CONTENTS
INTRODUCTION
Chapter 1
xiii
Business Management
The Environment of Business
Background of the American Economic System
1
1
2
The Economic System
3
The Social Environment
5
The Legal Environment of Business
6
The Technological Environment
7
The Personal Computer Hardware
7
Internal and External Memory
7
Personal Computer and Software
7
Computer Software and Programming Languages
8
Computers and Information Management
8
Down Side of the Personal Computer
8
Information Management and The Internet
9
Forms of Business
10
Sole Proprietorships
10
Partnerships
11
Corporations
12
Limited Liability Company (LLC)
13
Ethics and the Business Environment
14
Corporate Social responsibility
15
Capitalism and Ethics
16
Individual Employee Values and the Organization
18
Sources of Ethical Values
19
CHAPTER 2
ADMINISTRATIVE THEORIES
Classical Theory of Organization
Classical Theory
21
21
22
The future of Organizational Theory
22
The Elite Worker
23
People, Purpose, and Process
24
People
24
Purpose
25
Process
25
Organizational Structures
27
Organizational Culture
28
Patterns of Organization
29
Organization of the Future
33
Centralization Versus Decentralization
34
Benefits of Decentralization
Chapter 3
Management theory
35
37
Functions of Management
37
Management Styles
39
Scientific Management
39
Bureaucracy
40
Management by Objectives (M.B.O.)
40
Management Principles
41
Mechanistic Model
41
Contingency Model
42
Ethics and Employee Rights within the Organization
AIDS and Genetic Predisposition
42
43
Sexual Harassment
44
Equal Employment and affirmative Action
45
Women in Management
46
Whistle-Blowing
48
CHAPTER 4
MARKETING MANAGEMENT
49
Marketing Orientations
50
Consumer Behavior
51
Market Segmentation
55
Characteristics of a Market Segment
56
Target Market
57
Market Share
57
Controllable and Uncontrollable Environments
58
Marketing Strategies
59
Distribution Channels
61
Promotion
62
Product Life Cycle
65
Market Share and Product Life Cycle
66
New Product Development
67
Ethical Marketing and Advertising Decisions
68
CHAPTER 5
PRODUCTION MANAGEMENT
71
Manufacturing Processes
71
Characteristics of Production Systems
72
Production Process
73
Production Planning
73
Materials Handling
74
Just-In-Time Production
75
Principles of Lean Production
75
MRP II (Manufacturing and Resources Planning System)
76
Manufacturing and Total Quality Management (TQM)
76
Total Quality Control
77
CHAPTER 6
FINANCIAL MANAGEMENT
79
Value Maximization
79
Accounting and Finance
80
The Balance Sheet
80
Income Statement
81
Cashflow Statement
81
Taxation
83
Corporate Financing
83
Types of Financing
Financing Planning
83
85
Managing Working Capital
85
Working Capital and the Matching Concept
85
Cash Budgeting
85
Financial Analysis
Financial Analysis Methods
87
87
Leverage Ratios
89
Liquidity Ratios
90
Efficiency Ratios
Profitability Ratios
91
Market Value Ratios
91
Time Value of Money
93
Future Value of an Investment
93
Present Value of an Investment
93
Ethics of Financial Accounting
CHAPTER 7
90
INTERNATIONAL BUSINESS ISSUES
The multinational Enterprise
Global Strategies
94
97
97
98
Strategic Alliances
98
Global Opportunities
100
Benefits to Host Countries
102
Criticisms Against MNEs
103
Inflation and Foreign Exchange Risk
103
Balance of Payments
104
Debits, credits, and Equilibrium
104
Environment of International Business
105
Types of Political Systems
105
Modes of Entry into Foreign Markets
106
Some Key International Issues
107
Trade Agreements and Economic integration
108
North American Free Trade Agreement
108
NAFTA Issues
109
The European Union (EU)
110
Japanese/U.S. Trade Relations
111
A Chronology of the Struggle
Ethics of International Business
BIBLIOGRAPHY
INDEX
117
111
113
115
BUSINESS
MADE
EASY
Dr Abiola O Awosika-Fapetu
RECTOR: Olawoyin Awosika School of Innovative Studies
ACKNOWLEDGEMENTS
My thanks go to everyone who made this work possible.
DEDICATION
To God and Humanity.
Introduction
Business organizations are an integral part of our everyday lives. From the mom & pop store to
the large corporation, from the profit oriented to the not-for-profit organization, we inevitably
have to deal with them every day. We either seek their services or work in them.
Businesses should be thought of as nothing but people. Each organization is made up of
different groups of people organized to attain a common goal. All business activities are aimed
at the satisfaction of one human need or another. Businesses are organized so as to make
effective use of the factors of production which are: Land, Labor, Capital and Entrepreneurship
(the ability to organize and get things done).
“KEEP IT SIMPLE”
The aim of this book is to help the business practitioner who does not have the time to read
voluminous texts, as well as the student who needs a quick overview, to see the workings of a
business organization at a glance. This book does not aim to make a specialist out of the reader,
but serves as a tool to help the reader understand how the different aspects of a business
organization fit together. Businesses today must be aware of their public and their desires.
Ethical questions continue to come up in various areas and disciplines that make up the
business enterprise. The approach is to examine the ethics of each section at the end of each
chapter of the book. The book seeks to highlight the quadruple bottom line of profitability,
corporate responsibility, sustainability, and spirituality.
CHAPTER 1
1
BUSINESS MANAGEMENT
Society has many needs that must be met. Needs such as security, safety, spiritual,
educational, transportation, communication, health care, and environmental protection must
be met. These needs are met by various institutions in the social system, such as family, church,
local government, state government, federal government, business enterprises, including
profit, and not-for-profit.
THE ENVIRONMENT OF BUSINESS
Businesses are usually affected by four major systems in the environment. The social system,
legal and political system, economic system, and technological process.
As a result of the above mentioned needs, and because resources are scarce, the society must
answer three main questions: (1) what are we to produce, (2) how should we produce it, (3) for
whom shall we produce it?
Approaches.
There are three major approaches to allocating these scarce resources which thereby answer
the three questions mentioned earlier.
1. Capitalism – This is a system where market forces ensure that the right goods, in the
right quantities, and at the right price are produced for the right group of people. There
is very little government intervention, and there is freedom of choice.
2. Socialism - With socialism, there is significant government intervention. This approach
seeks “the greater good to the greater number of people”.
3. Communism - Gives total control to the government. The government decides what to
produce, how to produce it, and for whom to produce.
It is necessary at this point to say that there are no pure capitalist or communist societies.
Welfare capitalism has replaced the two. With welfare capitalism, the government controls
certain aspects of the economy in order to ensure that less fortunate citizens are cared for.
BACKGROUND OF THE AMERICAN ECONOMIC SYSTEM
The government and businesses are the sole suppliers of society’s needs. In the past, such
needs were met in two ways:
Traditional: The son follows his father into the same line of work. This ensures a
continuous supply of doctors, lawyers, technicians, teachers, etc.
Central Authority: The central authority determines each individual’s contribution to
society.
When the U.S.A started, it obviously did not fit into the two molds for the following
reasons:
1. The first generation Americans had not built the same tradition that was already in
existence in Europe.
2. The way America’s industries were developing required new skills that could not be
handed down.
3. Finally, yielding to a central authority was contrary to American values.
A different approach was needed. A Scotsman by the name of Adam Smith saved the day. Smith
reckoned the laws of the market will ensure that the necessary tasks get done if permitted to
work. The only conditions were:
1. The Laissez Faire - This calls for a hands-off policy from the government in the affairs of
businesses.
2. Self-interest - Each individual seeks to maximize his personal gains as he satisfies the
needs of society.
3. Competition - Forces of supply and demand will regulate the quantity of goods
produced and the prices charged.
THE ECONOMIC SYSTEM
In this system, competition, factors of production and price come into play.
Competition:
Some criteria for competition include:
1. Adequate number of buyers and sellers.
2. Freedom and intelligence of choice on the part of buyers and sellers.
3. Ease of entry, or barriers to entry for those who may wish to participate in the same
market.
4. Efficient use of resources.
5. Benefits of existing conditions to the community.
Factors of Production: These include land, capital, labor and entrepreneurship. The cost
of land is rent, the cost of labor is wages, the cost of capital is interest, and the cost of
entrepreneurship (organizer and risk-taker) is profit. All costs must be weighed in order to
determine the best mix to operate.
Prices: These are affected by various activities in the environment of business. Prices of
goods are determined by market structure, be it competitive or monopolistic, and also by
consumers’ freedom to decide not to buy when prices are too high. Price of labor depends on
the supply of labor, union activities and technology, while prices of capital are determined by
interest rates, the propensity to save and to invest.
Technology. This is an area that has greatly impacted businesses. Technology today has
redefined the way we do business. Listed below are some of the benefits and problems created
by technological development.
Benefits:
1. Increased supply of goods and services.
2. Provided efficient use of resources.
3. Reduced real prices.
4. Increased living standards.
5. Decrease prolonged manual labor.
6. Reduced labor hours.
7. Changed where we do business – at home, or airplanes, in cyberspace, and just about
anywhere you can hook up a computer.
Problems:
Developments in technology, however, do not come without drawbacks.
1. They are capital intensive, and require large sums of money to create.
2. There is the constant risk of obsolescence.
Hurry up!!
Doctor Fapetu
Just Gave Us
Another Assignment!
4. It has altered the relationship between employers and employees more so today than at
any other time. Plant closures and downsizing are being blamed on improved
technology.
Technological Advances Depend on:
1. Sound population foundation.
2. Availability of resources, which could be natural or acquired through technological
development.
3. Educational facilities.
4. Encouragement of individual creativity.
THE SOCIAL ENVIRONMENT
Social System: This system is characterized by culture, attitudes, education, religion, language,
and nationality to name a few. The impact of socio-cultural issues on businesses will be
discussed later.
THE LEGAL ENVIRONMENT OF BUSINESS
Legal and Political System: Businesses are governed by public and private laws.
Public Laws Include:
1. Constitutional laws which state the powers of federal and state governments.
2. Administrative laws which regulate officials and boards, and other commissions.
3. Criminal laws which forbid and punish behavior that is detrimental to society’s wellbeing. They regulate the social structure.
Private Laws Govern:
1. Contractual relations as in the Law of Contracts. For example, a valid contract can be implied
or specified. Four elements must be present for a contract to be binding:
a. Meeting of the minds – both parties must have the same understanding as to the
terms of the contract.
b. Offer – one person must make an offer.
c. Acceptance – the other must accept.
d. Consideration – something of value must be given up for the contract to be valid. It
however does not matter the magnitude of the consideration. The courts once ruled
that a penny was enough consideration for a contract to buy a house.
2. Behavior of agents as in the Law of Agency. Agents are intermediaries in business
transactions. They represent others known as principals. Principals are therefore vicariously
liable for the actions of their agents in the normal course of their duties.
3. Ownership as in the laws of real and personal property.
4. Business obligations such as Laws of Business Associations.
THE TECHNOLOGICAL ENVIRONMENT
Information management in the 90s is a far cry from what it was in the 60s or even the 70s. We
have moved away from the world of the Rolodex and file cabinets into the personal computer
and neural network age. Workers are no longer writing memoranda; they send e-mail across
the hall. The invention of the computer chip continues to enhance our personal and work lives.
Let us examine the internal workings of the personal computer.
The Personal Computer Hardware
The personal computer is a communication system. Like any other communication system, the
computer set up must have an input device, processing device and an output device. Input
devices include the keyboard, floppy disk, or the CD-ROM. These are devices used to send
messages to the processing unit. The processing unit in a computer is known as the Central
Processing Unit (CPU) and is the “brain” of the computer. Data is usually manipulated in the
CPU and prepared for output. The output device then displays the outcome of the data
processing. The output device in a computer set up is either the monitor (a TV-like screen) or
the printer. Output on a monitor is usually temporary and is usually deleted when the
computer is turned off. Output on printer is similar to that of a typewriter and is permanent.
The input device, the CPU, and the output device are considered hardware.
Internal and External Memory
The central processing Unit serves as the memory bank for the computer. The computer
memory is divided into two, Read Only Memory (ROM), and Random Access Memory (RAM).
The read only memory is where the computer holds its operation instructions and is therefore
permanent. The random access memory is where the computer manipulates data temporarily.
Unless saved onto a secondary memory device such as a floppy disk or a hard drive, the data or
information will be lost when the computer is turned off.
Personal Computer and Software
Software is the name given to programs that enable the user to manipulate data in different
ways. There is software for word processing, spreadsheets, games, graphics, statistical analysis,
and data base management to name a few. The computer needs the software to run. Without
it, the computer is just an empty shell. Software is developed using one of several programming
languages such as Basic, Java, C++ etc.
Computer Software and Programming Languages
Programming languages are languages used when communicating with the computer.
Developments in programming continue to advance in great strides. Regardless of the ease or
complexity of the language however, it all boils down to the fact that the computer only
understands two states of affairs, “on” and “off”. Programmers therefore use binary language
(counting in twos) instead of decimals (counting in tens).
Computers and Information Management
Whereas businesses in the past used several devices for managing information (typewriter,
note taking pads, pens and pencils, legers, filing cabinets etc.) the computer has combined all
the old devices into one. The computer now makes information storage and retrieval easy.
Consequentially decision making by management is easier and faster because of timely
information. It is also possible to store more information due to the high memory capacity of
today’s computers.
Down Side of the Personal Computer
There are numerous disadvantages to the vast developments in information technology
including:
1. Information overload – too much information. Some of which may be unnecessary.
2. Over-reliance on technology may lead to reduced productivity when the system is down.
3. Obsolescence – The life span on most computer hardware and software is getting shorter.
Many users barely have time to master a program before a newer version is introduced to the
market.
4. The paper-less economy anticipated has not developed so far. Paper movement in
organizations has not decreased.
5. Health issues have developed as a result of computer usage. Carpal Tunnel syndrome and
eyesight problems are among these. This means the work place must be changed to
accommodate employees with computer related illnesses. It may even be necessary to pay
workman’s compensation.
6. Computer usage has made it possible for external organizations to have access to
information about the company and its employees.
7. Increased cost is also attendant to computer usage. The cost of updating, training, and
securing the computer system continues to grow.
8. Security of information can be easily violated, and the magnitude of computer fraud is
relatively higher than in a non-computerized system.
Information Management and the Internet
Businessmen can no longer do business as usual when it comes to getting information to their
customers and associates within and across countries. The Internet and Intranet networks have
made the world a lot smaller. Many businesses are spending tremendous amounts of money to
communicate with their public, especially the consumer. The internet has made it easier and
cheaper for companies to reach more people within a short period of time.
The World Wide Web has made it possible to bring goods and services to the consumer’s living
room. Many services rendered in physical settings can now be rendered virtually. Book stores,
colleges and universities, lawyers, physicians, etc. are among those rendering their services online.
The information age is in full swing and there seems to be no stopping it. Businesses that do not
move with the times will be left behind or forced to exit the stage. It is expected that as the
technological environment develops, the cost of keeping up will be reduced thus making it
possible for even the smallest businesses to reap some of the benefits of this age.
FORM OF BUSINESS
Businesses can be classified in many ways. These include classifications by process (service,
merchandising and manufacturing): by size (market share, number of employees, or dollar
amount of sales); by industry (food, chemical, metal etc.); and by form (sole proprietorship,
partnership, or corporation).
Sole Proprietorships
Sole proprietorships are the easiest forms of business organizations. These are usually owned
the benefits minus the Internal Revenue Service’s cut. As a sole proprietor, you bear all
responsibility for the organization’s debts. Should you borrow funds from a bank, or owe
money to your creditors, you may be required to pay them back with your personal belongings.
In this regard, you have unlimited liability.
TABLE 1.1 THE PROPRIETORSHIP AT A GLANCE
Advantages
1.
2.
3.
4.
5.
6.
Simplicity of organization
Minimum legal restrictions
Individual accountability
Business gains are personal gains
Freedom to terminate the business
No double taxation (pays personal
But not business tax)
7. Freedom from government control
8. Personal satisfaction
Disadvantages
1.
2.
3.
4.
Unlimited liability of owner
Life of business is same as life of owner
Difficulty is raising additional capital
Success depends heavily on a single person
Partnerships
Partnerships are businesses owned by two or more persons. Partnerships are usually
started because two or more people wish to share the risk and responsibility of running
their own business. Needles to say, if they share the risks, they also get to share the profits.
Like the sole proprietor, should the business run into a tight spot, the partners must provide
the money to bail it out.
Partnerships usually have a document known as a partnership agreement which spells out
the way the business will be managed and the profit sharing ratios. Each partner pays
personal income tax on his or her share of the profits. Another form of partnership is the
limited partnership. The partners are classified as either limited or general partners. Only
the general partners are allowed to run the company, and they have unlimited liability. The
limited partners’ financial responsibilities are limited to the money they contribute to the
business. In the event that some partners are insolvent, the solvent partners’ assets are
subject to the insolvent partners’ share of liability.
Many professional businesses are partnerships. Law firms, accounting and auditing
firms, doctors offices, and investment management firms are some examples of
professional partnerships.
TABLE 1.2 THE PARTNERSHIP AT A GLANCE
Advantages
1.
2.
3.
4.
Diversified managerial talent
Greater financial resources
Simplicity of organization
Freedom from government control
Disadvantages
1. Unlimited liability
2. Divided authority
3. Limited and uncertain life
4. Difficulty in finding qualified and agreeable
Partners.
As firms grow, there may come a time when there is the need to raise more funds for
expansion. The need may exceed what the partners can come up with. They may then decide to
incorporate. A corporation is a business owned by shareholders. They have limited liability and
only earn dividends whenever the management of the corporation declares one. The rules that
govern a corporation are written in its Articles of Incorporation. The Articles set out the
purpose of the business, the number of directors to be appointed, and the number of shares to
be issued, among other things. The corporate Charter contains what the corporation can do,
while the corporate by-laws contain how the corporation should carry out its operations. The
corporation is considered a separate legal entity. This means that the corporation can sue and
be sued. It is treated as a person in its own right. It can borrow money, pay its own tax, but it
cannot vote.
The corporate form of organization separates ownership from management. The shareholders
own the corporation, but they must elect a board of directors who will oversee the
management of the organization. This feature gives the corporation more flexibility and
permanence because managers come and go, but corporation remains. Corporations by their
nature attract all sorts of investors, from owners of thousands of shares to those with just a few
hundred shares. The number of common stock owned determines the number of votes and the
proportion of profits to which a shareholder is entitled.
TABLE 1.3 THE CORPORATION AT A GLANCE
Advantages
1.
2.
3.
4.
Limited liability of owners
Specialized management
Ease of transferring ownership
Permanence of organization
Disadvantages
1. More government controls
2. Lack of uniform corporation code
3. Double taxation
4. No legal status outside the state of
Incorporation
Needless to say, there are disadvantages to this seemingly wonderful arrangement.
Corporations are subject to more public scrutiny than other forms of business. They also have
the problem of double taxation. The company pays taxes on its profits, and shareholders must
also pay taxes on the dividends received.
LIMITED LIABILITY COMPANY (LLC)
Limited Liability Companies are the new wave of business organization. They are a cross
between partnerships and sub-chapter S corporations. This form of organization comes with
most of the benefits of both, but with few of their drawbacks. They are so new however, that
care must be taken when using this form of business organization. Questions relating to the
Internal Revenue Service’s (IRS) treatment of LLC’s are yet to be answered. LLC rules differ from
state to state. How does a LLC file for bankruptcy? What are the tax consequences if a current
business changes to an LLC?
With the above problems in mind, we can now look at some of the benefits of the LLC by
comparing and contrasting them with the C Corporation, Partnerships, and Sub-chapter S
corporations.
1. LLC owners enjoy limited liability like a C corporation.
2. LLC avoids double taxation. The owners pay income tax at their personal rates. This is
similar to a partnership. They to write-off losses to the extent of their tax allowances. This is
better than the allowance on S corporation, which are limited to the extent to which their
losses exceed the money they have contributed to the company.
3. They can delegate management authority to specific members or professional organizations
who are not members of the LLC. All owners of an S corporation must be individual people.
4. There are very few formalities and restrictions. No need to hold annual meetings,
shareholders or directors’ meetings, and they do not need to issue share certificates or
follow other Securities and Exchange Commission (SEC) rules.
5. There are no limits on membership/ownership, unlike S corporations which are limited to
35 members. This may be the best way to do business yet, but only time will tell.
ETHICS AND THE BUSINESS ENVIRONMENT
Ethics in business has become very important in the life of a business organization today. It is
therefore, essential to examine how ethics affect every aspect of business management.
Law versus Ethics: Laws are society’s values and standards that ate enforceable in the
courts. There are four major areas in business that are regulated by law.
1.
2.
3.
4.
Laws regulating competition (e.g. Anti-trust laws)
Laws protecting consumers (e.g. Consumer Product Safety Act of 1972).
Laws protecting the environment (e.g. Clean Air Act of 1970)
Laws promoting equity and safety in the work place (e.g. OSHA of 1970)
Illegality and Ethics: The fact that something is legal does not mean it is ethical. It is also not
true to say anything that is unethical should be illegal. Why?
1. Some laws simply are not relevant to morality-E.g. laws on how to evaluate a real estate
contract have nothing to do with morality.
2. Laws are often limited in scope-They do not cover all possible problem areas.
3. Some laws are immoral or unjust because of human errors – E.g. abortion laws, capital
punishment, gambling, speed limits etc.
4. Laws only provide minimums for business conduct – They are reactive and not proactive.
One can conclude that laws don’t make people moral. As the old saying goes “It is difficult to
legislate morality”.
Ethics and Society: Society considers ethical issues through moral standards. These are
principles used to determine what is right or wrong. These principles are learned through the
process of socialization with family, friends, religious institutions, social groups (e.g. work,
recreation, etc.), and formal education.
Ethical Philosophies: Ethical issues are usually analyzed in one or more of three ways:
1. The act itself (the means) – Absolutism.
2. The consequences of the act (the end) – Utilitarianism, Ethical Egoism, Christian
consequentialism.
3. The actor’s motives or intentions – Intuitionism.
Ethical Styles.











