ch. 1 free enterprise: the system of business in which

8/14/2019 CH. 1 Free Enterprise: The System of Business in Which

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CH. 1

Free enterprise: the system of business in which individuals are free to

decide what to produce, how to produce it and at what price to sell it.

Why study business?

1-to become a better-informed consumer and investor.

2-for help in choosing a career.

3-to be a successful employee.

4-to start your own business.

Business: is the organized effort of individuals to sell and produce, for a

profit, the goods and services that satisfy the societys needs.

To be successful, a business must perform three activities:

It must: 1) be organized 2) satisfy needs 3) earn profit

Four resources must combine to start and operate a business:

1-Material: raw materials, buildings, and machinery used in

manufacturing processes.

2-Human:people who furnish their labor to the business in return of

wages.

3-Financial: the money required to pay employees, purchase materials,and generally to keep the business operating.

4-Information: resource that tells the managers of the business how

effectively the other resources are used.

Types of business:

(1)Manufacturing businesses: process materials into tangible goods(2)Service businesses: produce services, such as haircuts or legal

advice.

(3)Marketing intermediaries: buy products from manufacturers andthen resell them.Consumers: individuals who purchase goods or services to their own

personal use.

* The ultimate objective of every firm is to satisfy the needs of its

customers.

Profit: what remains after all business expenses have been deductedfrom sales revenue.


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or it is the payment that business owners receive from assuming the

considerable risks of ownership.

Risks of ownership:

1-Not being paid2- Losing whatever the owners have put in the businessEconomics: is the study of how wealth is created and distributed.

Factors of production: the resources used to produce goods and

services, and they are:

1-Naturla resources: crude oil, forests, minerals, land, and water.

2-Labor:human resources such as managers and workers.

3-Capital: money, facilities, equipment, and machines.4-Enreprenuership: the willingness to take risks.

Four basic economic questions:

1-what and how much goods and services will be produced?

2-how will these goods and services be produced?

3-for whom will these goods and services be produced?

4-who owns and controls the major factors of production?

Types of economic system:

1-Capitlaism 2-Socialism 3-Communisim

Capitalism

An economic system in which individuals own and operate themajority of business that provide goods and services.

Adam Smith is the father of the capitalism (his bookthewealth of nations).

Adam believed that each person should be allowed to worktoward his/her own economic gain without interference from

the government.

The French term laissez faire describes Smiths capitalism andit means let the do (as they see fit).

Four fundamental issues:1) The creation of wealth is the concern of private

individuals, hence resources must be owned by private

individuals.

2) The owners of these resources should be free todetermine how to use them.


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3) The economic freedom ensures the existence ofcompetitive markets that allow both buyers and sellers

to enter and exit as they choose.

4) The economic role of government is limited toprotecting competition.

Market economy: an economy system in which individuals and

businesses decide what to produce and buy, and the market determines

prices and quantities.

Command economy: an economy system in which the government

decides what to produce, how to produce it, who gets it, ad at what price

to sell it.

Command economy

Socialism Communism

Socialism

The key industries (transportation, utilities, and communications)are owned and controlled by the government.

What to produce and how to produce it are in accordance withnational goals.

The distribution of goods and services who gets what- iscontrolled by the state.

Aims of socialist countries: 1) equitable distribution of income 2)the distribution of social services to all who needs them 3) theelimination of poverty 4) elimination of the economic waste.

Examples of socialist countries: Britain, France, Sweden, andIndia.

Communism

Karl Marks is the father of the communism.All economic resources are owned by the government.The basic economic questions are answered through centralized

state planning.

Examples: North Korea and Cuba.Competition: rivalry among businesses for sales to potential customers.


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Types of competition:

1) Pure (perfect) competition.2) Monopolistic competition3) Oligopoly4) Monopoly

1-Pure Competition: the market situation in which there are many

buyers and sellers of a product, and no single seller is powerful enough

to affect the price of that product.

Many buyers and sellers. Single product. Price determined by the market. All buyers and sellers know everything about the product.

Supply: the quantity of a product that producers are willing to sell at

each of various price.

Demand: the quantity of product that buyers are willing to purchase at

each of various price.

