Business Management Comm 103

Chapter 1: Business Basics

A business: organization that provides goods/services to those who

want or need them

Many different sectors of business

Business foundation is comprised of see page #3 figure 1.1

1-Commercial endeavors

2- Organizational Efficiency & Structure

3- Employee interaction (Human Resources)

Business: a mission-focused activity aimed at identifying the needs of

a particular market or markets, and the development of a solution to such

needs through the acquisition and/or transformation of goods and services
that can be delivered to the marketplace for a profit.

Assets: infrastructure and resource base

Labor: Human resource

Capital: Money needed by organization to support activity

Managerial Acumen: Foresight, drive, knowledge

Assets + Labor + Capital + Managerial Acumen = Business

Model

Visionary leadership: ability for managers to establish a direction for

the organization based on its needs and mission

The role of a business owner and/or management team is to anticipate,

recognize, and sense and opportunity to create a product and/or deliver a

service which is felt to be unique, and or value to a targeted customer.
Also must understand the 3Cs (compatibilities, competencies,

capacity)
Best Allocations of resources within constraints of economy

Business Planning Cycle- see page #6 figure 1.3

Companies must set objectives in order to attain growth see page #7

figure 1.4 SMAC Specific, measurable, actionable, and controllable Also

should be achievable within a given time frame.

Planning Cycle Staging: Page #8 Figure 1.5: The failure to meet

the objectives of a planning cycle can be the result of poor positioning, poor
operational execution, or both.
(Also see figure 1.6 Page #9 for redirecting planning)

Direction / Positioning Implementation Assessment

-What are we doing?

-How?
-Goals met?

-Why?
-What needs to be changed?
- What

needs to be changed?/
-Can we?
-Allocation of resources
- Fine tuning

-Further capacity

adjustments

Not-for-profit organizations: those that are not in business to make

a profit, but seek to deliver services to the people, groups, and communities
which they serve. Nevertheless, non-profits still need to have business plans,
operating models, and business systems that will enable them to cover their
operating costs and to employ strategies to fund ongoing delivery or
meaningful services.

The Fundamental Objectives of Business: Businesses utilize

resources with the idea of transforming these into products, and ultimately
achieving profit. (See Fig. 1.7) The three fundamental objectives are:

1. Short-Term Profit: important to pay bills and reinvest in the future.

2. Long-Term Growth & Profitability: businesses recognize that the

demand for products and services which they currently offer will diminish
over time and must constantly search for new markets and opportunities to
grow their operations in the future.
3. Social & Environmental Responsibility: Green initiatives, truth

in advertising and environmentally sustainable resource practices allow a

company to position themselves as a good corporate citizen in order to
acquire and retain customers.

Too much emphasis on short-term profitability may result in

decisions which are detrimental to long-term market opportunities

and fall short of social responsibility expectations.

The Business Model and Profitability

Similar companies are competing for the same broad set of customers.

(Refer to RIM and its competitors: Nokia, Emerson, Motorola). They will look
to differentiate themselves from competitors and target customers whom will
be most receptive to their products/service.

Profits: bottom line results, which an organization has realized, for a

given period of time.

Total Revenue Total Expenses = Profit

Profitability (See Table A pg. 15 & Table B pg. 16): the efficiency

and effectiveness of an organization to use its assets and its capital to

generate profits over a period of time. Note figure 1.8
Factors: return on investments, return on equity, financial leverage,

pre-tax income, etc.

Companies are always being challenged to develop new products/ alter

existing ones, meet evolving needs, and streamline operations in order to

improve immediate and long term profitability.

Value Proposition

Companies develop value propositions for the purpose of

communicating to customers how their products/services are different and

the important benefits they offer. (i.e., what makes us better than the other
guy?)
Value Proposition = Service Benefits + Product Benefits + Cost

Benefits + Emotional Benefits (see fig. 1.9)

See figure 1.10 for Sample Positioning Template

The Impact of Price see page 21 fig. 1.11: The price/quality

relationship deals with what customers are being asked to pay for a product
and what they expect to receive (benefits).

In general, the more unique, important, and value-driven your

product is, the greater to opportunity to communicate, to the

potential purchaser, a value proposition which has a positive
price/quality relationship, and which can be superior to those of
your competitors.

5 fundamental questions in developing a value proposition:

1. What is my cost base and how does it compare to my competitors?

2. Do I have a strong brand profile?

3. Are there emotional benefits which our customers will attach to

our product?
4. Are there unique service benefits which I can incorporate into this

value proposition?
5. Can I create a strong enough value proposition which will enable me

to successfully compete against other competitors in a give market

segment?

A key component of managing any business is in understanding the

expenses which must be considered when setting the price of a product/

service.

Asset-based expenditures: those expenditures which you encounter

when commencing a business operation or expanding its capacity. (i.e.

buying new equipment or buildings)
Operating expenditures: expenses encountered as a result of

normal business operations. (i.e., salaries of employees, purchase of raw

materials, shipping costs, advertising, etc)

Business Decision-Making Model (fig 1.12)

Visualize the Business Opportunity

Confirm Market Size and Profitability

Determine Market Position, Approach and Continuity

Asses Resources and Capability

Determine Tactics Required to Succeed

Strategy: development of plans and decisions that will guide a firm to

long-term success.
Tactics: immediate-term actions which a firm executes to meet short
term objectives.

Fig. 1.13

Well Directed Strategy + Efficient Tactics = Business Growth

and
Profitability

Business is not only about producing and distributing goods

and services. It is about delivering value to customers in a manner

which meets their needs and desires.