Rule bound – Obedience to law, rule, principle
Utilitarian – Consequences for everybody
Loyalist – The company first
Prudent – our long-team advantage
Virtuous – Character, reputation are all-important
Intuitive – Spontaneous judgment
Empathetic – “How must he feel”
Darwinian – Survival of the fittest
Egoism – “Looking out for number one”
Christian-consequentialism – It is ethical if it furthers the kingdom of God
Judeo-Christian Morality – The Ten Commandments and the Golden Rule
Corporate Social Responsibility
Social Approach – This approach claims that business owes a debt to society. It the Big 3 in
automotive had to build their own roads just as the railroads did, would they have been
successful? It is impossible to do business when society is on fire, therefore, businesses must
put something back into society.
Environment Approach – Business must protect the environment. The environment must be
kept clean, and businesses need to put back as must, if not more, than they take out.
Legislative Approach – Since society does not trust business to do the right thing, laws are
promulgated to keep them in check.
Capitalism and Ethics
Protestant Work Ethic – The first proponent of this concept was Martin Luther. The Luthereans
believe in the following:



Work is good.
There should be no excessive profits.
Charity should be limited.


Idleness is unnatural.
Do your work to the best of your ability.





Judeo-Christian Values – The Benedictine Monks started this school of thought. They are
presumed to be the founders of capitalism. Hey believe that:
Work is essential and of value.
Human kind was created to take care of the world.
Work is essential to human fulfillment – “the hand that worketh not, eateth not.”
Work is also a burden and tribulation – Gen. 3: 17-19.
Work and creativity must not be avoided – Matthew 25:14-30.
Max Webber in his book The Protestant Ethic and the Spirit of Capitalism warns – “Once people
abandoned the interplay between religious and business values, civilization will be on the
decline.”
Goals of the Christian Economy 


To provide for basic human needs.
To generate and extend freedom of choice.
To foster good human relations – fellowship.
a. Emphasize “stewardship” not ownership.
b. There should be a major redistribution of income.
c. Reduce operating units – family, church, voluntary associations, and
neighborhoods, versus mega institutions.
Christianity has challenged capitalism to be more just.
Four Levels of Ethical Conflict –
1. Personal and professional behavior.
2. Corporate policy decisions.
3. Overall systemic effect – (good or bad). Does it benefit poor populations and poor
countries?
4. Conflict between standards of success in business versus standards of success in
Christian religion. “Can one serve God and Mammon?”
Christian corporate personnel must make sound decisions on all four above.
Free Enterprise and Governmental Regulation – The general thinking is that corporations
Are ill-equipped to handle social-welfare problems, hence government intervention.
Capitalism and Charity - Some believe that these are contradictory. Capitalism
Encourages hard work, while charity encourages idleness.
Individual Employee Values and the Organization
How we interact with others and within organizations depends on our outlook on morality,
ethical behavior, and life itself. What does life mean to you?
Life is:
------------ An adventure.
------------ A game (make up the rules as you go).
------------ A puzzle (without knowing you have all the pieces).
------------ A maze (avoid the exit)
------------ For my children.
------------ A tragedy.
------------ A learning experience.
------------ A disease.
------------ A matter of one’s honor (preserve it).
------------ Making it.
------------ Survival of the fittest.
------------ A gift from God (enjoy it).
------------ Love (cherish it)
------------ Meaningless.
------------ Poker game (bluff your way through).
------------ A long hall of closing doors.
------------ Win or lose (most people lose).
------------ An investment (plan it well).
----------- An art (be creative).
Sources of Ethical Values
Family – Parents, siblings, uncles, aunts, and grandparents.
Peers – Playmates, schoolmates, friends.
Institutions – Church, school, clubs, armed services.
Previous Experience – Childhood trauma, success, status, disappointments, early work
experience, attitude, and access to money.
Media – TV, radio, books, newspapers, magazines.
Professional Roles and Models – Job expectations, leadership in the company, industry, and
company heroes.
Company Policies – Corporate culture, orientation, etc
Personal Code of Ethics – Developed after extensive experience with ethical conflicts pressures.
Dealing Day to Day with Ethical Issues – Following are some ethical issues that come up in the
business setting from time to time:






Conflicts of interest and inappropriate gifts.
Company documents and accessibility – industrial espionage.
Personal integrity in the work place – drunkenness, sexual harassment, fighting, etc.
Contracts with governmental entities.
Marketing employee talents.
Employee interest versus corporate interest.
When ethical problems arise on any of the issues above, or any issue at all, certain critical
questions must be asked.
1. It is legal?
2. Is it balanced?
3. How does it make you feel?
4. What if everyone did that?
5. How would you like it if they did it to you?
6. Will you be happy to read about it in the newspaper?
To borrow a quote from Hicks Anderson (one of my colleagues), “To be ethical is not always
moral, but to be moral is always ethical.”
CHAPTER
2
ADMINISTRATIVE THEORIES
As mentioned in chapter 1, businesses should not be thought of as anything other than
people. Organization, therefore, is the process of getting people to work together to achieve
the businesses’ purpose. We can, therefore, say that People, Purpose, and Process characterize
organizations. Let us examine the classical theory if organization.
CLASSICAL THEORY OF ORGANIZATION
Much progress has been made in the area of organizational development in recent times.
Employees are now treated as assets or human capital. The classical theory of organization is
proof of that.
Classical Theory
1. The organization is more important than any of its members. The problem with this
view is that employees become a mere “cog in a huge gear.” There is no room for
feelings of accomplishment.
2. There must be a hierarchy, and a result of that, there will be a chain of command. In
essence we have to have “chiefs and Indians,” and chiefs tell Indians what to do.
3. There is usually an infallible head, subordinate cannot question the wisdom of their
superiors.
4.
The organization’s only responsibility to its members is economic. There is no room for
worker satisfaction.
THE FUTURE OF ORGANIZATIONAL THEORY
The classical view continued until mid-century when modifications began. The results of the
Hawthorne experiments led the wave of modifications when a routine change in the working
conditions of workers at the Hawthorne plant led to significant increases in productivity. It was
later discovered that productivity went up just because management seemed to be paying
some attention to the workers, something that never used to be. The workplace has changed
considerably, and the changes are expected to continue. The new look of organizations will
include the following:
1. Companies will shrink in size – We are beginning to see that already especially with the
wave of downsizing and outsourcing going on in the American economy today.
2. Structure of organizations will change – The hierarchical structure will be replaced by a
flatter, horizontal structure. With improvements in technology, a network structure will
develop between the organization, its customers.
3. Team-based work environment – People will be organized, workers will be managed,
evaluated, and rewarded based on what they achieve as teams.
THE ELITE WORKER
4. New technical worker elite – Specialists such as technologists will become the new elite.
Increase in technological knowledge and breakthroughs have encouraged the creation
of technical and specialized jobs.
5. Manager-qualifications will change – Successful managers will be those with the skills to
mange in a technical, as well as a team-based environment.
6. Less 9 to 5 – Technology is making it unnecessary for people to have to go into work at
specific times and at a specific location. The computer, fax machine, and other
electronic communication networks move work away from the usual setting.
PEOPLE, PURPOSE, AND PROCESS
PEOPLE
People have been described as the most difficult element to deal with in business
organizations, as suppliers, employees, and especially as customers. People come into the
organization with different “baggage.” Many things in our environment contribute to our
personalities, such as:
Culture: This includes language, religion, social class, and nationality.
Social: Our reference groups (professional and social associations), family and the different
roles we are required to play within such groups (parent, friend, leader, etc.).
Personal: Personal state in life such as age, occupation, life cycle stage (single, married with
no kids, married with kids, married with grown up kids, widowed, etc.), self concept, and
economic circumstances.
Psychological:
This includes motivation (what drives you?), perception (what you think of
life), beliefs and attitudes.
PURPOSE
Organization’s purpose is to meet needs in:






Manufacturing
Education
Health
Retailing
Pharmaceutical
Profit/Not For Profit
By defining its purpose, an organization is able to set its goals and generate a plan of action in
order to achieve that purpose. This also helps the organization in setting the scope of its
operation. If the purpose is narrowly defined (for example, “we are shoe repairers” versus “we
are shoemakers”), the goals will be narrowly set. By claiming to be shoemakers, we can set our
goals to include shoe manufacturing as well as repairs.
PROCESS





Communication
Decision-making
Performance
Socialization
Technology
Process within the organization is defined as the way things are done. There are different
processes.
Communication Process. The way we inform one another, act on such information, and
give some feedback into the system.
COMMUNICATION PROCESS
INPUT
PROCESS
PROCESS
OUTPUT
OUTPUT
FEEDBACK
FIGURE 2.1
To illustrate the communications process diagram above, a good example of input could be a
letter of complaint from a customer. Te letter will be directed to the appropriate department
for necessary action. This is regarded as the process stage. The output stage is the outcome of
the processing. This could be a telephone call to the customer, a replacement, or a refund.
Feedback any be represented by an action report filed by the department or the employee who
took care of the problem.
Decision Making Process: Decisions are made by the minute in business organizations and
unless managers are skillful in decision making, an organization could run into trouble. This
process requires:







Setting a goal.
Viewing all alternatives of achieving the goal.
Evaluating the alternatives’
Outlining possible problem areas in each alternative.
Choosing the best alternative.
Implementing the alternative chosen.
Monitoring and obtaining feedback to see if everything is going according to plan.
Other processes include performance evaluation, both for employees and the company as a
whole. The company is usually evaluated through the process of accounting. This help to
determine its profitability, solvency and how efficiently it uses its resources employees are
evaluated through their periodic evaluation by their supervisors, their peers and also through
self-evaluation. Socialization and technological processes are discussed in later chapters.
ORGANIZATIONAL STRUCTURES
There are three main organizational structures:
1. The formal structure – Depicts the hierarchy in the organization. This shows everyone’s
position within the organization from the CEO to the custodian. This is more like the
organization chart.
2. The operational structure – Includes the real people assigned to each position.
It shows who does what and who is answerable to whom within the organization. This is
like putting flesh and blood to the organization chart.
3. The informal structure – Shows the interpersonal relationships in the organization. It
shows how people socialize, and who they look up to (mentor or buddy system).
ORGANIZATIONAL CULTURE
People bring their diverse backgrounds into the organization, the organization therefore takes
on a life of its own. It develops its own personality. This is referred to as the organization
culture. Issues like dress code, language religion femininity or masculinity, power structure, and
individualism versus collectivism come into play.
Dress Code: Some organizations require a suit and tie when you come in to work, while
others allow you to dress casually. Organizations like banking institutions are examples of the
first, while people who work in the entertainment industry are examples of the other.
Language: Technical organizations may speak “technoese” (technical jargon), while legal
organizations speak “legalese” (legal jargon). Language may also refer to the expected amount
of finesse in the way one uses the spoken language. In some organizations, your language must
be prim and proper while others will allow vulgarity.
Femininity or Masculinity: Some businesses are predominantly male while others are
predominantly female.
Power Structure: In some organizations, power rests with a few people at the top, while
others spread out the distribution of power employee empowerment is an issue that has come
to the forefront organizational development today.
Organizational Culture
Dress Code
Language
Feminine/Masculine
Religion
Power structure
Individualism/Collectivism
Due to the shift to a team-based orientation, and the emphasis being put on total quality
management, companies are relying more and more on employees to take on far more
responsibilities than they used to.
Individualism or Collectivism: Some organizations have people who work on their own,
set their own time and pace (as in research institutions), while others have to work as a team.
Religion: Some organizations will appreciate the importance of religion in the lives of their
employees and allow them to freely share their faith, while others will not.
PATTERNS OF ORGANIZATION
There are three major patterns of organization, Line Structure, Functional Structure, and Line
and Staff Structure.
Line Structure: This is the simplest and oldest structure. There is a direct flow of
communication from to bottom. Each level of supervision represents a lie of authority.
Line structure has the benefit of being easy to understand. The line of authority is well defined,
thus eliminating confusion as to who is in charge of who or what. Discipline is simplified, and
top management can take quick action on issues. It encourages delegation.
ONE LINE OF AUTHORITY
BOSS
BOSS
WORKER
WORKER
WORKER
WORKER
WORKER
ORGANIZATION CHART 1(A)
TWO OR MORE LINES OF AUTHORITY
Boss
Supervisor
Supervisor
Supervisor
Worker
Worker
Worker
ORGANIZATION CHART 1(B)
However, there are some drawbacks in this structure. There may be too much dependence on
the people at the top. This may slow down the decision making process. There is also the
danger of power overload at the top. The system also creates generalists because there is little
room for specialization.
TABLE 2.1 LINE STRUCTURE
Advantages
1. Relationships are easily understood.
Disadvantages
1. Too much dependence on the
person at the top.
2. Eliminates confusion by fixing authority
and responsibility from top to bottom.
3. Problems of discipline are simplified.
4. Minimizes “buck passing.”
2. Growth may overload some
supervisors.
3. There is little room for specialization.
4. There is the possibility of
assigning too much authority to a
few people.
5. Encourages quick action by
management.
Functional Structure
Functionalization makes use of the special skills and talents of the employees. Lines of
authority are from heads of specialized units, for instance, accountants, engineers,
electricians, etc. one major problem with this structure is that it creates a maze of
relationships.
Some of the advantages of functionalization include:
1. It encourages the effective use of special skills.
2. It simplifies training because the work area is narrow.
3. Manpower requirements can be easily determined.
4. It encourages division of labor.
5. It offers a flexible system in conditions of growth. It can quickly adapt to expansion.
FUNCTIONALIZATION CREATES A MAZE OF RELATIONSHIPS
VP ADMIN.
OPERATIONS
RECEIVING
ORGANISATION CHART 2
MATERIALS
MANUFACTURING
GENERAL OFFICE
SHIPPING
Line and Staff Structure
This structure combines the line and functional structures. Authority flows from
top to bottom, and staff positions are advisory to the top manager.
STAFF MANAGERS SERVE AS ADVISERS TOP MANGEMENT
PRESIDENT
VICE
PRESIDENT
MANAGER
MARKETING
MANAGER
FINANCE
MANAGER
PRESIDENT
PRODUCTION
NNN
SUPERVISOR
FOREMAN
WORKER
ORGANZATION CHART 3
MANAGER
METHODS
MANAGER
PERSONNEL
ORGANIZATION OF THE FUTURE
As mentioned in chapter one, the future of the organization will continue to be a dynamic one.
Organizations will operate more on a network basis than on the traditional line and structure
basis. More and more companies are outsourcing many of their component parts, thus giving
the company the opportunity to concentrate on the activities in which it is more efficient.
ORGANIZATION CHART OF THE FURTURE
PROJEC
T
VENDO
R
COMPANY
CONSULTAN
PROJEC
T
T
In the future, organizations will rely more on outside partners. The team-based approach,
coupled with the need to concentrate on core competencies will cause organizations to break
tasks into small projects. The trend is toward increased reliance on outside consultants, and
companies will rely on the cooperation of their suppliers to maintain quality, meet deadlines,
and help their cash flow.
CENTRALIZATION VERSUS DECENTRALIZATION
Centralization is when the chief executive holds control of authority in most areas, while
decentralization means he assigns a considerable amount of authority to the lower levels. Most
firms start off being highly centralized, and as they grow, they become decentralized.
Numerous organizations are decentralized today. This is usually the case because of the
adoption of team-based management.
It has become obvious that decision making needs to e closer to those who will implement the
plan. Large organizations have taken to what is referred to as “intrapreneuring.” Smaller units
are created within the larger organization in order to reap those benefits that accrue to small
businesses. Following are the benefits of decentralization:
Benefits of Decentralization





Authority is placed closer to the point of decision making.
The system is democratic. Managers can decide o matters that affect them.
It gives managers a sense of accomplishment an importance.
Decentralized organizations are more adaptive of growth.
It facilitates the process of succession by reducing the “ability-gap” between top
management and subordinate managers.
The Downside of Decentralization
Decentralization has its costs, some of which are:
1. Duplication – Since each division operates as a company, functional areas will be
duplicated. Each one will have its own accounting, marketing, and production
department. This works against economies of scale.
2. Inefficiency with large customers – Small divisions may not be in a position to satisfy
large customers because their output may not meet the requirements of the large
customer.
3. Dysfunctional competition – Divisions are sometimes competing with each other in the
same market.
4. Sub-optimization – Some divisions may place division interests above overall company
interest. Investment decisions that may benefits the whole company may not be made if
the division believes it will have to bear the increase in cost; while a sister division will
be the one to enjoy the benefits. This may happen when a division is a cost center, while
the other is the revenue center.
CHAPTER
3
MANAGEMENT THEORY
Management, and organization functions are interrelated. Without one, the other is
nonexistent. Management is responsible for the direction and purpose of an organization.
Whenever there are cooperative endeavors, there are managers. Management is the process of
getting things done through people. As old saying goes, “You are only as good as the people
who work for, or better still, work with you.
FUNCTIONS OF MANAGEMENT
The work of managers includes: Planning, Organizing, Directing, Controlling, and Coordinating.
Planning. This is an important and continuous management function. It details how particular
goals are to be reached. As goals change, the plan also changes; hence it is continuous.
Successful planning depends on the following:






The mental capacity of the planner.
The amount of information available to work with.
Level of intelligence of the planner.
The wealth of experience being brought into the planning process.
Conception – the planners ability to think deeply and be creative.
Perception – the way the planner sees the situation.
 Judgment – this has to do with the wisdom of the planner.
Planning Process:
1. Determine the objective – what do we aim to achieve?
2. Identify alternatives – what might be done to achieve the objective? What courses of action
can be taken? Good alternatives make good plans.
3.Examine each possibility in terms of strengths and weaknesses.
4. Select a plan, or go through the cycle again if none is acceptable.
An organization that does not plan “Dies.”
Organizing: This is the process of arranging manpower, materials and machines in such a way
as to get the best results.
Directing: Helping subordinates go in the right direction.
Controlling: Managers will ensure that activities within the organization conform to plan.
Coordinating: Managers try to form a coherent unit out of separate units.
MANAGEMENT STYLES
There are several ways of managing. However, we will look at some of the more important ones
starting with the work of Frederick Taylor in scientific management.
Scientific Management
Frederick Taylor carried out some experiments which included watching people shovel dirt and
trying to determine the most productive way to do the job. Taylor concluded that there is a
“best way” to do the job. This was the birth of work and motion study. It also led to:
1. Division of Labor – Taylor believed that by breaking tasks into smaller parts, workers can
master that part and become very efficient in it.
2. Mass production – The longer an employee works on a process, the more efficient he
gets because he acquires some manual dexterity. This increases output tremendously.
3. Technological development – By breaking a job into its component parts, machinery can
be designed to do each component part.
4. Standardization - Process, time, and remuneration can be standardized. If you know the
“best way” to do a job, you can train all operators to do it the same way. If a task can be
completed within a set period of time, then all operators can be expected to spend the
same amount of time on the task. Finally, if a worker goes through the “best way”
within the standard time, he should expect to be paid the same rate as everyone who
does the same.
Downside of Scientific Management:
1. Taylor was not concerned about the welfare of the worker. Workers are either driven
or, they suffer.
2. By doing the same thing repeatedly, it may lead to alienation. The worker gets detached
from the process. He or she has no satisfaction from doing the job.
3. This may also lead to carelessness due to overconfidence. It is at this point that
accidents on the job increase.
Bureaucracy
Today, the word bureaucracy has taken on a negative connotation. However, this was not the
intention when Max Webber developed the concept. Bureaucracy is supposed to be a stable
system of management. It is stringent in discipline and reliable. There is a hierarchy of control.
In a bureaucratic system1.
2.
3.
4.
5.
Jobs are specialized.
Tasks are performed according to rules.
Individuals are accountable for what they do.
Relationships are impersonal, both to customers, and within the organization.
Employment is based on technical qualification.
Problems:
1. It is inflexible – Once rules are set, it takes a long while to change them.
2. Slow decision making process – Bureaucracy is usually associated with a hierarchical
structure which means final decisions have to be made at the top. Sometimes, it is a
very long way to the top.
Management by Objectives (M.B.O.)
Management by Objectives is a result-oriented system of evaluation. Small units within the
organization are allowed to set their own job-related objectives. There are three main steps
involved:
1. Superiors and subordinates get together to set goals that will contribute to overall
company goals.
2. The group will set attainable objectives for the subordinates.
3. The group will meet at a later date to assess the amount of progress made by the
subordinates towards achieving those goals.
The use of MBO usually leads to increased production, increased efficiency, short-run
satisfaction, and long-run satisfaction, and long-run development. A recent study showed that
In 68 of 70 applications of Management by objectives, productivity increased.
MANAGEMENT PRINCIPLES
General management principles can be divided into three groups. The mechanistic, organic, and
contingency models.
Mechanistic Model
1. There must be division of labor due to specialization.
2. Unity of direction – Jobs is grouped into specialties. Engineers are grouped together, sales
people together, accountants together. All functional departments are grouped together.
3. Principle of authority and responsibility – Sufficient authority (right to command) is given to
managers to back their responsibilities (accountability).
4. Scalar Chain of Command – All lines of communication flow from top to bottom and from
the bottom up.
Organic Model
The features of the organic model are as follows:
1. Flat Structure – The organizational chart is flat, spreading out to include both external
and internal systems as depicted in the organization chart of the future on page 33.
2. Adaptability – This model is more adaptive because lines of communication are shorter
than in the mechanistic model.
3. There are fewer rules and procedures.
4. Authority is decentralized.
5. There is less emphasis on specialization.
6. The organization is informal – This model cuts out a lot of the bureaucratic elements in
the mechanistic model.
Contingency Model
This model combines some of the features of the mechanistic and the organic models. It has
smaller autonomous nits within the larger unit. It is adaptive and situational. It uses whatever
approach is called for in any given situation.
ETHICS AND EMPLOYEE RIGHTS WITHIN THE ORGANIZATION
Corporate Due Process - All employers require obedience, loyalty, and confidentiality from their
employees. These are essential to the employment relationship and are referred to as
corporate due process. Employers usually put in place certain procedures that monitor
employees’ loyalty, obedience, confidentiality, and ability to perform efficiently on the job.
These procedures have expanded so much over the years that employees sometimes feel their
rights are being violated. Some of the ethical issues of concern are as follows.
Employee Screening: Drugs, Alcoholism, AIDS, and Genetic Screening.
Why do employers screen for substance abuse? They do so because:
1.
2.
3.
4.
Substance abuse affects productivity.
Employers have vicarious liability for their employees’ actions.
Employment safety requirements.
The lingering effects of illegal drugs spill over into job-related activities, even when such
drugs were taken on the employee’s own time.
5. Security of the firm’s assets – abusers are more inclined to steal assets or sell confidential
information to support their habits.
Employee causes of action: in spite of the above reasons for employer actions, employees are
not without recourse. They can take the following legal actions by suing for:
Invasion of privacy – If the test can be proven to be objectionable to any reasonable person.
Defamation – If the employer releases false information to a third party about the
Employee’s testing.
Wrongful discharge – If in addition to the wrongful discharge, there is also a violation of
public policy (e.g. an enactment proscribing drug testing in the state).
Emotional distress – The employee can claim severe mental distress. There must be proof,
however, that the employer intentionally or recklessly inflicted severe emotional distress
in an extreme and outrageous manner.
AIDS and Genetic Predisposition
It is against the law to refuse to hire someone with the AIDS virus. However employers may
likely:
1. refuse to hire those who are too sick to do the job; or
2. Show that the AIDS patient may be exposed to illnesses from other employees. In general, it
is a tricky situation.
Genetic screening – A one-time test to see if a person has an inheritable trait that will predispose him to certain occupational hazards.
Genetic monitoring – The process of periodically examining a person’s body fluids to
determine damage from exposure to toxic materials in the work place.
Information privacy – Collection, administration, use and disclosure of information
regarding employment. There are various statutes that have responded to various privacy
issues such as – protection of whistle-blowing, disclosure of credit information, employee
access to personnel files, and arrests. Convictions, communicable diseases, smoking,
political preference, and psychological matters.
Sexual Harassment
This is an issue that no business can afford to ignore because of the liability of the employer
in sexual harassment cases.
Corporate Liability:
 The employer is liable, regardless of the identity of the offender. The Civil Rights Act
of 1964 prohibits sexual harassment.
 Sexual harassment can be objective – will any reasonable person see it as such? Or
subjective – is the victim’s personality or make up such that he/she sees it as such?
 Hostile Work Environment is n extension of sexual harassment.
 Other work Place Harassment – can be equally demeaning, e.g. profane and abusive
language, disorderly conduct such as fighting, intimidation, slurs or jokes in bad
taste.
Management’s Responsibility:






Provide a work environment free of all types of harassment.
Thoroughly identify offensive behaviors and forbid them in the work place.
Incorporate the definition of sexual harassment in comprehensive written policies.
The policy should include sanctions and varying degrees of punishment.
Set up a periodic awareness program and consciousness-raising seminars.
A high-level person should be assigned the responsibility of the anti-harassment
program.
 All complaints must be thoroughly investigated and dealt with.
 All employees must be treated alike.
Awareness Programs:
 Educational Workshops – To explain policy, implementation, and administration of the
reporting procedures.
 Consciousness-Raising Seminars – To inform managers and supervisors of the
consequences of their misconduct.
 Commercially prepared videos – To train employees on sexual harassment procedures.
Consequences of Sexual harassment:




Low employee morale.
Loss of jobs.
Public relations problems.
Low productivity.
Some of the consequences that firms face when they fail to address sexual harassment issue
include: lawsuits, public relations problems, negative publicity, and loss of business.
Equal Employment and Affirmative Action
 Protected classes – Include women, racial minorities, and the handicapped.
 Reverse discrimination – This happens when white males are being turned down for
jobs because of affirmative action.
 Individuals with disabilities – Must be given what they need to do their jobs regardless
of what it costs the organization.
 Quotas – Specific numerical goals for minority and female employment and promotion
are set for the business organization.
The Adverse Impacts of Affirmation Action Are That:
 The best man does not always win.
 Quotas may work against those they set out to protect. Once the limit is reached, no
other member of that minority group will be hired.
 It is inconsistent – discrimination is either right or wrong, regardless of who is involved.
Equal Pay:
 The Equal Pay Act of 1963 – Prohibits discrimination in remuneration for equal work in
jobs requiring equal effort, skills, and responsibility.
 Those protected presently are women in administrative, management, professional
jobs.
Women in Management
More than 50% of workers are women. This is attributable to the following reasons:





Lower birth rate.
Increase in age at first marriage.
Desire to increase standard of living.
Growth in industries that hire women.
Growing social acceptance of work for women.
Other Demographics:
 One of seven families is maintained by women.
 Eighty percent of women are employed in clerical, service, sales, factory, or plant jobs.
 Only 22% of women are in management and possibly in lower management.
Obstacles for the Female Worker Include:
 Sex differences – Aggression for men vs. nurturing for women. If a woman is aggressive,
she is “pushy”; however, if a man is aggressive, he is motivated.
 Misconceptions about women’s capabilities – This has its origin from the fact that
women are considered to be the weaker sex.
 Inhospitable informal structure – Men form cliques that are usually impenetrable by
women.
 Recruitment, hiring and promotion policies – Not always to the woman’s advantage.
 Perceived incompatibilities between career and family goals – This view is changing as
more men decide to be the homemaker.
Myths: There are some myths about the female sex. They include:
 Emotional female – Women are supposed to be emotional, and the general belief is that
emotionality is incompatible with business.
 Greater job turnover among women.
Role Encapsulation:





In the office, women are often seen as secretaries.
On sales trips with male colleagues they are taken for wives or mistresses.
With customers they are seen as substituting for a man whose job it is.
At meetings with a male peer, they are seen as an assistant.
While entertaining customers with colleagues, they are assumed to be the wife or a
date.
Stereotypes: Women are often looked upon as:




Mother
Seductress
Pet
Iron Maiden
All of the aforementioned are ethical issues for Management to deal with through its
structures, policies, and examples, and for individual men and women in the corporation to be
aware of and to e cautious about them. The corporation must look into how its decisions
impact the family.
Whistle-Blowing
This is a process whereby an employee turns over an employer to the government
or the media for acts against consumers or society. It affects two main things:
 Loyalty to the employer.
 Responsibility to society.
Management should make sure the whistle-blower has clear and easy access to
someone at the top within the company, and to also be sure that they have little
to blow about.
CHAPTER
4
MARKETING MANAGEMENT
Marketing has been defined by the American Marketing Association as “The process of
planning and executing conception, pricing, promotion and distribution of ideas, goods, and
services, to create exchanges that satisfy individual and organizational objectives.” The central
points of marketing are (1) that people have needs (which is a state of felt deprivation) and
they also have wants (which are needs shaped by the person’s culture and standard of living).
(2) There are other people who are willing to produce goods and services to meet those needs
and wants. In essence, an exchange must take place. Marketing makes that exchange possible.
Definitions. Let us examine some pertinent definitions.
Demand – is want backed by purchasing power. When you want something, and you have the
money to buy it, you go into the market and demand for it to be sold to you
Products – Anything that can be offered to a market for attention, acquisition, use, or
consumption that might satisfy a want or need.
Exchange – This is the act of obtaining a desired object from someone by offering something in
return. What is offered may be money or other goods as in barter.
Markets – A set of actual and potential buyers of a product or service. Market in this sense is
different from the physical setting or the place where goods and services are sold (that is part
of distribution as will be will be seen later).
MARKETING ORIENTATIONS
The marketing concept has changed considerably over the years. In the beginning, producers
were more interested in the product and the process of manufacturing it. As a result of that,
marketing efforts focused on making a “better mouse trap.” Eventually, marketing got to its
present state, where the opinion of the consumer is the one that counts in deciding what to
market and how to market it. Let us examine the different marketing orientations.
Product Orientation - Producers are mainly concerned with manufacturing a product and
putting it on the market. They believed that consumers will buy products with the most quality
and performance features, so the company should focus on product improvements.
Production Orientation - Producers believe that consumers will favor products that are
available, and highly affordable, so the company should concentrate on production and
distribution efficiencies (find a better way to build a better mouse trap).
Sales Orientation - Producers believe that consumers will not buy unless the organization
undertakes substantial selling and promotion efforts. The strategy is to produce and then push
the product (build the mouse trap, and then shove it down the consumer’s throat).
Consumer Orientation - The key to success is to determine the needs and wants of the people,
and deliver the desired satisfactions more effectively and efficiently than the competition. The
strategy is to determine customer needs and seek ways to satisfy them in a profitable fashion
(ask the consumer if he needs a mouse trap, what kind he would like to have, what price he can
pay for it then go out and see what the competitors are doing before making the mouse trap).
CONSUMER BEHAVIOR
People have different reactions to different products. Producers must therefore be aware of
those factors that make people react the way they do before setting out to manufacture
products for them.
There are four major factors that influence the buying behavior of people.
1.
2.
3.
4.
Culture Factors
Social Factors
Personal Factors
Psychological Factors
Cultural Factors.
 Culture – The environment in which one lives determines one’s culture and therefore
what one will buy. Our tastes in food, clothing, etc. are dictated by our culture.
 Sub-culture – Each culture has some other cultures within it. These are special groups
people belong to, such as nationality, religion, race, geographical background, etc.
 Social class – These are divisions in a society that are hierarchically ordered, and whose
members share the same interests, values, and behaviors. Examples are the middle
class, the upper class or the lower class.
Social Factors.
 Reference groups – These are groups with which one interacts. Primary groups include
family, friends, neighbors, and co-workers. Secondary groups are social organizations,
religious, professional, and trade associations.
 Family – This group is divided into two. Family of orientation, which is one’s parents and
siblings, and family of pro-creation, which is one’s spouse and children. The wife use to be
the buying agent for the family. Today, things have changed such that any one of the spouse
could be the buying agent. Despite that, some things are usually purchased by the husband
such as life insurance, automobile, and electronics. Others are usually bought by the wife –
washing machines, carpeting, and kitchen ware. Equal decision purchases include living
room furniture, vacation, and outside entertainment.
 Roles and status – People play different roles in the groups they belong to. People also tend
to announce their status by purchasing goods that are status symbols. Mercedes Benz cars,
SAABs with ski racks on top, Ivy league college degrees, and expensive finely tailored suits
are examples of things with which people say “I have arrived.”
Personal Factors.
 Age and life cycle stage – People change the goods and services they buy over their lifetime.
Consumption also changes with family life cycle stages which include:
FAMILY LIFE CYCLE
1.
2.
3.
4.
5.
6.
Bachelor
Newly married, young with no children
Full nest I:
Youngest child I under six
Full nest II:
Youngest child is six or over
Full nest III:
Older couple with dependent children
Empty nest I:
Older couple, no children living with them,
Head of the household is still in the labor force
7. Empty nest II:
Older couple, no children living at home, head
Of household is retired
8. Solitary survivor in the labor force
9. Solitary survivor is retired
What people within the group will buy is determined by where they are in the family life cycle.
Toys, life insurance, burial plots will be targeted to different groups within the cycle.
 Occupation – The type of work we do will determine what we buy. Work suits and steel
toed shoes will be ear-marked for blue collar workers, while suits, and silk ties may be earmarked for the investment banker.
 Economic circumstances – People’s level of income, borrowing power and attitude towards
spending versus saving will influence what people will buy.
 Life style – This refers to a person’s pattern of living in the world, based on his interests and
opinions. It portrays the “whole person.” The system of measuring life styles is known as
psychographics. This is based on the person’s activities, interests, opinions and
demographics (age, income, geographical location, etc).
TABLE 4.1 FACTORS INFLUENCING CONSUMER BEHAVIOR
Cultural
Social
Personal
Age
Psychological
Culture
Reference groups
Sub-culture
Family
Life-cycle stage
Perception
Social class
Roles
Occupation
Learning
Statuses
Economic
Attitudes
Circumstances
Life style
Personality and
self-concept
Buyer
Motivation
 Personality and self-concept – This is a person’s distinguishing characteristics that lead to
consistent and enduring responses to his or her environment. Personality s described in
terms of such traits as:
Achievement
Dominance
Adaptability
Emotional Stability
Affiliation
Order
Aggressiveness
Self-confidence
Autonomy
Sociability
Deference
Psychological Factors.
 Motivation – Needs that move you to seek satisfaction. Such needs could be:
1. Biogenic – hunger, thirst, discomfort, or
2. Psychogenic – esteem needs, social needs and recognition.
 Perception – This deals with the way we select, organize, and interpret information to
create a meaningful picture of the world. The way perceive a situation or product will
determine your decision to buy. Under perception, we have:
1. Selective stimuli – response to specific in the environment. This is the reason why
advertising works people are more inclined to notice stimuli when:
 They relate to present need.
 They are anticipated.
 The deviation is larger than other stimuli, e.g. $100 off versus $5 off.
2. Selective distortion – Each person fits information to his own mind set. You see or
hear what you want to see or hear.
3. Selective retention – People retain or forget whatever they want. Again, advertising
induces you to retain what it wants you to retain.
 Learning – Learning means changes in an individual’s behavior due to new experience.
Learning is produced through the interplay of drives, stimuli, cues, responses, and
reinforcement.
 Beliefs and attitudes – A belief is a descriptive thought held about something. Attitudes are
enduring evaluations or emotional feelings and action tendencies towards some object or
idea. It leads people to behave in fairly consistent ways. Companies must, therefore, fit
their products to existing attitudes, rather than try to change people’s attitudes.
MARKET SEGMENTATION
Different things appeal to different people. Thus, it is necessary to design products that will
appeal to groups of consumers based on their buying behavior. Market segments can be
divided on the basis of Geography, Demographics, Psychographics, and Purchasing Orientation.
Geography - Where people live will determine what they will buy. People who live in the
same area tend to buy the same things because their needs are similar. Climate, population
density, urban versus rural area are things that the people in the same area have in common.
Demographics - People’s age, sex, income, family size, occupation, religion, education, etc.
fall into this category.
Psychographics - Life style and personality.
Purchasing Orientation. While some people are quick to adopt a product, others will wait
until the product is tried and tested by people around them. Individuals can be classified in this
regard as:
a. Innovators – They are usually the first to try a product. They will even use it in its rough
stage. They are the “guinea pigs” for that product. By using a product, their complaints
will help in getting the “bugs” out.
b. Early adopters – They come right on the heels of the innovators. They are usually just a
“handful” of people. Their recommendations, will help others around them try the
product.
c. Early majority – With enough advertising and word of mouth recommendations, more
people will start using the product.
d. Late majority- Still, others join when the product has become well known.
e. Laggers – This group will not buy until the product becomes a household name and has
been re-developed several times over.
Characteristics of a Market Segment
Judging by the earlier discussions in this section, we can conclude that “all segments are not
create equal.” A marketer must, therefore, decide on which segments are worth serving. The
chosen segment must lend itself to the following:
 Measurability – It must be possible to determine the size (population) and
characteristics of that segment.
 Accessibility – It must be a market that is accessible that is accessible to the
business. For example, there is no point targeting your products to the Amish (a
community of people who live together in a self-sufficient environment) if they
will not allow outside good to come in.
 Substantiality – The market must be large enough for it to be profitable and to
provide long term growth for the company.
 Action ability – It must be possible to carry out business in that segment efficiently
and effectively.
Target Market
Once a segment is measured, and its accessibility, substantiality, and actionability have been
ascertained, if the segment looks lucrative to the company, it becomes the target market. All
actions from then on will be geared towards that target. Target markets are carved out of the
total market. For example, if the total market for toys in Charlotte, NC is the number of children
under 18 years of age, the target market may be girls under 18, or school age boys and girl.
A toy company can also decide that of the total toy market in Charlotte, it wants to target the
adult-toy market.
Market Share
Having decided what the target market will be, the company has to now decide what
proportion of that market it is willing and able to serve. There e several points to consider when
deciding on what share of the market a company should aim toward.
1. Competition – By looking at the share that competitors already have, a producer can decide
on what to aim for. If competitors have captured about 60 percent of the market, that
leaves the new entrant 40 percent to vie for. If competition has 80 percent of the market, it
may be a very difficult market to enter. If on the other hand, the new entrant had just found
a market niche (a unique market), competitors will not have been in that market yet. This
position is the best. If an organization can find a service or a product that has not been
offered to any given market and for which there is sufficient demand, it has found a
marketer’s dream.
2. Cost of entry – Having decided that there is enough room for the product in the target
market, the organization has to determine the cost of entry into the market. Some
processes require a large “critical mass” (the minimum amount of money needed to start
the process). Other markets, on the other hand, can be entered with very little capital
investment.
3. Capabilities – The Company now has to determine whether it has enough resources to
support the market share aimed at. Manpower, machinery, an managerial capabilities must
be compatible with the share of the market being targeted.
CONTROLLABLE AND UNCONTROLLABLE ENVIRONMENTS
Uncontrollable Environment. In discussing the environment of business at the beginning
of the book, we touched on what is considered the uncontrollable environment of business.
The legal, political, cultural, economic, and technological environments, (and for marketing
purposes, we add the demographic environment) constitute the uncontrollable environment. in
the short run, businesses have no control over what happens in these environments. In the long
run, however, some of these can be changed.
Controllable Environment. Controllable environments in marketing are those elements
that the company can do something about even in the short run. These include competition,
the marketing mix, and the customer.
Competition. By manipulating the marketing mix, companies can control competitor’s
reactions. If one company raises its prices or increases its advertising, competitors may decide
to do nothing, do the same, or make a bigger or smaller change in their own pricing or
advertising.
Marketing Mix (The 4 Ps). The 4 Ps of marketing are Product, Price, Place (Distribution),
and Promotion.
1. Product – This is what is being offered for sale. Points to consider at this stage include:
 Style – The design, shape, and form of the product.
 Features – Color, texture, and appearance of the product.
 Quality – It could be high quality, medium quality or low quality.
 Branding – Will the product be a brand named product? Will it be a store brand? Or
a generic brand.
 Packaging – The package could be fancy or just plain utility. This will sometimes be
determined by whether what is being sold is the product itself, the ambiance, or
status as with perfumes and beauty products.
 Service – Some companies emphasize the product while others like IBM emphasize
their after sales service.
2. Price refers to how much is charged for goods and services. The price of a product or service
depends on the cost of production and the profit margin desired by the company. It will also
depends on what competitors are charging an what consumers are willing to pay.
3. Promotion – The combination of advertising, dealer discounts and consumer deals to
stimulate demand.
4. Place – The combination of direct and indirect distribution to the customer.
Customer. Who will buy the product? The following questions must be sked in every market
analysis.