Market (equilibrium) price: the price at which quantity demand is

exactly equal to the quantity supplied.

2-Monopolistic Competition: A market situation in which there aremany buyers with a relatively large number of sellers.

The products are very similar in nature and trying to satisfy thesame need.

Each seller attempts to make its product different from theothers.

The producer has some limited control over the price of theproduct.

3- Oligopoly: a market situation (or industry) in which there are fewsellers.

These sellers are quite large, and each seller has considerablecontrol over price.

The market actions of each seller can have a strong effect oncompetitors sales.

Product differentiation is the major competitive weapon.


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4-Monopoly: a market (or industry) with only one seller that has

complete control over price.

The firm in a monopoly position considers the demand for itsproduct and set the price at the most profitable level.

Natural monopoly: an industry that requires a huge investment in

capital and within which any duplication would be wasteful.

Type of

competition

Number of

sellers

The product The price

Purecompetition Many sellers Single product No single buyeror seller in

powerfulenough to affect

the price

Monopolistic

competition

Relatively large

number ofsellers

The products are

very similar innature and

trying to satisfy

the same needs

Each producer

has somelimited control

over the price

Oligopoly Few sellers Product

differentiation is

the majorcompetitive

weapon

Each seller has

considerable

control over theprice

Monopoly One seller The seller hascomplete

control over the

price


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CH.4 Forms of Business Ownership

1-Sole Proprietorships:A business that is owned (and usually operated) by one person.

Advantages of sole proprietorships:

Ease of start-up- Sole proprietorship is the simplest and cheapest way to

start a business.

- Start-up requires no contracts, agreements, or other legaldocuments.

- The sole proprietorship can be established without theservice of attorney.

- The sole proprietor pays no special start-up fees or taxes. Retention of all profits Flexibility

A sole proprietor is completely free to make

decisions about the firms operations. Foe example,

a sole proprietor can switch from retailing to

wholesaling without waiting or asking for anyonesapproval.

Also the sole proprietor can respond to change in

market conditions quickly.

Possible tax advantagesProfits are taxed as personal income of the owner,

and the sole proprietor doesnt pay the special state

and federal income taxes that corporations pay.

SecrecySole proprietors are not required by federal or state

government to publicly facts about the business.

Disadvantages of sole proprietorships:

Unlimited liabilityA legal concept that holds a business owner personally

responsible for all the debts of the business.

Lack of continuityThe sole proprietor is the business. If the owner dies or

declared legally incompetent, the business ceases to exist.

Lack of money


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Lenders are usually unwilling to lend large sums to sole

proprietorship. Only one person can be held responsible for

repaying such loans.

Limited management skills Difficulty in hiring employeesThe sole proprietor may find it hard to attract competent

help.

2-Partnerships:A voluntary association of two or more persons act as co-owners of a

business for profit.

Types of partners:(1) General Partners: a general partner is a person who assumes full orshared responsibility for operating a business.

General partnership: a business co-owed by two or more general

partners who are liable for everything the business does.

(2) Limited partners: a limited partner is person who contributes

capital to the business but has no management responsibility or liability

for losses beyond the amount he/she invested in the partnership.

Limited partnership: a business co-owed by one or more general

partners who manage the business and limited partners who invest

money in it.

Master limited partnership (MLP): a business partnership that isowned and managed like a corporation but taxed like a partnership.

Units of ownership in MLPs can be sold to investors toraise capital.

Profits from MLPs are reported as personal income.The partnership agreement:

It should state:

Who will make the final decisions. What are the duties of each partner. The contribution each partner will make. How much profit or loss each partner receives. What happen if a partner wants to dissolve the

partnership or dies.


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Advantages of partnership: Ease of start-up

The legal requirements are often limited to registering the

name of the business and purchasing necessary licenses or

permits.

Availability of capital and creditPartnerships have greater assets and stand a better chance

to obtaining the loans they need. Retention of profits

All profits belong to the owners of the partnership. Personal interest

General partners are very concerned with the operation of

the firm.

Combines business skills and knowledgePartners often have complementary skills. The weakness of

one partner can be offset by another partners strength. Possible tax advantages

Partners are taxed only on their incomes from the business.