For the same price as our competitors, we offer a higher

quality beverage that exceeds the simplistic and prehistoric

technology of Keurig and were better than our competitors because
our barcode technology allows each of our machines to brew your
ideal beverage, every single time.

wage

Chapter 2: The Canadian Economic Environment

Critical key factors in ensuring our economy remains competitive:
-productivity gains, strong business investment, innovation, moderate
increases, favourable currency exchange rate

What enables our economy to prosper?

-contributing factors for economic development

Political Stability

Established Factors of Production

Manageable Levels of National Debt

National Monetary Policy and Banking System

Low Inflation

Effective Legal System

Sufficient Levels of Investment

Absence of Corruption

Comparative Average

A core requirement to the stability and growth of any economic system

lies in its ability to service and promote both the current and future
economic activity taking place.
-the economic model

3 fundamental market composition principles:

o Law of Supply and Demand

Ability of market to determine price of a product to be bought and

sold
Elastic (movement in price significantly effects demand) or inelastic

(movement in price does not significantly effect demand)

Supply how much of a product producers are wiling to provide

Cost of production vs. revenue received

Equilibrium point: quantity supplied = quantity demanded

Low prices shortage of supply

High prices surplus of supply

Price controlled by internal or external mechanisms

o Allowance for Private Ownership Entrepreneurship, and Wealth

Creation
Openness of the market to support and encourage these concepts

o Government Involvement in Influencing Economic Activity and

Direction
Purchasing goods

Restricting access, defining protocols

Taxation agent

Powers granted to crown organizations

Economic stimulation

Bailout programs

Infrastructure development programs

Continuum:

(one side)

Open System: governed by law of supply and demand, provides full

and open access to principles of private ownership etc, absence of regulation

by government, foreign trade, labour unrestricted

(opposite side)

Controlled System: planned or controlled, supply and demand

restricted or absent, government fully controls economic direction

Mix: Mixed Economic System what most countries are like today

Canada A mixed economic System

Allows supply and demand to influence the market, principles

mentioned are present, government manages influence in economic activity

(more or less engaged)

The Economy:

Productivity and resulting economic activity predicted on basis of 4

factors:

Expenditures purchases

Savings money set aside

Capital Asset Investments investments made today

Credit borrowing money on credit

Economic Activity = Expenditures + Savings + Investments + Credit


How Do Economies Grow?

GDP total value of a nations economy

Measured in:

-goods and services produced and purchased domestically

-business investments within the economy

-goods produced for export purposes

-Government spending

Economists track the movement of GDP over a period of time to

determine whether an economy is growing or contracting

Movement of Economic Activity:

Growth Increased Profit/revenue Increased Capacity to

Invest Increased Business activity Employment Opportunities Growth

Economic Contraction reduced profits/revenue reduced

spending reduced investments reduced spending higher

unemployment downward pressure on wages less money to
spend contraction

other

Managing the Movement in the economy:

-growth is desired
-control of inflation and other inefficient influencers
-seek to maintain equilibrium between growth and inflation
Factors affecting the economy at any given time:
-Inflation: negative Impact on growth, higher prices
-Geographic Clustering: developing economies separate from each

-Currency exchange rate: reduces price of goods from other countries,

impacted tourism, higher priced exports

-Branch Market Impact: Debate associated with foreign ownership

-Sustainability: increasing emphasis on green initiatives

-Aging workforce: baby boomers getting old, need for skill

-Long term Competitiveness: competition with developing countries

-Small business emphasis: emphasis on smaller business increasing

-Globalization: growing interconnectivity within the world

Managing in Challenging times:

-must understand what is going on domestically and globaly

answer 3 questions:

1. what are the general indicators?

2. What broad level changes are occurring?

3. What current competitive actions may be disruptive?

Primary economic indicators:

-Unemployment rate

-Inflation rate

-Consumer Price Index

-New Housing Starts

-Manufacturing Inventory

-Consumer Confidence Index

-Prices of Crude oil

-Stock market indices

-Currency exchange rate

-Monthly retail sales

Analysis:

Political, Economic, Social, Technological, Environmental, Legal

(PESTEL) Analysis
-assesses broad levels of changing in the economy

-Managers must look to see where and how their markets are changing

in light of competitive influences (question 3)

Competitive Models:

-understanding the type of competitive environment which a business

in facing is fundamental to creating a strategy for competing and

understanding where and how to allocate resources in support of
product/service positioning and overall marketing effort

consists of:

Purely competitive markets

o Similar products and services
o Absence of differentiation
o Few barriers to new market entrants
o Commodity-based

Monopolistic Markets
o Number of different suppliers
o Differentiation
o Shift in development and marketing of value propositions

Oligopoly-based Markets
o Small number of suppliers
o Who control large portion of market
o Have distinguished their products from competitors
o Great control over price

Monopoly-based Markets
o Single product/service supplier
o Government regulated
o Single entity

o More efficient at a better price point

Markets change and evolve as new competitors and innovations come

into play

Sensing Market Change:

Use business model: Porters Five Forces 5 key areas

-rivalry among competitors

-threat of new entrants

-bargaining power of buyers

-threat of substitution

-bargaining power of suppliers

Must constantly assess our industry and its markets for potential

disruptive changes which will render our products obsolete and/or negatively
impact our customer base