Who is the likely customer?
What do they want to buy?
How much will they pay?
How and when will they get information about the product?
Where do they want to buy it?
MARKETING STRATEGIES
Strategies must be developed for each element of the mix. The marketing manager must
develop product, pricing, promotion and distribution strategies.
Product Strategies - A producer may decide to be a:
 Low cost producer as inexpensively as possible.
 High quality producer – To produce high quality goods at any cost.
 Niche player – Always looking for new markets to conquer.
Pricing Strategies - A company may choose any of the following pricing strategies:
 Cost based – Minimum selling price is set base on cost. “We must make a profit to stay in
business.”
 Value based – A ceiling is set for selling price. “What is this product worth to the end user?”
 Competitive pricing – This strategy puts a downward pressure on prices because consumers
generally shop around.
Promotion Strategies- Producers may use a:
 Pull strategy – By advertising, and using other communications directed to the
customers.
 Push strategy – By offering discounts and other incentives to distribution channels such
as wholesalers and retailers.
Distribution Strategies (Place). Producers may chose to distribute their goods through:
 Direct channels – By owning and controlling their own stores and representatives.
 Indirect channels – By relying on wholesalers, brokers, agents, sales representatives and
retailers.
Intensity. Producers may choose to make their products available either exclusively (available
to, a special group, e.g. tie pins manufactured for members of the Rotary Club), selectively
(available to a select few who can afford it, e.g. luxury yacht accessories or Ivy league
education), or intensively (available to everyone who desires it regardless of class or
association, e.g. a “Whopper” or a “Big Mac”).
DISTRIBUTION CHANNELS
Distribution is the function of making goods available wherever and whenever they are wanted
at a profitable price. Producers may use their own channels or they may decide to use existing
independent channels. Distribution channels may be from the manufacturer directly to the end
user. This is referred to as direct channel. When goods pass from the manufacturer to the
consumer through a middleman, it is known as an indirect channel.
Middlemen- People or organizations that help in the distribution process without actually
taking title to the goods. They are simply transfer channels. Some of these include:
 Agents – They are representatives of either the seller or the buyer. They negotiate sales
and purchases.
 Brokers – The broker is a go-between. He represents neither the buyer or the seller.
 Sales Agents – They are responsible for the distribution of manufacturers’ products.
 Facilitating agents – They usually perform functions other than buying and selling. Their
functions include transportation and storage of goods.
Merchant Middlemen- Perform a distribution function, but actually take title to the goods.
They include:
 Wholesalers – They buy goods in large quantities from the manufacturer for re-sale in
smaller quantities to retailers.
 Retailers – They buy goods from wholesalers or manufacturers for re-sale to the end
user.
 Distributors – They usually have exclusive or selective rights to the distribution of a
manufacturer’s goods.
PROMOTION
Promotion can be divided into advertising, sales promotion, public relations, and personal
selling.
Advertising. These are paid, non-personal forms of communication that can be identified
with a specific sponsor. The following steps must be taken by the marketing manager
concerning advertising.
1. Set the advertising objectives – What do we hope to achieve? Who do we hope to reach,
and how do we intend to reach them?
2. Determine the advertising budget – How much are we willing to spend? And, within what
period of time?
3. Decide on the creative presentation – Music, actors, arts, etc.
4. Select the media – Television, newspapers, magazines, radios, billboards, or flyers.
5. Select the schedule – Will adverts be aired daily, weekly, monthly, and for how long? Will
advertising budgets go up or down in concert with the seasonality of the products?
TABLE 4.2 ADVERTISING
Advantages
1. Reaches a large number of people
2. Cost per exposure is low
3. Helps to create brand image
4. There are many types of medium
to choose from
Disadvantages
1. May not target specific buyers
2. Puts company on the pot, due to
high visibility
3. Very brief exposure time
4. Can be very expensive.
5. Decide on method and measures of evaluation of advertising – Customers are sometimes
asked to say where they first heard of a product. This is a process of evaluation that helps
the company know which of its media is more effective. Advertising effectiveness is
measured by finding the ratio of advertising dollars to sales.
Sales Promotion - Sales promotion is used to encourage consumers to try a product, to increase
demand for a product, or to increase product availability. Sales promotion could be directed
towards the consumer, the wholesaler, or the retailer. It is usually for a limited amount of time.
Sales promotion tools include the following:
1.
2.
3.
4.
5.
6.
Product samples
Rebates and refunds
Coupons
Trade shows
Price deals
Sweepstakes
7. Trade promotions
8. Sales meetings
9. Bonus packs
10. Premiums
11. Contests
12. Displays
TABLE 4.3 SALES PROMOTIONS
Advantages
Disadvantages
1. Good for short term stimulation
of demand
1. May fail to capture new users
2. There are various methods to choose from
3. Can be used in conjunction with
other promotion strategies
2. Works only for a short time
3. Reduced price may hurt profits
4. Competitors can easily copy it
Public Relations. This concerns image building through good customer, employee, supplier,
government an environmental relations.
Personal Selling. This involves direct communication with the consumer. Success at this job is
increasingly becoming an art since there are lots of obstacles to overcome. The following steps
must be taken to secure a successful sales group.
 Define the selling job to be performed.
 Define the desired characteristics of the sales representatives.
 Determine the size of the sales force.
 Recruit and hire the sales force.
 Train the staff.
 Design the sales territory – area to be covered.
 Assign staff to the territory.
 Motivate the sales force.
TABLE 4.4 PERSONAL SELLING
Advantages
Disadvantages
1. Can be very persuasive
1. The cost of meeting a single customer
Can be very high.
2. Allows two-way communications
3. Sometimes it is the only way to present
Complex and technical products
4. Zeroes in on specific customers.
2. Training and motivation can be very expensive
3. May aggravate some customers
4. Poor presentation may hurt the company
 Design the compensation plan for the sales force – commission, or salary plus commission.
The commission may be a lump sum or a percentage of sales.
 Continuously evaluate the sales force.
PROODUCT LIFE CYCLE
The life of a product starts when it is introduced. It goes through a cycle until it “dies” (decline),
or until something is done to revive it. The difference from one product to another is the
amount of time a product stays at each stage of the cycle.
Introduction. This is the beginning stage. Research and development, market testing, launching
etc. happen at this stage. It is often accompanied by start up losses. The business has yet to
recoup its start up costs.
Growth. At this stage, the product is becoming well known, and more people are buying. The
product goes through a continuous process of refinement and expansion.
Maturity. At this stage, the product has almost reached its potential. It is most profitable, sales
are high, and production is more efficient.
Decline. Sales are beginning to go down at this stage. Competitors may be coming in with
similar or alternative products. Also, the consumers’ tastes might be changing. The product can
still be saved at this stage with such strategies as “new and improved” versions being put out
on the market, or by changing the packaging of the product.
Marketing strategies differ from one product life cycle stage to the next. At the introductory
stage, the product is basic, the price is probably high, much money is spent on promotion and
distribution is limited. At the growth stage the product has to be differentiated because of
competition and new entrants into the market. The price at this stage would have gone down
due to increased competition or a refined production process. More money will be spent on
promotion in order to combat the competitors, and distribution will be higher thus leading to
mass marketing.
TABLE 4.5 MARKETTING STRATEGY AND THE PRODUCT LIFE CYCLE
Product
Price
Promotion
Distribution
Introduction stage
Basic
High
High
Limited
Growth
Differentiate
Medium
High
Mass Mkt.
Maturity
Add
Lower
Medium
Selective
compliment
and new and
improved
decline
Redesign
Lower
Very low
Third world
The product at the maturity stage may have to be modified in order to renew its appeal to the
customers. Prices should be low so as to attract more customers, low to moderate amount of
money should be spent on promotion depending on whether the company wants to improve
upon the product or divest from it. Distribution will be selective. At the decline stage, the
product may have to be re-designed. The price at this point should ne low, promotion costs
should also be low and distribution be low and distribution can be targeted at developing
nations.
MARKET SHARE AD PRODUCT LIFE CYCLE
The Boston Consulting Group (BCG) developed what is known as the BCG matrix. The matrix
combines market share an product life cycle.
 Stars – These are products that have high growth and high market share. They are to be
supported and developed
 Cash Cows – They are products with low growth but high market share. They are usually
products that give the co,[any a steady stream of income. Earnings from these products are
usually channeled into other areas.
 Dogs – These are products that have low growth and low market share. The company
should divest from these products.
THE BCG MATRIX
HIGH GROWTH
STARS
?
LOW GROWTH
CASH COWS
DOGS
HIGH MARKET SHARE
LOW MARKET SHARE
 ? – The question marks are products with high growth potential but low market share. The
company must decide whether to promote those to “stars.”
NEW PRODUCT DEVELOPMENT
The following steps are usually taken when developing new products.
Idea Generation. This is the brainstorming stage. All ideas are acceptable. They must be broad,
and must be directed towards customer needs and satisfaction.
Screening. Unprofitable ideas are eliminated, while good ideas are developed to full product
concept.
Testing. An initial research is carried out to test the product concept.
Marketing Strategy. Identify the target market and decide on the marketing mix (Product,
Price, Place and Promotion).
Business Analysis. Evaluate the company’s capabilities in terms of marketing, production,
financial, and personnel resources. Competitive factors must also be considered at this stage.
Product Development. A prototype of the product is developed by the production department.
Careful note is taken of what materials are used, in what quantities and at what cost. This will
help in the overall pricing of the final product.
Market Testing. Introductory sales are launches to see how consumers accept the product.
Complaints and errors are noted at this stage.
Commercialization. Errors are corrected n necessary alterations made. The product is fully
launched, and the company starts striving for market share.
ETHICAL MARKETING AND ADVERTISING DECISIONS
Corporate Responsibility for Ads. Many ethical issues have come up in recent times. Laws
have been put in place to take care of some of these issues. It is evident, however, from
continues public outcry that the problems are far from solved.
1. The Anti-Trust Laws. – Sherman Act, Clayton Act, The Federal Trade Commission Act, The
Robinson-Patman Act set up the standards for fair competition, mergers, deceptive acts and
practices, unreasonable restraints of trade as well as price discriminations that harm
suppliers, customers and competition.
2. Content Validity, Nudity, Language – These are issues that come up in advertising from day
to day.
Advertising and Children. Children are used in ads, and are also targets for many
advertisements that some people believe should not be targeting kids. Joe Carmel, the cigarette
cartoon character, comes to mind here. Children associate with cartoon characters, and if Joe
Carmel says it is cool to smoke, children are likely to believe him.
Advertising and Minorities. Is it discrimination or meeting the special needs of consumers?
When billboards all over America showed young black females smoking and told them they’ve
come a long way baby, is this discrimination? Some people believe it is. These women are being
encouraged to do something that will affect their health adversely.
Technology and Advertising. People are bombarded with so much advertising today that some
are asking if too much information is counter productive. Has technology made advertising
meaningless?
Product Pricing. Following are some of the ethical pricing issues often discussed:
1. Price fixing – Collusion by two or more producers.
2. Predatory pricing – Eliminating competition with low pricing strategy.
3. Psychology of Pricing – Do high prices mean high quality? Are discounts really discounted?
Product Safety and Liability. Costs of product liability include:
1. Increased price for consumers.
2. Stunted growth of competitiveness – manufacturers are afraid to develop new products
due to fear of litigation.
3. Higher burden of care and responsibility rests with the manufacturer.
Product Liability Law Issues. Some of the following issues may need to be re-examined.
1. A negligence-based standard to judge the design and adequacy of warnings.
2. The presumption that a product that complies with government regulations is relatively
safe.
3. A limitation on liability for design and manufacturing defects to a specific time period.
4. Assignment of liability based on a system of comparative responsibility. The emphasis is on
the word “comparative.”
5. A limitation on lawyers’ contingency fees to a “reasonable” approximation of the actual
work done.
6. A requirement that damage award be “predominantly” grounded in actual economic loss.
Product Obsolescence.
Some businesses have been known to deliberately build obsolescence into their products. This
raises questions loss.
1. How long should a product last?
2. Should manufacturers build obsolescence into their products?
3. When does obsolescence stop and quality star?
CHAPTER
5
PRODUCTION MANAGEMENT
Production management deals with the process of manufacturing goods. Topics such as
purchasing, inventory management, level of technology, types of processes, production
facilities, total quality management and many more fall under this subject.
MANUFACTURING PROCESSES
There are four main production processes, Job Order Process, Batch Process, Mass Production
Process and Continuous Process. The type of process used by an organization determines the
type of production facilities, as well as the type of technology to be used.
Job Order Process. The production of individual unique products one at a time. Each job is
costed and priced separately. Companies that use this process include hospitals, consulting
firms and construction firms.
Batch Process. Products are manufactured in batches. Furniture manufacturers, wineries, and
coffee producers are examples of companies that use the batch process. Several pieces of the
same style of furniture, or coffee beans, are produced. Once that run is done, another batch is
started.
Mass Production. Repetitive manufacturing that lends itself to automated equipment usage.
This minimizes the amount of manual materials handling. Automobile assembly plants, food
processing plants, and computer terminal assemble plants are examples of companies that use
mass production.
Continuous Process. This is the opposite of hob processing. Companies in this category
continuously mass produce a single, homogenous product. Paint, steel, and oil refineries are
examples of this type of process.
CHARACTERISTICS OF PROUCTION SYSTEMS
Production systems emphasize one of three things, Simplification, Diversification or
Standardization.
Simplification. This happens when products or tasks are eliminated or merged in order to
achieve maximum efficiency.
Diversification. When new products or tasks are added due to:
a. Consumer demand for variety.
b. Price appeal – Same products are packaged in different quantities and of different
qualities, ad priced differently so as to attract a diverse customer base.
c. Market expansion – Existing or new products are introduced to new markets. This has
the effect of limiting the organization’s risks. Scale economies will be enjoyed, and fixed
costs will be spread over a large number of products.
Standardization. This calls for the use of common or standard parts. This approach simplifies
work methods, and the tools use. There is also the benefit of uniform quality of products. The
primary goal is economic production, with concurrent increase in profit margin.
PRODUCTION PROCESS
Production processes can be classified into three categories, Analytic, Synthetic and
Conditioning.
Analytic process. Here, raw materials are further broken down into component parts. An
example of his is crude oil from which many other chemicals and gas, such as aerosol and
kerosene, can be extracted.
Synthetic Process. Several resources are put together to form a new product. Steel is n example
of this. Other materials are added to iron ore to make the steel.
Conditioning Process. In this case, nothing is added to the raw materials, producers merely
change its form. For example, a piece of thermoplastic is poured into a mold and changed into a
pocket comb.
PRODUCTION PLANNING
The different stages of production planning are as follows:
1.
2.
3.
4.
Plan future production from sales forecast.
Determine the resources needed (manpower, machinery, materials, etc.).
Estimate the cost of each input.
Determine specific operating activities and the steps necessary to carry them out. Plan
activities in the correct sequence.
5. Assign specific jobs to personnel, machines, and departments.
6. Make necessary design, schedule, and output changes.
MATERIALS HANDLING
This involves purchasing, costing, inventory management, materials requirement procedures
and more. We begin this discussion by getting an understanding of the cost concept.
Product Costing. What a product will sell for depends on how much it costs to produce it. Costs
are classified into two, fixed and variable. They can be further classified as direct indirect.
Direct costs – Those costs that are applied to the product itself such as materials, labor and
Some other overhead.
Indirect costs – Costs that are incidental to the production process such as general heating
and lighting, the supervisor’s salary, etc.
Fixed costs – Time-related costs. They remain the same in the short run, but may change in
the long-run. Fixed costs are incurred whether the company produces or not. They are
costs attributed t long-lived assets such as plant, equipment, land, and buildings.
Variable costs – Costs that vary with the level of output. Such costs include, raw materials,
Iabor, and direct overheads.
Overhead costs – Variable costs other than direct materials and labor. They are costs that
must be incurred, but are not directly traceable to the product. Examples are
depreciation, supervisors’ salaries, maintenance, etc.
Just-In-Time Production
Companies that use just-in-time methods buy their materials and produce parts just in time for
use in production. This is part of what I referred to as Lean Production. Lean production has the
following effect on the company and its customers:
1. It improves the quality of the product because employees have to get it right the first time
there is no room for making mistakes and setting it aside for re-working.
2. Productivity should increase because employees are responsible for whole processes or a
set of equipment. This makes accountability possible, and it gives employees feelings of
accomplishment when they have zero defects time and time again.
3. The system is responsive to customers. Customers want high-quality products what will be
delivered on time and this system gives it to them.
Principles of Lean Production
The concept of lean production starts with the customer’s orders and ends with delivery to the
customer. There must be quality every step of the way.
1. If materials are not needed now, they are not created, manufactured or handled.
2. Le times are shorter – Lead time is reduced by what is known as group-tech.
Machines are grouped together and have one or few people who operate the machines
from the beginning to the end. This saves inventory, reduces handling time, thereby
reducing lead time.
3. Focused Factory Network – Networks are created and managed by what are called Strategic
Business Unit (SBU). SBUs work as separate business units and are accountable for all work
done by the unit. This set up leads to diverse products while still having focus.
4. JIKOKA – This stands for quality at every step of the process. This system eradicates
speculation of market demand because it produces what is needed, and when it is needed,
to meet customer demand at better quality. It takes a micro, instead of a macro look at
distribution, in order to eliminate idle cash. With the macro view, John Degree, makers of
tractor equipment, for example, may have distributors in Denver doing brisk business, while
those in Idaho may be going through a slump. Inventory that could be disposed of in Denver
is sitting in Idaho and costing the business money. With a micro view, manufacturing is
based on customer orders. This is referred to as the “[pull system.”
MRP II (Manufacturing Resource Planning System)
This is a system whereby engineering requirements dictate the components of the product.
Component requirements in turn dictate the pats that are needed. The necessary parts are
then ordered and sent to manufacturing. This is usually integrated with the supplier
requirement scheduling system which includes consideration of the economic order quantity,
delivery times of suppliers, and deadlines for delivery of the final product to the customer. This
system:
1. Reduces cost – The only materials ordered are those needed, and they are ordered in
economic quantities, directed at specific orders.
2. Improves quality – Every stage from engineering to manufacturing is monitored for quality
and efficiency.
3. Meets customer demand – Production is geared towards specific orders.
4. Price is competitive – Efficiencies in ordering, handling, and manufacturing leads to reduced
cost, which is passed on to the customer.
Manufacturing and Total Quality Management (TQM)
Quality oriented organizations continue to monitor the quality of their products and seek
feedback from their customers. Companies have emphasized quality in design, manufacturing
and service. Production quality is measured in terms of quality control, delivery performance,
materials waste, and machine down time. Total Quality Management has been encouraged in
recent times through the Deming, and the Malcom Baldridge Awards. Some of the measures of
TQM used are:
1.
2.
3.
4.
5.
6.
Leadership quality in the organization.
Information and analysis of such information.
Strategic quality planning.
Human resource utilization.
Quality results.
Customer satisfaction.
Total Quality Control
Total quality control involves finding out what the process of manufacturing is, and what is
needed to improve it. The quality control group then uses data and customer input to create a
Pareto diagram, and uses a cause and effect diagram to identity the problem areas.
1. Control charts – This helps production mangers distinguish between random and routine
variations in the quality of the products, and those defects that should be investigated. A
control chart is plotted to see trends or unusually high rates of defective merchandise.
Control limits are usually set. If the number of defects exceeds the upper control limit, the
production manager is expected to investigate the situation.
The following chart is for a plant which sets its upper limit at 20 defective units per day. It
is obvious that something went wrong on Wednesday and Friday this week. Several things
may account for these deviations. It could be due to a machine breakdown on Wednesday
which was fixed immediately, hence the lower defect rate on Thursday. The same problem
may, however, have recurred since the defect rate was on the upward trend again on
Friday. The deviations could also be attributed to the fact that a new employee in training
worked both days.
Control Chart for Returned
Goods
60
50
40
30
Control Chart for
Returned Goods
20
10
0
Mon
Tue
Wed
Thur
Fri
2. Pareto diagrams –These indicate how frequently each type of failure occurs.
Manager learn more about defects from Pareto diagrams than they do with mere control
charts. It gives details of what I actually going wrong, not just that something is going
wrong.
The following Pareto diagram shows the reasons and rate of returns for specifics toy. Toy
were returned 80 percent of the time because some of its parts were broken, 50 percent
because parts were missing, 30 percent because the toy was dangerous and 20 percent for
other reasons such as, wrong color, or the ked did not like it.
PARETO DIAGRAM FOR DEFECTIVE TOYS
Defective Toys
90
80
70
60
50
40
30
20
10
0
Defective Toys
The Pareto diagram also shows the order of priority in finding solutions to the problems. In
the example above, broken parts should be the first in the order of investigation since 80
percent of returns fall into this category.
3. Cause and effect analysis – It identifies the likely cause of a defect. It traces the problem to
the source. Breakage, in the above example for instance, may be due to breakage during
production, faulty materials, or poor handling.
CHAPTER
6
FINANCIAL MANAGEMENT
To carry on their business, firms need a series of real assets. Such assets may be tangible as
in factory buildings, vans, equipment, and cash, or intangible such as patents, copyrights, etc,
all of these assets must be paid for. To obtain the funds for them, the company must sell
financial assets like stocks and bonds. The role of the financial manager is to ensure that the
company can raise funds as inexpensively as possible. She or he must decide how much to
invest, what to invest in, and how to raise the necessary funds. The ultimate goals is to increase
the shareholders; investment in the firm.
VALUE MAXIMIZATION
The main reason for starting a business is to make money. Once the business gets going, the
owners will like it to continue to grow. This growth will increase the value of their initial
investment. In a market economy, to pursue goals other than that which will increase the value
of the firm is to head for failure. This is not to say that managers should disregard ethical
decision making. It is in the interest of the company to maintain a reputation as a good
corporate citizen, employer, and business partner.
ACCOUNTING AND FINANCE
Most businesses are run by people other than the owners. It is, therefore, necessary for the
owners to know what is going on in the firm. Also, there are many people who have a stake in
the business other than the owners. Some of these include the employees, suppliers,
customers, government, potential investors, analysts, and environmentalists. These are the
stakeholders of the firm, and they too will like to know the firm’s financial information into:
1.
2.
3.
4.
Balance Sheet
Income Statement
Cashflow Statement
Retained Earnings Statement
The Balance Sheet
The balance sheet provides a snap shot of the firm’s financial position at a specific point in time
(e.g., balance sheet as of December 31, 1997). The balance sheet shows the company’s assets,
liabilities and stockholders’ equity.
Assets. Assets are what the company owns and be classified into two:
1. Fixed Assets – These are assets that are referred to as long-lived assets. Benefits in fixed
assets continue to accrue for the life of the asset. Such assets cannot be easily turned into
cash. Fixed assets can be further classified into tangible or intangible assets. Tangible fixed
assets are touchable assets. They can be seen physically or moved around. Examples are
land, building, plant, and equipment. Intangible fixed assets are assets that convey some
rights to the owner. Such assets cannot be seen or touched physically. They include
copyrights, patents, trademarks and goodwill.
2. Current Assets –Current assets are assets that can be quickly changed into cash. They
include inventory, accounts receivable, short term investments, bank balance, and cash.
Liabilities. Liabilities are what the company owes and can also be classified into two:
1. Long-term liabilities – Company debts that are due for payment after one year or one
operational cycle.
2. Current liabilities – Debts or obligations that are due in less than one year. Short term loans,
accounts payable, and accrued expenses are in this category.
Shareholders’ Equity. The difference between the assets and the liabilities is the shareholders’
equity. It is the sum total of what the shareholders invested in the business plus retained
earnings.
Income Statement
The income statement measures the profitability of the firm during a given financial period. It
could be prepared monthly, quarterly, bi-annually, or annually. The income statement shows
income from operations and not cash flow. The reason for this is investment in fixed assets is
not deducted immediately from income. Portions of it are charged as depreciation over the
expected life of the asset. Also, accountants record revenue when the sale is made, rather than
when the customer actually pays. The income statement shows the company’s revenue, minus
its expenses.
Cashflow Statement
This statement shows the changes in the company’s cash position for the accounting period. It
records the firm’s sources of funds (where cash came from, e.g. net income, sale of shares,
bank loans, disposal of an asset and retained earnings) on the one hand, and on the other, it
records the firm’s uses of funds (what the firm used money for, e.g. net loss, paying off an
outstanding debt, buying new equipment, etc.).
Following is a proforma of a basic income statement, statement of retained earnings and a
balance sheet:
BS 101 INC
Income statement for the Year Ended December 31st, 2000
Revenue
xxx
Less expenses
xx
Profit before tax
xxx
Less tax (35%)
xx
Profit after tax
xxx
Retained Earnings Statement
Beginning balance
xxx
+ Net profit after tax
xx
Total Revenue Earnings
xxx
-
Dividends or withdrawals
Ending retained earnings
xx
xxx
BS 101 INC
Balance Sheet as of December, 31st 2000
Assets
Liabilities
Current
Current
cash
xxx
A/C Payable
xxx
A/C Receivable
xx
Short-term loans
xxx
Inventory
xx
Long term
xx
Pre-Payments
xx
Long-term loans
xxx
xxx
Total Liabilities
xxx
Total Current Assets
Fixed Assets
Owners Equity
Land
xxx
Capital
xxx
Plant and equity
xxx
Retained earnings
Furniture
xxx
Buildings
xxx
___
Total Assets
xxx
Total Liabilities and Equity xxx
xx
TAXATION
Corporations as well as individuals must pay tax on their income. The tax rate for most large
corporations is 35 percent of income. Companies get a depreciation and interest payment
allowance on their income, these are used in determining net income. It, however, cannot
deduct dividend payments to shareholders. Income from proprietorships and partnership is
included in individual owner’s personal income tax return.
Individuals are taxed on their personal income depending on the tax bracket they fall into.
Income for the individual includes dividends and interest received. Capital gains are also taxed
but not until the asset is sold and the amount is actually realized.
CORPORATE FINANCING
Businesses can obtain funds from many sources including, friends, family, banks, personal
savings, and the general public. As businesses grow, they are likely to need more funds than the
original owners can come up with. This may cause such owners to call in other people as
partners. Sometimes, partnerships get too big and so they must upgrade to a corporation. The
issue of limited liability is also another reason why partnerships decide to incorporate. When
this happens, unless it is a private or closed corporation, the general public will be invited to
become owners of the corporation by buying shares in the business.
Types of Financing
Corporations are able to raise funds through equity and debt. Equity is funds raised through the
issue of shares to the public. Such people are known as the shareholders. Shares are usually
classified into common stock and preferred stock.
Common Stock. Investment in common stock brings with it ownership and voting rights. In
return for their money, owners of common stock receive dividends whenever the board of
directors decide to pay out dividends. Management may decide not to pay dividends, but to
plow back company profits. When this happens, it represents another source of funds which is
known as retained earnings.
Preferred Stock. Preferred stock offers a fixed dividend, but management may decide not to
pay it. If management decides not to pay preferred dividends, it cannot pay common stock
dividends. Whenever dividends are paid, preferred stockholders take precedence, hence the
name preferred stock. It is not, however, a very popular form of financing.
Debt Financing. Debt is another form of financing used by corporations. There are various
forms of debt. It could be:






Fixed rate or floating rate
Funded (long-term) or unfunded (short-term)
Secured (with collateral) or unsecured (without collateral)
Domestic debt or Eurobonds (international)
Publicly traded r private placements
Investment grade (low risk) or junk bonds junk bonds (high risk)
Retained Earnings. Internally generated funds represent the most popular form of corporate
financing. This is defined as depreciation plus earnings that are not distributed as dividends.
This trend is the same the world over.
Debt to Equity Ratio. This ratio is important because it shows what proportion of the company
is controlled by the common stockholders, and what proportion is controlled by the debtholders. Debt-holders are entitled to interest on their money, and this must be deducted from
income even before tax is paid. If the company does not do enough business to cover payment
of interest on its loans, it runs the risk of being forced into bankruptcy by its creditors.
Financial managers have to make a decision whether to finance the corporation with all-equity.
High equity/low debt, or low equity/high debt. If the corporation is enjoying a prosperous time,
high debt means it can earn more for its shareholders. Once the fixed interest payment has
been made, the rest of the profits belong to the shareholders. If, on the other hand, the
company is going through hard times, it may even have to borrow more money to pay its
creditors.
FINANCIAL PLANNING
Financial planning can be classified into long-term and short-term planning. Long-term planning
deals with the strategic position of the company, where the company wants to be financially in
the future. Short-term planning, on the hand, deals with the day to day management of the
firm’s current assets and current liabilities.
The most important current assets are cash, accounts receivable, marketable securities and
inventory. The most important current liabilities are bank loans, and accounts payable. The
difference between current assets and current liabilities is known as net working capital. The
company must ensure that its current assets are at least double its current liabilities, otherwise
the business will have liquidity problems. This is a good rule of thumb but the nature of each
business must also be considered.
Managing Working Capital
The lag between the time a company obtains its raw materials, and the time it collects its bills
from its customers gives rise to net working capital. This is measured by the cash conversion
cycle (the time it takes for the company to turn its raw materials into cash). Management can
control this cycle to some extent by seeing longer payment periods from its suppliers than it
extends to its customers. This way, the company will receive money from its customers before
payment on its supplies are due.
Working Capital and the Matching Concept
A company’s short-term financial planning usually rests on the type of financing it uses.
Companies with long-term sources of funds will usually have excess supply of cash, while
companies that use short-term financing may find themselves constantly seeking funds to
finance projects. Most companies take care of such problems by matching the life of a project
with the life of the financial instrument. Long-term projects are financed by long-term sources
of funds, while short-term projects are financed by short-term sources of funds.
Cash Budgeting
Short-term financial planning starts with the cash budget. The firm determines how much it is
likely to raise from sales and other cash in-flows. It also determines how much it has to pay for
supplies and other forms of expenditure. Imminent shortages can then be financed ahead of
time, by arranging a bank loan, borrowing by using inventory or accounts receivable as
collateral, issuing short-term notes known as commercial paper, or re-arranging some of the
firm’s expenditures so that they fall into periods when extra cash will be available. The financial
manager must weigh the consequences of different financial plans based on things like interest
rates and desired debt-to-equity ratio.
Illustration: The following figures pertain to the operations of BS 101 Inc. an income statement,
statement of retained earnings and balance sheet can be prepared using this information.
Plant
50,000
Building
100,000
Furniture
5,000
A/C Payable
5,000
A/C Receivable
3,000
Revenue
115,000
Expenses
85,000
Dividends
5,000
Retained Earnings
15,000
Capital
?
Income Statement
Revenue
158,000
Expenses
85,000
Net income
30,000
Retained Earnings
Beginning retained
15,000
Net income
30,000
45,000
Dividends
5,000
Ending retained earnings
40,000
BS 101 INC
Balance Sheet as December 31st, 2000
Assets
Liabilities
Current
Current
Accounts Receivable
Fixed assets
3,000
Account Payable
Owner’s Equity
5000
Plant
Building
Furniture
50,000
Capital
113,000*
100,000
5,000
Retained earnings
_______
40,000!
_______
Total Liabilities
Total Assets
158,000
and Equity
158,000
* The double entry principle in accounting requires that both the asset and liability plus equity
sides of the balance sheet be the same. The capital figure of $113,000 was deduced by adding
the left side and subtracting the total on the right side from that total to give us the missing
number of $113,000.
! This number is the ending retained earnings calculated in the retained earnings statement
above.
FINANCIAL ANALYSIS
The company financial report shows a great deal about the workings of an organization, but
only to those who know how to read it. Managers and analysts use certain techniques ratios to
summarize the company’s leverage, liquidity, profitability, and market value.
Financial Analysis Methods
1. Common size statement: Use for comparative analysis. All income statement items are
calculated as percentages of sales, and balance sheet items are calculated as percentages of
total assets. The percentages can then be compared over several years, or among
companies.
2. Trend analysis: a graph can be created of say sales turnover for a company over five years.
The graph maps the trends (tendencies) of the item being assessed.
3. Bench marketing: A company tries to measure to measure its performance against that of
another company.
4. Ratio analyses: Items in the financial statements are converted into ratios for analysis.
Types of ratios include
a.
b.
c.
d.
e.
Leverage of debt ratio
Liquidity ratios
Activity or efficiency ratio
Profitability ratios
Market value ratios
Common size statement
Income statement
A
%
B
%
Revenue
10,000
100
1,000,000
100
Utility
200
2
200,000
20
Wages
3,000
300
100,000
10
Expenses
Advertising
250
2.50
50,000
5
Phone
150
1.50
10,000
1
35,000
3.5
Depreciation
1,000
Net income
5,000
10
605,000
Trend Analysis
Dollars
60,000
40,000
20,000
10,000
1990
1994
1998
Years
The above graph indicates an upward trend for the first two years. However sales started to
decline in the third year. Management should investigate the reasons for the sales decline.
Leverage Ratios
These measure the indebtedness of the firm. They show the extent to which a firm can be
controlled by its creditors. They also show the firm’s ability to pay interest on its loans and how
much of the company’s loans are long term obligations. Leverage is measured by the following:
Long-Term Debt Ratio
=
Long-term Debt + Value of Leases
Long-term Debt + Lease + Equity
Debt-equity Ratio
=
Long-term Debt + Value of Leases
Equity
Total Debt Ratio
=
Total Liabilities
Total Assets
Times Interest Earned
=
Earnings Before Interest and Tax
Interest Payments
Liquidity Ratios
Liquidity ratios measure how quickly a firm can raise cash. These ratios measure the rate at
which a firm turns its inventory over. They also show the company’s credit policy, how quickly it
collects its debts, and what proportion of its current assets are represented by cash and
marketable securities (these are the most liquid of the assets). The higher the current assets are
to current liabilities, the better the liquidity ratios.
Current Ratio
=
Current Assets
Current Liabilities
Quick Ratio
=
Current Assets – Inventory
Current Liabilities
Cash Ratio
=
Cash + Marketable Securities
Current Liabilities
Efficiency Ratios
These measure the intensity with which the firm is using its assets. They measure how often a
firm turns over its inventory, how quickly it collects its debts, and how many days’ sales are
held in inventory a high asset turnover ratio compared with other firms in the same industry
could mean that the firm is operating at nearly full capacity. A high days’ sales in inventory,
however, may be an indication that the company is overstocked, or that its inventory is
obsolete and is not being sold fast enough.
Examples are:
Total Asset Turnover
=
Sales
Average Total Assets
Inventory Turnover
=
Cost of Goods Sold
Average Inventory
Days’ Sales in Inventory
=
Average Inventory
Cost 0f Goods Sold/365 days
Average Collection Periods =
Average Receivables
Average Daily Sales
Profitability Ratios
Profitability ratios measure the firm’s return on its investment. A high-profit margin ratio
means the firm is getting more out of its sales. This may be due to some efficiency in managing
overheads or some savings in purchasing inventory. A high return on equity ratio is indicative of
the fact that the firm’s shareholders are getting more out of every dollar they invest. Examples
include:
Net Profit Margin
=
EBIT - Tax
Sales
*(EBIT: Earnings Before Interest and Tax)
Return on Assets
=
EBIT – Tax
Average Total Assets
Return on Equity
=
Earnings Available for Common Stock
Average Equity
Payout Ratio
=
Dividend per Share
Earnings per Share
Market Value Ratios
These measures how the firm is valued by investors. The price-earnings ratio determines
whether a company’s stock has future earnings potential relative to other company’s stocks. A
high P/E ratio means the investor is getting more return per dollar invested in one company
than in another. Also, a high dividend yield ratio means that investors can expect high dividend
payments as a proportion of the stock price.
Price-Earnings Ratio
=
Stock Price
Earnings per Share
Dividend Yield
=
Dividend per Share
Stock Price
Financial ratios are not crystal balls. They are tools that help examine a company critically and
help the analyst to ask the right questions. Ratios help to evaluate a firm’s performance from
one year to the next, and also o compare I performances with other firms in the industry. The
use of ratio analysis requires a lot of common sense and good judgment.
PICTURE HERE
TIME VALUE OF MONEY
A dollar today is worth more than a dollar next year. The reason for this is that you can put the
dollar to work today so it would have appreciated by next year. It therefore can be said that a
dollar invested at an interest rate will increase in value by (1 +r), r being that interest rate.
Future Value of an Investment
After a set period, it will increase in value by (1 + r)t. The letter r represents interest rate and
the letter t represents the number of periods. This is the future value of the $1 investment with
compound interest. For example, if you invest $100 in the bank, and the bank pays 6% interest.
The value of your $100 in one year’s time will be:
Initial Investment
=
$100
=
$106
x
(1 + .06)
x
(1.o6)
After 2 years, the value will be:
$100 x 1.06 x 1.06
or
$100 x (1.06)2 = 112.36
The future value of an investment, therefore, is the value of that investment multiplied by (1 +
r)t.
Present Value of an Investment
The present value of an expected future cash flow is the amount one would need to invest
today in order to earn that future income. To calculate the present value, the cash payment is
divided by the discounting factor (1 + r)t.
Still using the above example, if you plan to receive $106 from an investment in one year, and
the investment pays 6% interest per year, how much you invest now in order to have $106 in a
years’ time? The formula for that is:
Present Value
=
Future Value after t periods
(1 + r)t
Present Value
=
106
1 + .06
=
$100
This is the reverse of the future value calculation. One is multiplied, while the other is divided
by the discounting factor.
The interest rate in this case is known as the discount rate. The present value of an investment
is how much it is worth. The difference between the present value of an investment and the
required investment is known as the net present value.
ETHIC OF FINANCIAL ACOUNTING
Ethical problems always have plagued the accounting field. Such problems include:




Stock Market Manipulation
Enriching the company at the expense of the public
Insider trading
Tax evasion
Controlling Bodies. Conduct in the accounting field is controlled by the following:
 American Institute of Certified Public Accountants (AICPA)
 Securities and Exchange Commission (SEC)
 Financial Accounting Standards Board (FASB) – Issues Generally Accepted Accounting
Principles (GAAP).
 Governmental Accounting Standards Board (GASB)
 Management Accounting Practices Committee
Duties of an Accountant. An accountant is expected to adhere to the following standards.
Deviations from these standards amount to ethical misconduct.
 Exercise the skill and judgment that can be reasonably expected from similarly situated
professionals.
 Must comply with the express and implied provisions of his/her contract.
 Must exercise a standard of care required by the undertaking.
 Must act in good faith with reasonable care and without fraud.
Repercussions of Fraudulent Reporting. Fraudulent reporting can cost the business in more
ways than one. Some of those costs are:
 Losses to creditors and investors.
 Loss of confidence in the accounting process in general.
 Increased cost for the company – investors and creditors will thereafter require a higher
rate of return to compensate for the risk they have to bear.
Employee Theft. Affects the following, ad is usually grounds for dismissal
 Profitability
 Productivity
 Morale
CHAPTER
7
INTERNATIONAL BUSINESSS ISSUES
W
ith the world gong global in all aspects of life, international business issues become
increasingly important. Today, people talk about developing global products (single products
that will sell anywhere in the world). International unions are being formed, and domestic
companies are finding that competition can come in the form of a foreign company.
International business therefore, can be defined as “human activity directed at satisfying needs
and wants through exchange processes across international borders.”
THE MULTINATIONAL ENTERPRISE
The multinational enterprise has been defined as any organization that has plants in more than
six different countries (defined by structure) or with 20% of its production coming from outside
its base country (defined by performance). A more detailed definition describes an MNE as a
parent organization that carries out foreign production through its own affiliates, exercises
direct control over its affiliates, and follows a world wide strategy (defined by behavior).
Global strategies
Multinational organizations employ various strategies of operation. These strategies differ from
corporation to corporation, and from country to country.
Centralization vs. Decentralization.
 Ethnocentric – This is a centralized approach because the MNE has a home country
orientation in that most decisions are made from the home country.
 Polycentric – Managers in host countries are allowed to make most of their decisions based
on their experiences and understanding of the host country. This is a decentralized
approach.
 Geocentric –The corporation takes a world view when making decisions.
Diversification vs. concentration. This deals with the MNE’S decisions as to how it plans to
expand its global operations. It may choose:
 Diversification – That is, spread fast into various markets and grow slowly within such
markets, or
 Concentration – Which is concentrating operations in one or a few countries and growing
fast within such countries.
STRATEGIC ALLIANCES
International business has created the need for alliances. Such alliances can be:
Between companies – As with MCI and British Telecoms
Between a company and a country – As with Pepsico & India
Between countries – As with NAFTA, EU, and the PACIFIC RIM
Reasons for Strategic Alliances. These are various reasons why international companies and
countries form alliances:
 To combat competition – The formation of NAFTA became necessary to enable North
America to combat competition from a “fortress Europe.”
 Rapidly advancing technology – The cost of replacing ld technology may become prohibitive
to some companies or countries. Consequently they may decide to join their efforts in
technological acquisitions with other companies.
 Shorter product and process life cycle – The shorter the product and/or process life cycle,
the more a company or country needs to spend on research and development. As a result,
the prospect of sharing the cost with another company becomes an attractive idea.
 Host government requirement – Some host governments will not allow 100% foreign
ownership. A multinational corporation, therefore, may have to form a partnership with a
local firm.
 For access to new markets – Forming an alliance with a foreign company helps to gain
access to such a country’s markets.
 To enter a new business – If a company or country is trying to enter a new business, it may
be more profitable for it to join its efforts with those of another firm that already operates
in such a field.
Other reasons are:
 To introduce new products
 To overcome trade barriers
 To avoid predatory competition
 To gain access to complementary resources
 To pool resources, skills, and risk capital
 To share risk
Forms of Alliance.
Alliances can be service oriented or opportunistic.
Service. The group gets together to form a new venture that satisfies a common need, such as a
common advertising agency.
Opportunistic. These occur in situations where an organization sees an opportunity to gain a
competitive advantage, perhaps temporarily, through the formation of an alliance.
Stakeholder Alliances. Such alliances may be with suppliers, customers, employees or others.
An example is IBM’s alliance with Rolm in order to obtain telephone switching technology.
Numerous advantages accrue to the Multinational Enterprise (MNE). Some of these are:
1. Access to superior technical know-how – An enterprise that operates worldwide has access
to know-how from all over the world. This gives the MNE a strong competitive advantage.
2. Economies of scale – As a result of their large sizes, MNEs enjoy the economies of large
scale production. They have very large markets, and their annual sales are sometimes larger
than the gross national product of some countries.
3. Low cost operation – Multinationals enjoy the benefits that accrue when raw materials are
bought in bulk. They enjoy scale economies in distribution, shipment, and promotion.
4. Goodwill and bran image advantages – MNEs are known worldwide and thus enjoy the
benefits of their goodwill and the popularity of their brand names.
5. Low cost financing – MNEs by virtue of their size are usually considered good credit risks
and, therefore, are favored customers.
6. Financial flexibility – They are able to manipulate profits and shift such profits around the
world. By that, they enjoy tax benefits which can then be used to artificially lower prices
when entering a new market.
7. Information advantages – They have a world market view and are, therefore, able to collect,
process, analyze, and disseminate information more effectively.
8. Managerial experience and expertise – The world-wide operations of MNEs give them
access to a large pool from which to select the best managers with the most experience and
expertise to man their operations all over the world.
9. Risk diversification – The MNEs are able to spread their risks. While there may be a cyclical
decline in one country some other countries may be enjoying a boom. This has the effect of
lessening the negative impact of the cyclical decline on the MNE.
Since higher profitability usually means higher risks, MNEs are not without disadvantages. Some
of them are:
1. Business risks – MNEs have to deal with fluctuations in the foreign exchange rates. Cyclical
variations in the economies of the countries in which they operate will usually affect them
too.
2. Host country regulations – The rules of operation in host countries are usually different
from that of the base country. MNEs must familiarize themselves with regulations in many
countries, and such regulations are often changed without much notice to the MNEs. Bans,
embargoes, import licenses are usually introduced by host countries. These often have
tremendous adverse effects on the multinationals.
3. Diverse legal systems – MNEs must understand the legal systems in all the countries within
which they operate. Modes of doing business, nationalization decrees, and repatriation of
profits policies are some of the issues an MNE may face by doing business abroad,
especially in developing countries.
4. Political stability – An MNE has to cope with the form of government in the host country. It
usually has n control over what the government may decide to do. Frequent changes in
government usually destabilize the operations of the multinational corporation.
5. Operational difficulties – Unwritten business practices, accounting and sales policies, as well
as availability of necessary infrastructure are some of the operational problems an MNE
might face.
6. Cultural differences – Issues like language, attitude towards work, time consciousness,
religion, modes of dressing and even climatic conditions in host countries usually constitute
problems for the MNE.
BENEFITS TO HOST COUNTRIES
Host countries also enjoy some benefits from the operations of Multinationals.
1. Optimum use of production factors – Resources that were underutilized, such as people,
and land, can be put to use due to the presence of the MNE in that country.
2. Upgrade of resource quality – Multinationals usually bring about improvements in the local
resources. People are trained to man the local operation. Infrastructures (roads, water
systems, schools for their employees’ children, etc.) are put in place in the host country.
3. Technological transfer – Multinational corporations often introduce new technology to the
host countries.
4. Improved standard of living – By providing jobs in the host country, the MNE helps to
improve the standard of living of the people. New products are also introduced into the
country that help to make the lives of the citizens better.
5. Transfer of technical and management know-how – The local people are trained to operate
he equipment and to manage the enterprise in the local economy. Such training becomes
an asset to the citizens even after they stop working for the multinational.
CRITICISMS AGAINST MNEs
Multinational corporations have been criticized for the ways they do business in host countries.
Size and Clout. Multinationals sometimes get so big that they influence the government of
some foreign countries. Some of these MNEs are economically larger than many countries.
MNE Actions and Business Environment. MNE decisions usually affect more than one country
and in different ways. By generating full employment in host countries, an MNE might also be
eroding domestic control.
Balance of Payments Effect. Surplus in one country represents a deficit in another. To counter
the negative effect on Balance of Payments, parties try to set policies to improve their
positions. MNEs may set capital outflow restrictions, while host countries set repatriation of
profits restrictions.
Home Country Losses. Home country labor sometimes accuse MNEs of taking jobs away from
the by investing abroad.
Host Country Losses. Host countries may lose if MNEs merely replace local firms, take the best
resources, or destroys local entrepreneurship.
INFLATION AND FOREIGN EXCHANGE RISK
Exchange rate is the price of one country’s currency in relation to the currency of another
country. There are two types:
1. Fixed – The government sets and abides by it.
2. Flexible/Fluctuating – Market forces determine its supply and demand for the currency.
The tension between high and low exchange rates.
On the other hand:
High exchange rates leads to cheaper imports because it puts pressure on domestic prices and
keeps inflation in check. This should lead to higher standards of living for citizens. However,
increased importation leads to job losses for citizens due to loss of market share or inability to
cover costs due to low prices.
On the other hand:
Low exchange rates make imports expensive. Exports become cheaper. This may lead to
balance of trade surplus which in turn could lead to expansionary (economic boom) effects on
the economy. However, expansionary tactics may contribute to inflationary pressures. This
could also prompt retaliation or pressures from those countries with trade deficits. Countries,
therefore, have a constant battle on their hands concerning what to do with exchange rates.
BALANCE OF PAYMENTS
The Balance of Payments is a statement of all transactions involving receipts and payments for
imports, exports, and foreign investments. It records all economic transactions between
residents of one country and another, over a period of time. International transactions are
grouped into three main accounts: current, capital, and official reserves.
DEBITS, CREDITS, AND EQUILIBRIUM
Exports lead to capital outflow which is recorded as debit while imports ea to capital inflow and
is recorded as a credit for the receiving country. The Balance of Payment (B.O.P.) is usually in
accounting balance that is total credits must equal total debits. When what you’re owed equals
what you owe, the Balance of Payments are said to be in equilibrium.
Balance of Trade. The difference between the value of goods and services a nation exports and
the value of goods and services it imports is known as the Balance of Trade.
ENVIRONMENT OF INTERNATIONAL BUSINESS
Just as a domestic business must cope with the external environment, so also must the
international business. The political, cultural, technological and social environments also affect
the international corporation.
Ideologies are the systematic body of theories and aims that make up a socio-political program.
They determine the types of political systems operated by any given country.
Political and Economic Environment. The political system integrates the society, while the
economic system allocates scarce resources within the system.
TYPES OF POLITICAL SYSTEMS
Democracy. A government of the people, for the people and by the people.
Totalitarianism. A government controlled by a few people who tell the majority what to do.
Theocracy. A government with religious emphasis. The people are governed according to
religious rules as in some Middle Eastern countries.
Political risks: Following are some of the risks face by international organizations.
1. Confiscation – Government takes over ownership without compensation.
2. Expropriation – There is some compensation, but it may not be just.
3. Nationalization – Government takes over and runs the company.
4. Domestication – Private entities run the company after I is taken over.
5. Instability risk – Uncertainty about the future.
6. Operation risk – Constraints such as price control, taxes, foreign exchange, etc
MODES OF ENTRY INTO FOREIGN MARKETS
There are several ways that an organization can do business internationally. Such methods
include:
Exporting. Selling locally manufactured goods abroad.
Licensing. Granting a foreign company some rights to a process, a patent, a program, a
trademark, copyright or expertise.
Franchising. This takes licensing one step further. The licenser provides the licensee with raw
materials and operating plans.
Joint Ventures. Two multinationals or one multinational and a foreign local business, or a
multinational corporation and a national government may cooperate on a venture to produce
or market goods or services.
Acquisitions. A parent company may acquire a subsidiary in a foreign country.
Direct Investment. This involves the major commitment of capital, manpower and assets
beyond its shores. While the profit potentials are great, the risks are also considerable.
Management Contracts. A local fir may decide to export its expertise and manpower to
another country in need of management skills.
Portfolio Investments. Notes, Bonds, Certificates of Deposit, Commercial Paper and noncontrolling shares of stock can be traded on foreign markets. This does not involve the physical