Disadvantages of partnership:

Unlimited liabilityEach general partner has unlimited liability for all debts of

the business. Lack of continuity

Partnership are terminated if any one of the general

partners dies, withdraws, or declared legally incompetent.

Effects of managements disagreementsWhen partners begin to disagree about decisions, policies,

or ethics, distrust may build and get worse as time passes.

Frozen investmentIt is easy to invest money in a partnership, but it is difficult

to get it out.

* The main advantages of a partnership over the sole

proprietorship are the added capital and management

expertise of partners.


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3-CorporationsAn artificial person created by law, with most of the legal rights of a

real person, including rights to start and operate a business.

Stock: the shares of ownership of a corporation.

Stockholder: a person who owns a corporations stock.

Close corporation: a corporation whose stock is owned by few people

and is not sold to the general public.

Open corporation: a corporation whose stock is bought and sold on

security exchanges and can be purchased by any individuals.

Incorporation: the process of forming a corporation.

Domestic corporation: a corporation is the state in which it is

incorporated.

Foreign corporation: a corporation in any state in which it does

business except the one in which it is incorporated.

Alien corporation: a corporation chartered by a foreign government

and conducting business in t he united states.

The corporation charter: a contract between the corporation and the

state, in which the state recognize the formation of the artificial person

that is the corporation.

And it includes the following formation:

Firms name and address Incorporators name and address Purpose of the corporation Maximum amount of stock and types of

stock to be issued

Rights and privileges of stockholders Length of time the corporation is to exist

Common stock: stock owned by individuals or firms who may vote on

corporate matters, but whose claims on profit are subordinate to the

claims of others.


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Preferred stock: stock owned by individuals or firms who usually do

not have voting rights, but whose claims on profit are paid before those

of common stock owners.

Dividend: a distributing of earnings to the stockholders pf acorporation.

Proxy: a legal listing issues to be decided at a stockholders meeting

and enabling stockholders to transfer their voting rights to other

individuals.

* The incorporators and original stockholders meet to elect their first

board of directors.

Board of directors:

It is the top governing body of a corporation, the memberswho are elected by the stockholders.

Directors are elected by stockholders. Board members can be chosen from inside the corporation or

outside it.

The major responsibilities of the board of directors are to setcompany goals and develop general plans (or strategies) to

meet those goals.

Corporate officers: the chairman of the board, president, executive

vice president, corporate secretary and treasurer, or many other top

executive appointed by the board of directors.

Stockholders (owners) elect board of directors appoints officers hire employees

Advantages of corporations:

Limited liabilityA feature of corporation ownership that limits each owners

financial liability to the amount of money she/he has paid for the

corporations stock.

Ease of raising capitalCorporations can borrow from lending institutions; they can also

raise additional money by selling stock. Ease of transfer of ownership


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Perpetual lifeThe withdrawal, death, or incompetence of a key executive or

owner does not cause the corporations termination.

Specialized managementCorporations are able to recruit skilled, knowledgeable, and

talented managers, because they pay big salaries and are large

enough to offer considerable opportunity for advancement.

Disadvantages of corporations:

Difficulty and expense of formationCharter fees- attorneys fees- registration costs associated with

selling stock.

Government regulation- A corporation must meet various government

standards before it can sell its stocks o the

public.

- It must file many reports on its businessoperation and finance with the local state.

- It must make periodic report to itsstockholders.

- Its activities are restricted by law to thosespelled out in its charter.

Double taxationCorporate profits are taxed twice, once as a corporate income and

second as the personal income.

Lack of secrecyOpen corporations cannot keep their operations confidential

because they are required to submit detailed reports to the

government and to stockholders.


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CH. 5 Small Business

Small business: one that is independently owned and operated for

profit and is not dominant in its field.

Industries that attract small businesses:

Distribution industries-These industries include: retailing, wholesaling,

transportation, and communications.

-75% of the small distribution firms are retailers (sale ofgood directly to consumers). Ex: clothing and jewelry

stores, bookstores, and pet stores.