Chapter 3: The Global Marketplace

-todays growth continues to rely on significant US economic capacity,

but the next few decades will see a benefit from the significant foreign direct
investment from other upcoming countries
-whether it is through operational growth, strategic alliances, formal

partnerships, mergers and/or acquisitions, the global market place is

becoming home to an increasing number of businesses seeking to operate
via an international based business model

Why Go global?
1. New Market Opportunities:

markets mature and new opportunities arise

domestic markets become saturated


organizations need to look beyond their current countries and

markets in an effort to discover and leverage new markets

2. Cost Reduction Opportunities:

organizations must reduce their cost base in order to protect their

operating margins and profits

o can happen by reducing labour costs

will happen by offshoring and outsourcing to regions where labour

costs are lower

o by investing in markets foreign firms can also diminish concerns

relating to protectionism, duties and taxes

3. Resource Base Control:

organizations must continually add the required resource base to

ensure an adequate future supply exists

o can be helpful to seize control of resources in other countries

bauxite deposits around the world (sometimes have to go global

to find scarce resources)

4. Closeness to Market:

emerging economies represent new opportunities for growth for

international players

investments by international players create jobs, enhance

spending capacities, generate demand for their products/services

o also identifies new ideas, develops new products, learning benefits

5. Economies of Sale: #1 global driver

can be realized in the sourcing and production of products,

centralization of services, sharing of manufacturing and infrastructure

facilities

the products these companies create are purposely designed for

global consumption

are all in place? Or are some causing a problem right now.


Fundamentals required for ensuring global marketplace

growth:
-Ongoing Commitment to an International Trade System

countries need to adhere to trade policies overseen by the World

Trade Organization
o ensure that transparency exists

o ensure that trade flows smoothly and fairly

o create rules relating to taxes and subsidies

o key services include:

administers trade agreements

acts as a forum for trade negotiations

settles trade disputes

reviews national trade policies

assists developing countries in trade policy issues

links with other international organizations to ensure the smooth

flow of trade

The International Monetary fund:

monitors global economic and financial development
issues temp. or short-term loans to countries
lends credit facilities
lending financial services
World Bank
works with developing countries to eliminate poverty
create opportunity and hope

 build capacity through strengthening of govt

assist in creation of legal framework

assist in the development of financial systems

combat corruption

-Market Openness

the need for developing economies to maintain a focus on the core

elements of an open economy

o law of supply and demand

o encouragement of entrepreneurship and wealth creation

o willingness to support private ownership

o willingness to maximize import and export

-Absence of Protectionism

fight the intent of economic policies in place to restrict the

openness of a market

protectionism:

o has detrimental effects on the marketplace in the long run

o results in economic inefficiencies

o higher prices for consumers

-Adherence to the Fundamentals of Fair Trade

the govt. must commit to support and enforce the intellectual and

patent property rights of companies, adhere to labour practices, and commit

to environmental standards
o eliminate black market activities

-Balanced Economic Development


govts must work towards a development of well-balanced

economic growth within their economies

must promote the balance of the domestic and international

trading

must ensure that:

o debt levels remain manageable

o ensure a climate of political stability

o keep inflation low

o keep well developed factors of production

o keep a well managed monetary policy and banking system

Responsible Sovereign Debt Management

governments must ensure that the use of debt must be utilized in

a manner which recognizes the obligations which it will inflict on both current
and future generations

Selected Environmental Considerations:

-political and legal systems

civil vs. common law

special case of IP (TRIPS)

-Economic systems and performance

global financial system

economic integration and trade liberalization

barriers to trade
-Culture values and demography

hofstede, hall
Global Financial System key participants

-International level: world bank, IMF

-National government level: central banks

-National Infrastructure level: national stock exchanges and bond

markets, commercial banks

G20:

-ensures a consultative process of all major global players relating to

matters such as global economic governance, global financial stability, and

transparency in fiscal policy
-the 20 largest economies in the world

Global Market Trends:

-10 factors will impact the global market in the upcoming decade:

the growth of the market and emergence of economies

economic specialization leading to global free trade

consequences of sovereign debt and the global financial meltdown

energy prices influencing the cost base of businesses

political and trade relations of the US and China affecting global

health

influence of demographics on trade and political decisions

agricultural subsidy program discussions

potential inflation

global warming and other environmental concerns

the global marketplace becoming a political economy

The Concept of International Trade:

-International trade occurs between organizations and individuals, NOT

countries

-what has allowed trade to flourish is a willingness on the part of the

marketplace to engage in the concept of specialization

Evolution of a Global Presence:

1. corporation has a domestic supplier and a domestic buyer

2. corporation gains foreign supplies to reduce costs

3. corporation seeks to further grow, sells to foreign buyers through

foreign sales offices

4. corporation develops a full manufacturing presence in foreign

markets
5. corporation fully shifts to an offshore location with services and

head offices and responsibilities still located in Canada

Note on Currency Exchange Rates:

-changes to currency values impacts sales and profitability

-value of a nations currency influenced by 6 factors:

movement in domestic income level

capital mobility and supply

consumer price movements (PPP purchasing power parity)

Trade Balance

Governmental Budget deficits/surpluses

GDP movement

-strong economic growth will result in an upward value of a nations

currency when measured against other countries

Challenges of Managing in Todays Global Environment:

Requires:

Efficient and effective production and manufacturing systems


Well organized and expertly supported trade facilitation processes

Solid network of financial intermediation and support

Managers must:

View their business system as an integrated trading model

Review the financial, political, legal, and reputation risks of shifting an

organizations focus to that of an international player

Chapter Four Notes: The Environment and Sustainable Business

Practices

The Consumption Journey:

-organizations must begin to develop environmental policies and

management systems in order to reduce, measure, and monitor their risk

exposure to legislation
-must make transitions from simply a compliance/eco-management

approach to that of a sustainable business strategy approach

The Goal is to design and redesign business processes in a way

which, while allowing for increased wealth and enhanced

competitive advantage, incorporate the principles of human
mankind and resource protection and sustainability for the future

The Sustainability Challenge:

-global population will soon exceed 9.2 billion

-various challenges going forward

5 Critical Sustainability Challenges:

1)Climate Change

consists of 5 key areas:

Decarbonizing the Energy Supply by using alternate energy

Transportation innovation/setting fuel economy as top priority

Biodiversity/ addressing erosion and deforestation establishing
forestry management guidelines and reforestation initiatives
Human Behavior Modification/shifting in values and lifestyles and
starting initiatives such as the Kyoto Protocol
Improving energy efficiency eg. Low energy lighting

We as a whole need to take climate change as our own

responsibility into the boardroom and into business operation to

ensure that the behaviours to be exhibited reflect a true integration
of environmental sustainability into our organizations and corporate
strategies

2)Pollution and Health:

There are 6 top toxic threats:

-Lead

-Mercury

-Chromium

-Arsenic

-Pesticides

-Radionuclides

number of sites affected could double and can result in over 100

million affected
-cleaning up toxic sites are a one time expense

-our role: funding initiatives to clean up these areas and integrating our

present and future environmental responsibilities into our business strategies

3)The Energy Crunch

-ever increasing needs of oil and fossil fuels

-energy supply requirements of these economies not expected to

change
-global market will require 26% more energy over the next decade

Do we have the supply to deliver on this mandate?

Answer depends on:

A)Resource availability

-Possibility of a supply shock since the finite supply of these non

renewable resources is coming to an end
-The Supply and Demand cycle is influenced by 7 factors:
Current Supply Development Constraints how quickly can we
develop the production of existing known resources supplies?
Political Impact Factors political, legislative, environmental action
which constraints the ability of companies/organizations to proceed
with supply development
Rate of New Discoveries identification of new sources of fuels
Declines in Current Production reduction in current supply volume
due to energy sources drying up, or being taken offline
Immediate Access to Additional Capacity ability of current
suppliers to tap into excess capacity to meet the demand needs of
the market
Geopolitical Instability instability of the countries/regions which
supply our global energy needs
Development Speed of Alternate Energy Sources speed at which
alternate energy sources can be brought online and be made useful

B)Improvements in Energy Productivity

-improving the efficiency of energy production currently taking place,

as well as reducing overall demand for such energy in a manner which does
not compromise economic growth
-where behavioural change and investment in technology appear

4)Resource Depletion

-Resource management: ability to manage existing supplies and

regenerate new supplies of materials in such a way that we minimize

resource depletion
-depletion of resources felt across various areas:

mining, fishing, agriculture, water

5)Capital Squeeze

-over past 20+ years the global market has benefited from an excess

supply of capital
-presently: an overwhelming dependency on emerging economies to

meet their capital needs

-capital needs will keep growing throughout the world

Consequences for capital requirement:

Access to capital will become difficult due to:

o Low savings rates of citizens
o Increasing need of developing countries to use their capital
Reduction in savings that will occur among citizens
Cost of capital (interest rates) will increase capital demand
Financial Protectionism will appear as countries strive to keep their
capital for internal needs and external investments
End Result?

-access to cheap capital will no longer be a large contributor to global

growth
-inability to gain access to needed funds

-increased gap between countries with access to capital and those

without
-higher taxes and less services in countries forced to pay higher

interest rates on deficits

Responding to the Sustainability Challenge:

Two ways:

1)Trade Management:

-shifting the impact of trade and economic development away from

being the primary driver of environmental harm and planet degradation to

that of a process which exists in an arena of environmental sustainability
3 critical trading practices:

participants in trade and economic development must agree to pay

for the social costs of environmental degradation
Participants across markets need to support and accept pricing
policies which reflect the full cost of expenses incurred in order to
achieve sustainability

Participants must block the ability of market players from obtaining

and leveraging a competitive advantage as a result of efforts to
avoid environmental costs

Trade Management is shifting the impact of trade and

economic development away from being the primary driver of

environmental harm and planet degradation to that of a process
which exists in an arena of environmental sustainability
2)Eco-Efficiency Management
-refers to the tactical shifts required within our business operations in order
to maximize the efficiency of our resource utilization and minimize the
resulting degradation to the planet
Two Broad Catagories:
A)Resource Management:
Shifting away from the old consumption model where resources

underwent a transformation process with the end result of producing a

product and disposing of waste
-the resource management model has evolved as a result of 3 shifts:

realization that resources are finite

recognition that resource efficiency can lead to overall savings
societal pressure
end results of shifts above reduce, reuse, recycle, recover

Desired outcome of the Resource Management model:

-achieve zero global waste

-preservation of resources

B)Emissions Management
-focused on our ability to achieve zero global emissions
to achieve such an objective we must commit to:
attacking pollution at the source rather than after it is created
organizations proving beforehand that their operations will not harm
the air

Strategic Integration:

How do we get businesses to strive for a level of full environmental

sustainability integration into their business strategies?