presence of the companies’ assets or personnel.
Turn-key Operations. A multinational corporation may be invited by a foreign country to
establish a manufacturing facility in its country. The MNE goes in to do the job, and upon
completion will turn over the operation of the plant to the foreign nationals.
SOME KEY INTERNATIONAL ISSUES
Debt Crisis. As many countries continue to remain in debt (the United States of America being
the world’s largest debtor), the world debt crisis also continues to plague the global
community. Developing countries default on their payments, while seeking moratoriums and
forgiveness of debts, or rescheduling.
Their problems are compounded because much of the money borrowed was put into the
development of infrastructures that do not generate income. The debate on what to do has
been going on for decades, but the end is still not in sight.
Poverty and the North/South Dialogue. The North/South dialogue was a commission to look
into how the develop countries can help the developing countries get out of their impoverished
states. The commission recommended the following actions:
1. Stabilization of commodity prices – Since most developing nations’ primary exports are
commodities, this should help their financial planning and financial position.
2. Reduction of trade barriers – This was a good idea, but the developing countries are net
importers, i.e. they import far more than they export, in which case reductions in trade
barriers will be of little use to them.
3. Increased aid – Recognizing the life-long value and advantage of skill acquisition, many of
the developing countries are asking for less aid but more local investment and training for
their people. According to an old Chinese saying “Give a Hungry man some fish, you feed
him for a day, but teach him how to fish, and you’ll be feeding him for life.”
4. Moratorium or partial forgiveness of debt.
5. Increased private investment.
TRADE AGREEMENTS AND ECONOMIC INTEGRATION
Trends in international trade have tended toward the formation of trading blocks. The
European Union has consolidated itself more, while North America has come together to form
the North America Free Trade Agreement (NAFTA). There are four major forms of economic
integration:
Free Trade Area. Internal tariffs among member nations are abolished. Each nation, however,
still maintains separate tariff measures against non-member nations.
Custom Union. In addition to abolishing tariffs among member nations, common tariffs are set
against non-member nations.
Common Market Factor Mobility. This possesses all the characteristics of the customs union,
plus the mobility of factors of production such as labor and capital.
Complete Economic Integration. In addition to all of the above, a common system of
governance is included, as exemplified by the European Parliament.
NORTH AMERICAN FREE TRAE AGREEMENT
This is union between the United States, Canada and Mexico. This union is so large that it may
be self-sufficient in many areas such as energy. Canada is the United State’s number one
trading partner, followed by Japan and then Mexico. Many of the advantages and
disadvantages of doing business abroad will accrue to the union. The general benefits of
forming the union are self-sufficiency and the elimination of tariffs. Each trading partner,
however, has specific benefits that it will enjoy as a result of the union.
U.S.A.
1. Access to large and growing markets.
2. Competitiveness in world markets.
3. Increased investment opportunities for U.S. firms.
CANADA.
1. Maintains U.S./Canada relations.
2. Canada now has equal access to the Mexican market.
MEXICO.
1. Access to the large U.S. and Canadian markets.
2. There should be increased confidence in its economy for foreign investment.
3. The Mexican economic environment will potentially become more stable.
4. There will also be increased technological transfer into Mexico.
NAFTA ISSUES
 Worker displacement and retraining – Critics of NAFTA believe that jobs will move to
Mexico because of cheaper labor. Worker representatives would like the U.S. government
to make training opportunities available to displaced workers.
 Country of origin and local content – Critics are of the opinion that it may be difficult to
determine the country of origin of products made in Mexico. For example, other countries
like Japan have production facilities in Mexico. Their products may find their way into the
United States via Mexico.
 Environmental issues – Pollution is likely to increase in Mexico. In addition to that,
companies may move their facilities to Mexico because of its relaxed environmental laws.
Though the agreement rules it illegal to relax environmental restrictions, compliance may
be difficult to monitor.
 Fate of the Maquiladora Program –It is uncertain what will happen to the Maquiladora
program, which encouraged manufacturing firms to locate their facilities close to the
 U.S./Mexico border. A lot of the advantages those companies enjoy have been overridden
by NAFTA.
 Labor issues – The questions being asked concerning jobs are: will jobs move to Mexico, if
so, what types of jobs will? Also, how long will it be before the wage differential in Mexico
gets eroded due to economic development and improved standards of living in Mexico?
THE EUROEAN UNION (EU)
The European Union started as the organization Economic Cooperation (OEEC). It was
established in 1948 to facilitate the Marshal Plan which was set up to issue loans to European
countries to buy American products and aid their recovery after the Second World War. So far,
it is the only organization that has gone through all the four levels of economic integration.
It became the European Economic Community when:
 A common barrier gains non-member nations was formed.
 Resources were allowed to flow freely.
 National policies were harmonized.
The Union has now fulfilled the last stage of economic integration. The European Parliament
gives a common system of governance and in the later part of 1995, a common currency known
as the Euro became the currency of the Union.
Problems. The Union’s accomplishments I not come without some difficulties. They include:
1. Definition of terminology – For instance, what is jam and what is marmalade? Should it be
smooth or lumpy?
2. There were various transportation and border problems.
3. Many nations feared a potential growth in centralization and socialism.
4. Some countries in the union were reluctant to accept some key changes, e.g. tax revisions.
5. Possible shift of jobs from northern to southern Europe we feared.
6. Small and medium firms were thought to be in danger of being eliminated.
7. External firms were worried about a fortress Europe.
JAPANESE/U.S. TRADE RELATIONS
The Japanese economy has been likened to an opinion. With each layer you peel, there is
another layer under it. The United States and Japan are like two ships passing in the night, so
close, and yet so far away. The Japanese love everything American. The Japanese spend millions
on American cultural artifacts, American movies and fast foods. Disneyland is very successful in
Japan though not in France. The Japanese bought 2 million copies of “The Bridges of Madison
County” translation. Baseball is their national sport, and yet there is o meeting of the minds on
economic issues.
A Chronology of the Struggle
Following is a chronology of the trade struggle between the U.S. and Japan.
1900s
Japan increased its international commerce. In 1893, 86% of the ships entering
Japanese port were foreign. By 1913, half of the ships entering the ports were
Japanese.
1920s
Japan became the world’s top spinner of yarn. Japanese trade balance moves
Into a surplus as it continues to improve production performance.
1930s
U.S. imposed tariffs on Japanese raw silk and cotton fabrics. Three-fourth of the
Cars in Japan were made by Ford or GM.
1940s-50s
America supplied two-thirds of Japanese imports, mostly agricultural products.
Sixty percent of the Japanese auto market was imported.
1960s
In 1964, Japanese auto production grew exponentially. Between 1964 and
1984, it grew by almost 1000 percent, accounting for nearly a quarter of the
World market.
1970s
Japan was accused of fishing for tuna off the California coast, and exporting
It to the U.S.
Japanese TV imports presented problems to the U.S. television industry.
Within 5 years, these imports accounted for 98% of U.S. television market.
1978
Japan de-emphasized textile production and intensified production of
engineering goods such as cameras, ships, and vehicles.
1980s
U.S. negotiated voluntary restraint agreement on Japanese automobiles,
Limiting it to 1.68 million vehicles. Officials negotiated in 1985 to increase the
quota to 2.3 million.
1986
Japan agreed at the very last minute to stop selling computer chips at lower
than market prices.
1987
President Reagan imposed 100% tariffs selected Japanese electronics imports.
1987-1990
U.S. filed 27 complaints of Japanese “dumping” strategy.
1988
Japan lifted 20 year ban on beef importation. U.S. sold $1.3 billion in beef to
Japan.
1992
Japan agreed to double U.S. car imports and to import more U.S. auto parts.
1994
Japan sold more “transplants” (Japanese autos manufactured in their U.S.
plants) in the U.S. than autos made in Japan.
1995
In February, the U.S. apple growers’ struggle ended. Japan buys U.S. grown
apples.
From the above chronology, it can be seen that trade relations with Japan has really been a
struggle. One may ask why the U.S. does not tow the hard line with Japan and simply ban or
impose stiffer tariffs on Japanese goods? Here are some of the reasons:
1. The world is becoming more interdependent, which makes it increasingly difficult to impose
sanctions without shooting oneself in the foot.
2. The Japanese will likely retaliate by:
a. Using the U.S. indebtedness to the Japanese as blackmail.
b. Developing new administrative delays.
c. Stopping cooperation in other industries like electronics (for liquid crystals, laser jet
engine, and memory chip).
The greatest challenge in the U.S./Japanese struggle may yet be how to get these two countries
to work perfectly together and develop a strong bi-lateral relationship.
ETHICS OF INTERNATIONAL BUSINESS
Gifts, Bribes, and the Foreign Corrupt Practices Acts. The issue of bribery is unavoidable when
a company does business abroad. The Foreign Corrupt Practices Act does not seem to have
resolved the questions in this area. Some of the unanswered questions include:
 Are questionable payments part of the cost of doing business?
 Are they extortion?
 Are they gifts?
 Is it justifiable to say other competitors from other countries are doing it?
 Are these local practices that Americans should not arrogantly contravene?
 Is it in the best interest of the shareholders?
Anti-Trust Laws. The Anti-Trust Laws were enacted to regulate competition in the United States.
The question is, should American corporations obey these laws even when they are doing
business overseas?
Environmental Issues.
 Pollution – Air, water, sea, the ozone layer, acid rain, lead poisoning, all plague the global
environment.
 Biodiversity – Extinction of the species. The controversy is whether nature will replace itself,
thus making it unnecessary to worry about biodiversity.
 Deforestation – Should third world nations be forced to leave the forest alone? Considering
that they need to clear land in order to develop industries. They also need trees for
manufacturing and for energy supply. Should there be sanctions against countries that do
not comply?
 Population explosion – Is Thomas Malthus (an 18th century socio-economic thinker) correct
in saying war and hunger will keep population growth in check? We may need to look at
each country of the world before advocating that population be controlled. Malaysia, which
is a small but innovative nation, has to rely heavily on foreign markets due to insufficient
domestic demand. Malaysia had to give her citizens incentives to have more babies. On the
other side of the spectrum, China had to discourage her citizens from having more babies.
INDEX
A
Absolutism, 11
commercialization, 65
Accountability, 73
communication, 23
Advertising, 52, 54, 56-58, 60, 65-66
communism, 2
Affirmative action, 43
competition, 3, 56
Agents, 59
conditioning process, 71
Analytic Process, 71
consumer behavior, 49
Articles of Incorporation, 8
consumer Orientation, 48
Attitudes, 3, 22, 53
continuous Process, 70
Authority, 2 27-30, 39
control charts, 75
Controllable environments, 56
Controlling, 36
B
Coordinating, 36
Corporation, xi, 6, 46
Costing, 72, 74
Batch process, 70
culture, 3, 14, 26,47
Brokers, 59
customer, 22, 33, 48, 56 – 58, 60, 64, 73 – 74
Bureaucracy, 38
C
D
Capital, xi
Darwinian, 12
Capitalism, 1, 13
Decision making, 23
Cause and effect analysis, 75
Demand, 47
Centralization, 32
Demographics, 45, 51
Chain of Command, 39
Direct channels, 58
Christian Economy, 13
Direct costs, 72
Classical theory, 19
Directing, 36
Distribution, 57, 59
Feedback, 24, 74
Distribution strategies, 57
Fixed costs, 72
Distributors, 59
Functionalization, 29
Diversification, 70
E
G
Economic system, 4
Genetic screening, 40
Education, 3, 11, 53
Geography, 53
Egoism, 12
Empathetic, 12
H
Employee rights, 40
Employee screening, 40
Entity, 8
Hawthorn, 20
Entrepreneurship, xi
Hostile work environment, 42
Equal employment, 43
Human need, xi, 13
Ethical Conflict, 13
Ethical Egoism, 10
Ethical questions, xi
I
Ethical Styles, 10
Ethics, 10, 12 – 14, 16
Indirect channels, 58
Exchange, 47
Indirect costs, 72
Informal structure, 25, 45
Intuitionism, 12
Intuitive, 12
Inventory, 69, 72 – 73
Investors, 8
J
Job order, 69
Management Principles, 39
Manufacturing Processes, 69
Market Niche, 55
Market Segmentation, 53
L
Market Share, 55, 63 – 64
Market Testing, 65
Labor, Xi, 37
Marketing, 47, 56, 65
Laissez Faire, 3
Marketing Mix, 56
Land, Xi
Marketing Strategies, 57
Language, 3, 22, 26, 42
Markets, 47
Laws, 3, 9, 65
Martin Luther, 13
Lean Production, 73
Mass Production, 69
Limited Liability, 8 – 9
Materials, 36, 42, 64, 70 – 74
Limited Partners, 7
Mechanistic Model, 39
Loyalist, 12
Middlemen, 59
Morality, 11 – 12
Mrp Ii, 74
M
Management, 8 – 9, 20, 27, 32, 35,
37, 37 – 38, 44, 69, 72
N
Nationality, 3, 22, 49
Management by Objectives, 38
Needs, 1, 52
O
Operational structure, 25
Product Development, 64
Organization, Xi, 6 – 9, 19 – 20, 22 – 29,
Product Life Cycle, 63
31 – 32, 35 – 36, 38, 40, 44, 47, 69 – 70, 74
Product Orientation, 48
Organization Culture, 26
Product Strategies, 57
Organizational Structures, 25
Production Management, 69
Organizing, 35
Production Orientation, 48
Overhead Costs, 72
Production Planning, 71
Ownership, 8
Profits, 7 - 8
Promotion, 56 – 58, 60, 65
Promotion Strategies, 58
Protestant Ethic, 13
Prudent, 12
P
Psychographics, 53
Public Relations, 60
Pareto Diagrams, 75
Purchasing, 53
Partnership, 6 – 7
Purchasing Orientation, 53
People, Xi, 1 – 2, 7, 13, 19 – 22, 25, 27 -28, 37,
Purpose, 8, 19, 23, 35
39, 47 – 50, 52, 54, 60, 63, 66, 73
Performance evaluation, 25
Q
Personal selling, 62
Planning, 35
Political system, 3
Quotas, 44
Price, 4, 57, 59, 65
Pricing strategies, 58
Process, 19, 23, 36, 69 – 70
Product, 47, 56, 58 – 60, 63 – 64, 66, 71
R
Religion, 3, 14, 22, 26 – 27, 49, 53
Resources, 1, 4 – 6, 25, 55, 65, 71
Responsibility, 6, 20, 39, 65
S
T
Safety, 1, 10, 40, 66
Target Market, 55
Sales, 48, 58 – 60
Taylor, Frederick, 37
Sales Orientation, 48
Technology, 4, 20, 66
Scientific management, 37
TQM, 74
Security, 1
Sexual harassment, 16, 42
U
Shareholder, 8
Shares, 8
Simplification, 70
Uncontrollable environment, 56
Social system, 1, 3
Unlimited liability, 6
Socialism, 2
Utilitarianism, 11
Socialization, 11
Society, 1, 10
Sole proprietorship, 6
Specialists, 21
V
Standardization, 37, 70 – 71
Structure, 4, 20, 25 – 30, 38, 45
Variable costs, 72
Supply, 2 – 4
Virtuous, 12
Synthetic process, 71
W
Webber, Max, 13, 38
Whistle blowing, 46
Women in management, 44
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