for
consumption by importing from another
producing country
128
WHY GO INTERNATIONAL
•
•
•
•
Increasing competition
New markets for profits
Reducing cost
Enabling factors
– Transportation
– ICT
– Globalization
– WTO
– Government intensive
– Trading blocks
129
FACTORS TO CONSIDER
WHEN GOING GLOBAL
• Politics and government policies
• Business potential
• Culture
• Business infrastructure
• Foreign exchange risks
130
STRATEGIES FOR ENTERING
FOREIGN MARKETS
• Exporting
• Joint ventures
• Licensing
• Franchising
• Wholly owned foreign subsidiary
131
TYPES OF COMPANIES
• Multinational
• Global
• International
• Transnational
132
CHAPTER 12
FINANCING BUSINESS AND
MANAGING MONEY
133
CAPITAL
• The money the organization uses to fund
the business activities or expenditures
• Sources of capital:
– The owners
– The creditors
134
CAPITAL
• Long-term funds of the firm
• One of the most complex areas of financial
decision making
• Financial manager must be able to assess
the firm’s capital structure
• Poor capital structure decisions can result
in a high cost of capital
• Effective decisions can lower the cost of
capital
135
TYPES OF CAPITAL
• Debt capital
– Long-term borrowing incurred by the firm
• Equity capital
– Long-term funds provided by the firm’s owner
• Debt-equity ratio
– The relationship between long-term funds
provided by creditors and firm’s owners
136
SHORT-TERM FUNDS
• Bank loans
• Trade credits
• Commercial paper
• Factoring
137
LONG-TERM FUNDS
•
•
•
•
•
•
•
Common stock
Preferred stock
Bonds
Retained earnings
Venture capital
Leasing
Writing a Business Plan to raise capital
138
WORKING CAPITAL
• Current liability
• Current assets
• Managing working capital
139
CAPITAL STRUCTURE
• Proportion of equity and debt that makes
up the capital of the organization
• Risky to have a high proportion of debt
instrument
• Equity will not be paid back
140
CAPITAL STRUCTURE
• Types of debt instrument:
– Bond
– Bank term loan
– Inter-company loan
141
COST OF CAPITAL
• It acts as a major link between the firm’s
long-term investment decision and the
wealth of the owners as determined by
investors in the marketplace
• Can be used to decide whether a
proposed corporate investment will
increase or decrease the firm’s stock price
142
COST OF CAPITAL
• The rate of return that a firm must earn on
its project investments to maintain the
market value of its stock
• Basic structure of cost of capital:
– Business risk
– Financial risk
– After-tax costs
143
INVESTMENT CONSIDERATIONS
• Return
• Risk
• Liquidity
144
INVESTMENT ANALYSIS TOOLS
• Simple interest
• Compound interest
• Pay-back period
• Net Present Value
• Internal Rate of Return
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TIME VALUE OF MONEY
• Future value:
– Measured at the end of a project’s life
– Cash you will receive at a given future date
• Present value:
– Measured at the start of a project’s life
– Cash you have in hand today
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TIME VALUE OF MONEY
• Concept of future value:
– Compound interest
– Principal
• Concept of present value:
– Discounting cash flows
– Rate of return
147
FINANCIAL CONTROLS
• Budget
• Audit
• Policies and Procedures
148
CHAPTER 11
MANAGING
THE BUSINESS ENTERPRISE
149
WHAT IS MANAGEMENT?
• Mary Parker Follet
– Art of getting things done through other
people
• George R. Terry
– A process consisting of planning, organizing,
actuating and controlling, performed to
determine and accomplish the objectives by
the use of people and resources.
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WHAT IS MANAGEMENT?
• Donnelly
– A process undertaken by one or more
individuals to coordinate the activities of
others to achieve results not achievable by
one individual acting alone
• What managers do
• Ensuring that work activities are
completed efficiently and effectively by
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people responsible for doing them
WHAT IS MANAGEMENT?
• A continuous, ongoing process
• A goal-directed activity
• Uses of various organizational resources
152
WHY IS MANAGEMENT
IMPORTANT?
• Critical element in the economic growth of
the country
• Essential in all organized effort
• Dynamic, life giving element in every
organization
• The reality of work
• Rewards and challenges of being a
manager
153
TYPES OF MANAGERS
• Top-Level Managers
• Middle-Level Managers
• First-Level Managers
154
MANAGERIAL SKILLS
• Technical Skills
• Human Skills
• Conceptual Skills
155
MANAGERIAL ROLES
• Interpersonal Roles
• Informational Roles
• Decisional Roles
156
MANAGEMENT FUNCTIONS
• Newman and Summer
– Planning, Organizing, Leading, Controlling
• Luther Gullick
– Planning, Organizing, Staffing, Directing,
Coordinating, Reporting, Budgeting
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MANAGEMENT FUNCTIONS
• Warren Haynes and Joseph Massie
– Decision
Planning,
Directing
making, Organizing, Staffing,
Controlling,
Communicating,
• Henri Fayol
– Planning,
Organizing,
Coordinating, Controlling
Commanding,
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MANAGEMENT FUNCTIONS
• Planning
– Setting
objectives
and
strategies
accomplish them
– Guide employees’ behaviour and actions
– Managers at different levels are involved
– Must support organization’s mission
to
• Organizing
– Process of arranging and coordinating
organizational resources
– Allows cooperation between members and
motivates members to work together
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MANAGEMENT FUNCTIONS
• Leading
– Process
of
motivating
and
inspiring
subordinates
– Good leaders can lead, guide and inspire
people
• Control
– Final link in management function
– Effective control systems allow managers to
know how well plans being implemented
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MOTIVATING EMPLOYEES
• Driving force that is capable of bringing out
the best in people
• A highly motivated person always strive to
work harder than an unmotivated person
• Two theories:
– Hierarchy of Needs Theory
– Motivator-Hygiene Theory
161
MASLOW’S HIERARCHY NEEDS
• Physiological needs
• Safety needs
• Social needs
• Esteem needs
• Self-actualization needs
162
MOTIVATOR-HYGIENE THEORY
• Also known as two-factor theory
• Intrinsic factors are related
satisfaction (motivators)
to
job
• Extrinsic factors are related
dissatisfaction (hygiene factors)
to
job
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