1. recognizing long-term benefits

2. capabilities to conduct a critical self-assessment of how benefits can

be realized within their organization

businesses need to see environmental sustainability as an integral part

of value creation and that this creation includes sustaining and enhancing
the resources which we depend on well into the future

1. Long-Term Benefits of Environmental Sustainability

Strategic Integration:
Most businesses focused on two short term outcomes:

-improved corporate image

-regulatory compliance

greater long-term benefits include:

-pricing power

-enhanced efficiencies

-customer retention

-stronger employee base

-strong environmental management

-new business options

2. Capabilities critical self-assessment:

-organizations must understand how sustainability will affect their

businesses
various steps:

Define sustainability within the organization

Identify the opportunities threats, and gaps

Build the business case - short and long term requirements

Establish targets to guide the plans execution
Commit the resources

Key Terms:

Consumption: the act of consuming

Degradation: deterioration of the environment through depletion of

resources and destruction of eco-systems

Kyoto Protocol: 1997, international agreement which binds

participating nations into stabilizing and reducing greenhouse gas emissions

Peak Model Theories: based on the belief that resources are finite and

that at some point in time, the availability of such resources will pass and
begin to decline
Feed-in Tariff: government payment arrangement where participants

are paid for energy developed through adoption of alternate energy sources
Resource Depletion:

Resource Management: ability to actively manage existing supplies

and regenerate new supplies of materials to limit resource depletion

Sovereign Wealth Funds: country or state owned investment funds

Sovereign Debt: public or national debt

Cost of Capital: cost of company funds (debt and equity)

Financial Protectionism: government actions or policies which restrict

the outflow of funds from one economy to another

Eco-Efficiency Management: tactical shifts required within our business

to maximize efficiency of our resource utilization

Productivity Cycle: processes involved in transforming materials into a

product or service available for sale in the market

Chapter 5: Ethics

What is Ethics?

-thought of as an invisible had which is inside each of us and guides us

as we make decisions
assessed at 2 levels:

1) Ethics and the Individual

reflect the moral beliefs about what an individual views as being
right or wrong
beliefs built around what society perceives as being acceptable
could be based on: legality or fairness
formation of these ethics come from 4 sources:
o Societal influences
o Individual values and influences
o Business Culture of the organization we work for
o Professional designation and association influences
In making decisions, we need to think in terms of what is not in

our personal best interests, but what is in the best interests of the
stakeholders and public

How to determine if the ethical issues permeating from the decision

were effectively dealt with: The Triple Yes Rule

Yes #1 does the decision fall within the accepted values or standards

Yes #2 am I willing to have this decision communicated to the public

Yes #3 would the people in my life approve of/support my decision

Two key elements to the ethical decision making process:

A) assessing your decision to make sure you fully understand the

dilemmas/consequences of your actions

B) meet with advisors to ensure you are correctly interpreting the

situation

2) Ethics and Culture

for many organizations, the responsibilities for developing policies

relating to values, ethics, and financial integrity lies with its board of
directors

Just as companies are vulnerable to things like shifts in market

conditions, they are also vulnerable to the serious consequences

and brand equity erosion which accompanies unethical behavior
within their management and employee ranks


The Board of directors establish what is considered to be the accepted

zone of business actions and activities for an organization, 3 zones:

A)the green zone around which a company is to operate

B)the grey zone zone of ethical and decision-making uncertainty

C)the red zone clearly defined unethical behavior

For Boards to create a culture of ethical behavior they must:

-define boundaries of acceptable behavior and financial integrity

-ensure the boundaries are understood and communicated to all

employees in the form of a policy or code of conduct

-appoint a representative at the board level to audit performance and

action in critical areas of the code of conduct

-create a support mechanism for the reporting of ethical concerns

-interact with senior management and external agencies monitoring

the organizations activities in order to discuss issues with could arise

The Board of directors as representatives of the stakeholders

of an organization must see itself as the creator and sentinel of the

organizations conscience.

Regulating Ethics:

-high-quality global accounting standards and initiatives are being

created
resulting in the development of a single set of global reporting
standards which utilize consistent reporting methods, provide
accurate, unbiased information, and offer full risk disclosure

Steps to Improving Business Ethics

1. Top management must adopt and unconditionally support a

corporate code of conduct

2. Communicate code and expectations to employees

3. Communicate to suppliers and customers

4. Train management and staff in ethical implications of business

decisions

5. Establish an ethics office (including protection for whistleblowers)

6. Enforce the code

Forensic Accounting: integration of accounting, auditing and

investigative skills
-critical to determining the potential extent of damage which an

organization may have incurred due to unethical employee behavior or

financial integrity issues
-provides assistance at trials

What is CSR (Corporate Social Responsibility)?

-the understanding that the purpose of an organization is to create

shared value of business and society

3 trends that drive the increasing importance of CSR:

1 despite the financial crisis of 2008 it is still important in the minds

of consumers
2 ability to leverage CSR initiatives as a key differentiator between

two businesses
3 growing percentage of consumers willing to pay the same if not

more on products from organizations who demonstrate CSR

CSR is interpreted by consumers to mean that:

-companies should be giving back to local communities

-companies need to self-regulate their actions and be willing to be held

accountable for their decisions

What Consumers Expect research brief that identified important

areas where consumers felt companies were doing a bad job

Transparency about business practices
Transparency relating to product/service risks
Development of socially/eco-friendly goods/services
Fair pricing, appropriate accessibility levels of poducts/services


Implications of the work to develop CSR lead to 3 conclusions:

1 consumers are paying attention to companies and their positioning

2 key to creating a positive bond with consumers is by demonstrating

the social benefit of the organizations offerings

3 communication strategies are the critical link between consumers

and organizations

Companies that do a better job of understanding consumer

perceptions and expectations relating to CSR will be more

successful in winning the publics trust

The Interdependency of CSR and Corporate Strategy:

Businesses need to identify where they can have a positive effect on

society and actively incorporate these initiatives into their overall strategy

CSR pyramid: 4 views on integrating CSR into an organization

1. Personal Projects by a business leader

2. Philanthropic involvement through cash/in-kind donations

3. Operational Initiatives impacted as a result of an organizations

day-to-day operations
4. Strategic Partnering integration of social responsibility into the

strategy development and execution processes of an organization

transition to true corporate social responsibility are:

-organizations decision making process evolves from one which

responds to social issues identified to a process which treats CSR as a core

root of the organizations strategic planning process
-organization recognizes that certain social issues impact the key

drivers of the organizations competitiveness

^Two step process:

1. shifting the analysis of its business system beyond enhancing

efficiencies and effectiveness to that of fully viewing the benefits to society

and the organizations operations jointly

2. auditing each area within the business system to identify

positive/negative benefits from the organizations activities then seeking to

change the activities to provide the greatest operational value while
achieving the greatest social benefit

The ability to make this type of decision-making requires leadership

from the top and conducting a complete audit of the business system on two
levels:
-identify key social interactions which will occur on a day-to-day basis

-identify social impacts which are critical to success and create

solutions to those issues

Four Quadrants of Managerial Responsibility and CSR:

-Business system design and development

-Attracting, retaining and managing talent

-Financial resource management

-Market assessment and strategy development

Organizations which are able to climb to the top of the pyramid

and develop the necessary social partnerships in a way which

positively impacts the people, communities, and environment
around which they conduct their business, are those who are able to
fuse and synthesize their organizations values and financial
aspirations into such a partnership

The Challenge Behind CSR Implementation:

-would require a significant change in the entire culture of the

organization
-risk: if we do it and our competitors do not how will that impact us

- how do we assign financial value to the attractiveness of long-term

value based social initiatives

^answers lie in the hands of the Board of Directors

Not for Profits:

-challenge is how to communicate to potential donors the legitimacy of

their work in a donation environment which is becoming more concerned

abut charity and not-for-profit fraud

Key Terms:

Ponzi Scheme:

Ethics:

Triple Yes rule:

Integrity:

Board of Directors:

Whistle-Blowing:

Code of Conduct:

Forensic Accounting:

Corporate Social Responsibility:

CSR Pyramid:

Chapter 6: Developing a Business Strategy

Concept: long-term success and ability to evolve and grow based on 2

principles:
-ability to create a strategic direction and market position

-ability to execute core tactics

Well directed and positioned strategy + efficient and effective tactics

= business growth and profitability
6 core elements for assessing business strategy:
1. Purpose


mission of the organization/reason for existence

consists of mission and vision statement

2. Markets

which markets/market segments the business is competing in

unprofitable markets evaluated in terms of exit/harvesting

strategies

3. Products and Services

review of current products/services offered by a business as well

as potential new products/services

some become obsolete as a result of innovation, changes in

consumer needs, new substitutes

4. Resources

allocation of a business resources in support of its strategic

decisions

5. Business System Configuration

modifications needed to be made to the organizations

infrastructure and the way it does business to ensure success

6. Responsibility and Accountability

identifying who will be responsible for each aspect of the strategic

plan

identify the key objectives to be achieved, who will be responsible

for their attainment

initiatives built around:

o SMAC (specific, measurable, actionable, controllable)

o SMART (specific, measurable, actionable, realistic, time sensitive)

A strategic plan is a road map to success, it defines a specific route,

provides benchmarks to measure success along the way, identifies

where/how the organization will interact with customers to meet its overall
vision and mission

The Strategic Planning Process:

Process based on: observations, analyses, choices, actions

General steps:

1. Revisit purpose: who we are/where we want to go

2. Internal/External Analysis: threats and opportunities

external: PESTEL, Porters 5 forces, competitor SWOT

internal: Company SWOT, 3 C analysis

customer: changes in attitude, behavior, needs

3. Our view of the world: what we know, choices

4. Choose a direction: capabilities, competencies, competitive

advantages, resources
5. Strategy implementation: develop tactics to achieve objectives

Internal/External Analysis:

Assessing business risk in 4 areas: macro-economic, industry,

competitor, company
External portion what is influencing markets today, what will

influence them going forward

-assessed using various business models:

PESTEL understanding the macro-economic environment

Porters 5 forces rivalry, new entrants, substitutes, control of

suppliers, control of buyers

Types of competition perfect competition, monopolistic

competition, Oligopoly, Monopoly

SWOT analysis strengths, weaknesses, opportunities, threats

3C analysis competencies, capabilities, capacity


Businesses need to anticipate and react to new initiatives and changes

in strategies and market positioning by their competitors

A customer analysis focuses on trying to identify what shifts have

taken place in our customer base in terms of attitudes, behaviors, and needs

Internal portion assess the competencies of organization, level of

resources, determine capacity and capabilities

Competitive Advantage Identification:

-a company has a competitive advantage when it can offer customers

a product/service which offers more value than alternate products

-can be:

strategic: first mover actions, change rules of the game in markets

operational: result of being able to execute day-to-day activities

superior to competitors
4 major areas where companies seek to establish competitive

advantage:
-Innovation

-Customer Responsiveness

-Efficiency

-Quality

Competitive Advantage:
Best cost revolves around:

Overall low cost

Overall differentiation

Focused low cost

Focus differentiation

met

plan

Developing our strategy:

Formulation of plan possesses 3 parts:
Corporate Level strategy:

what accomplished

where it competes
Business Level strategy:

how it accomplishes goals

Operating Plan:

needs to be executed to ensure success and that previous 2 were

o
o
o
o
o

key components:
Specifics how to compete
Identification of key revenue drivers
Identification of cost commitments
Identification of required market position
Identification of required staffing, infrastructure, processes

Organizations strategic plan should identify:

-where/how it intends to compete
-which weapons it will use as leverage in competition
-define the marketing and operational plans required to execute the

5 Critical questions to review:

-does the strategy leverage your resources

in)

-does the strategy fit with current market conditions

-are the competencies sustainable
-are the key drivers consistent
-do you have the ability to successfully implement the strategy
Managers need to confirm:
-operational activities properly aligned with plans objectives
-budgets are established, money is generated
-resources are available
-indicators/benchmarks have been established
Strategic Execution:
-final phase:
organization needs to be fully committed to the plan (directional lock-

commit capital resources for needs (more money invested, greater

the risk)

plans/operations need to be efficient and effective

has to generate revenue

must continually monitor the success of the strategy and take

corrective action if things arent going well

Small and medium sized businesses:

-must also take time to plan strategically
-often lack expertise and resources
-planning is one of the most difficult things on the to do list

Not for Profit sector:

-unique challenges

-must develop strategies that produce positive financial results

-challenged to succeed while balancing the effectiveness of their

economic activities
-must consider:

operational effectiveness

Mission balance

Vitality

Collective entrepreneurship

Rootedness

A successful strategy is one which properly assesses the external

environment, defines changes and opportunities within market segments,

effectively allocates its resources, maximizes capabilities

A key outcome should be identification of the key competitive

advantages which the organization possesses and the successful leveraging

of these advantages within its marketing communication and operational
delivery processes

Two Important fundamentals with managing a business:

-Business Formation: advantages of the 3 ways of structure
-Generating financial resources
Business Formation: Ownership Options:
-5 factors affect the outcome of which kind you choose:

Ease of set up

Degree of Control

Magnitude of risk


Financial Capacity

Required skills

As the needs of an organization change, the need to adjust the

business organizations legal structure may be in the best interest

pay

3 kinds of business formations:

1) Sole Proprietorship:
-easiest way to commence a business
-the individual and the business are the same
-debts of business are the debts of the owner
-sole proprietor has 100% control of the business
key risks:
-exposure to liabilities
-limited skill set
-own personal investment capacity
2)Partnerships:
General:
-formed by 2 or more individuals
-carry obligation of Joint and Several Liability

each partner is liable for the total debts if other partners cannot
-risks:
-differences of opinions


can be protected from this by having a Buy-Sell Agreement

-ensures that the expectations of each partner, and details of how it is

going to work, are fully understood by all partners involved

Limited Liability Partnership:

-made of general partners and limited partners

-limited partners not actively involved in management of operation and

have minimal control over daily business decisions

3)Corporations:

-creates a distinct legal entity separate from its owners

-formed by the process of Incorporation: creates a distinct legal entity

-Board of Directors is established

-longer time to get the business up and running

-higher cost

-protects the shareholders

-ownership rights are clearly defined and are based on the percentage

of stock owned by its owners

-ability to issue shares of stock is appealing

2 kinds or corporations:

-Private Corporations

shares are not publicly held or traded

-Public Corporations

shares are initially issued via and Initial Public Offering (IPO)

traded on at least one stock exchange or publicly available in the

over-the-counter market (OTC)

Evolution Process:

Sole owner Private corporation Public Corporation

Business owners and managers need to continually be aware of the

financial capacity of our business, the liability exposure, the risks being
incurred, and the skill sets necessary for success

-two

Funding the Organization:

3 Sources of Funds:

1) Funds Derived from Operations

internal sources
a)Current-year operating profits

excess dollars the organizations have generated from the current

operating period of their business activities (total revenue minutes total

expenses)
b)Retained Earnings

net earnings which an organization has accumulated over the

history of its operations

source of funds for the organization to draw upon in the event of

operating losses during a given period

used to compensate for operating losses in a given year

2)Credit Facilities (Debt Financing):

made up of:
a) Short Term (taken on over the course of a year or less)

Trade Credit/Accounts Payable

Accounts Receivable

General Line of Credit

Short-term Notes
B)Long Term (paid over the course of time exceeding a year)

Bonds

o Borrowing money for a stipulated period of time

o Paid on an agreed upon interest payment

o Money issued interest paid principle interest paid

o Represent the legal obligation to pay the face value of the bond on

a given date in the future

o 3 key words buyers focus on:

Coupon rate interest rate determined by two factors:

Risk-quality rating of the organization issuing the bond

Duration of the bond

Face value initial value of bond

Maturity date day the principal payment is due

o If bond repayment schedules are not met, bond holders have a

legal right to liquidate the organizations assets

Mortgage

o Backed by real-estate collateral

o A defined schedule of payments for the repayment of the debt

o Has interest

o Built around 4 characteristics:

Mortgage value amount of money borrowed

Amortization rate length of time of mortgage

Interest Rate rate at which money is being lent

Interest Period length of time the interest rate is applicable

Long Term note

o Organizations borrow a stipulated amount of money for a defined

period of time with a defined interest rate

o Similar to mortgages

o May have customized features

 Balloon payment when a major portion of the principal owed on a

loan is not included in the period payments and is deferred to a later date
Other return of principal options

Lease Obligations

o Legal obligation to pay a service provider with an agreed-upon

amount of money

3)Equity Options

made up of:

a)Private Equity equity capital obtained rom private sources

owners personal resources (family, friends)

Angel investors (another initial backer)

Private Equity firms

Venture Capitalists

Owner itself

B)Public Equity investments in an organization, by investors as a

result of the purchase of publicly traded shares due to an IPO or an

Additional Public Offering (APO)

Not For Profits:

-can utilize cash from internal operations as well as debt financing

-prefer to undertake philanthropic initiatives as a viable source of funds

prior to exhausting current internal reserves or undertaking new debt

financing

Sources of Capital:

operation

debt financing

Philanthropy
o Events
o Annual campaigns
Capital campaigns

Financial statements:

-keep managers up to date on the success of the organizations sales

and marketing initiatives

-and on the ability of the organization to control its costs and maintain

its operating margin and profitability margin

consists of 3 statements:

-income statement, balance sheet, statement of cash flows

Two types of Business transactions:

-Operational transactions

consist of revenue and expenses

-Capital Asset transactions

consist of Investment and Divestment

Liquidity ability of the company to meet its ongoing financial

obligations

Liquidity assessment looks into these issues

Solvency longer term assessment of the financial stability of the

organization

Next step for insolvent company is generally closure/bankruptcy

Efficiency ability of an organization to effectively manage its

operations and allocate its resources

Financial Capacity ability of an organization to generate revenue and

to grow its revenue streams

Able to get a read on the liquidity, solvency, efficiency, and capacity

of an organization by reading financial statements


3 primary financial statements:

1)Income statement

summarizes the operational transactions

a good barometer of a organizations efficiency and effectiveness

shows the organizations profit after expenses and taxes

2)Balance sheet

summarizes organizations financial position in terms of Assets,

liabilities, and shareholders equity

a snapshot of the organizations position at a specific point in time

provides a good barometer of an organizations capacity and

liquidity

3)Cash Flow Statement

summarizes the sources and uses of an organizations cash

identifies the inflows and outflows of money during a specified

period of time

provides insight into the current and projected liquidity position of

the firm

Analyzing and Interpreting Financial Information:

Can do it using 4 ways:
-Ration analysis

primary tool

assesses the financial health of an organization

used in 4 areas

o profitability ratios: asses the amount of income which the

organization has earned in comparison to the operating activity which has

taken place and the assets which have been used to support its income
generation
o examples:

Return on Sales: Net Income / Net Sales

Return on Assets: Net Income / Total Assets

Return on Equity: Net Income / Total Equity

Earnings per Share: Net Income / # of Shares outstanding

o Solvency and Liquidity Ratios: understanding the cash required

to meet operating needs and financial obligations

o Examples:

Current Ratio: Current Assets / Current Liabilities

Quick Ratio: Cash + Marketable Securities + Accounts Receivable /

Current Liabilities
Solvency Ratio: Net Income + Depreciation / Total Liabilities

o Debt Ratios: debt which an organization has taken on, the

relationship of this debt to its total asset base, ability of the organization to
meet its debt payments
o Examples:

Debt to Asset Ratio: Total Liabilities / Total Assets

Debt to Equity Ratio: Total Liabilities / Total Equity

Times Interest Earned Ratio: Earnings Before Interest and Taxes

(EBIT) / Interest Expense

o Activity Ratios: assess the efficiency and effectiveness of key

components of an organizations operations

o Examples:

Average Days Sales: Net Annual Sales / 365 Days

Days Receivable: Accounts Receivable / Average Days Sales

Inventory Turnover: Cost of Goods Sold / Average Inventory

The Concept of Leverage:

-the amount of debt which an organization uses in order to finance its

asset base

risk: can result in an operating loss

Managers need to recognize exposure and seek to utilize debt in a way

which enhances the profitable growth of the organization versus exposing it

to significant liquidity and solvency issues by carrying too much debt

Trend/Comparative Analysis:

-review current results against prior year actual results and anticipated

forecasted results
-can draw conclusions as to whether an organizations liquidity and

solvency position are being improved or compromised

Caution concerning Ratio Analysis:

-ratios should not be the sole focus of the financial assessment process

-it only focuses on single aspects of financial performance

Absolute Analysis:

-an assessment of the actual dollar amount which organizations are

generating and/or have at their disposal

Forecasting and Budgeting:

-ability to project forward anticipated results for the upcoming quarter,

year, or planning cycle

-challenges management teams to anticipate the organizations

financial position based on a variety of factors

external: market conditions, new competitors

internal: new products, new technology

Forecasting and Budgeting:

-requires the organization to think about what is happening in the

markets
-set specific operational parameters

-force managers to make decisions related to resource allocation

-become benchmarks/targets against which actual results can be

measured

The Process:

Market analysis

Sales forecast/cost analysis

Development of preliminary projected statements

Upcoming year financial resource assessment

Preparation of budgets

Comparison of budget against actual result

Not For Profits:

-need to demonstrate the same financial analytical skills when

managing the business side of their operations

Measuring NFP available Funds:

Cash + Near-Cash assets Designated Restricted cash and Near-cash

assets (Donations) = True Surplus and Funds available

Financial statement analysis is what cues managers to changes which are

occurring within the organizations operations and with regard to its working
capital requirements