- 25% of the small distribution firms are wholesalers(purchase products in large quantity form the manufacturesand then resell them to retailers).

Service industries- 75% of small service firms provide nonfinancial

services as medical and dental care, hair cutting,restaurant meals, and dry cleaning.

- 8% of small service firms provide financial services

such as accounting, insurance, and real estate.

Production industries- These industries require relatively large initial investment.- These industries include: construction, mining, and

manufacturing industries.

Why people go into business for themselves? (What are the

personal factors)?

1) Independence2) Desire to create a new business3) Willingness to accept a challenge4)

Special expertise5) Loss of a job


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Why small businesses fail?

Lack of management skills and experience Lack of money and capital Poor planning

The importance of small businesses in our economy:

Providing technical innovation Providing employment Providing competition

Filling needs of society and other businesses

Advantages of small business:

Personal relationship with customers and employeesSmall business owners often become involved in the social,

cultural, and political life of economy. These personal

relationships are major competitive weapon.

Ability to adapt to changeThe owner of small business doesnt need anyones

permission to adapt change. Beside that the personalrelationships wit customers help him to be aware of changes in

peoples needs.

Simplified recordkeeping Independence

Small business owners dont have to punch in and out, bid for

vacation times, and take orders from superiors.

Other advantagesAbility to keep all profits- the ease and low cost of going into

business- ability to keep business information secret.

Disadvantages of small business:

Risk of failureSmall businesses run a heavy risk of going out of business.

Limited potentialThe owner may have technical skill, and have started a

business to put this skill to work. Such a business is unlikely

to grow into big business.


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Limited ability to raise capitalSmall businesses have a limited ability to obtain capital.

Personal loans from lending institutions provide only one-

fourth of the capital required by small businesses.

Business plan:

It is a carefully constructed guide for the personstarting a business.

Or it is a concise document that investors canexamine to see if they would like to invest.

When constructing a business plan, thebusinessperson should keep it: easy to read,

uncluttered, and complete.

It should answer the four questions banking officialsand investors are most interested in:

1. What exactly is the nature and missionsof the new venture?

2. Why is this new enterprise a good idea?3. What are the businesspersons goals?4. How much will the new venture cost?

___________________________________________

Franchising

Franchise: a license to operate an individually owned business as

through it were part of a chain of outlets or stores.

Franchising: the actual granting of a franchise.

Franchisor: an individual or organization granting a franchise.

Franchisee: a person or organization purchasing a franchise.

Types of Franchising Arrangements:

1) A manufacturer authorizes a number of retail stores to sella certain brand-name item.

- This franchising arrangement is one of the oldest.

- Ex: Passengers cars and trucks, farm equipment,

shoes, and petroleum.

2) A producer licenses distributors to sell a given product toretailers.


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- Ex: soft drink industry

3) A franchisor supplies brand names, techniques, or otherservices instead of a complete product.

- The primary role of the franchisor is the careful

development and control of marketing strategies.- Ex: holiday inns, McDonalds, dairy queen, and KFC.

What can causes the failure of both franchisee and

franchisor?

To rapid expansion, inadequate capital or management skills and

other problems.

CH. 6 The Management Process

Management: the process of coordinating people and other resources to

achieve the goals of the organization.

Most organizations make use of four kinds of resources:

1) Material resources

The tangible, physical resources an organization uses.

Ex. - steel, glass, fiberglass are material resources for General Motors.

-books, classrooms, desks, and computers are materialresources for a college or university.

-Beds and operating room equipment are materialresources for a clinic.

2) Human resources

Perhaps the most important resources of any organization are its human

resources (people).

3) Financial resources

The funds the organization uses to meet its obligations to investors and

creditors.4) Information

A business that does not adapt to change (change in economy, consumer

markets, technology, politics) will probably not survive. And to adapt tochange a business must know what is changing and how it is changing.

The management process (management functions):

1. Planning2. Organizing3. Leading and motivating4. Controlling


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1- PlanningPlanning is Establishing organizational goals and deciding

how to accomplish them.

a) Establishing goals and objectivesb) Establishing plans to accomplish goals andobjectives

Mission: a statement of the basic purpose that makes an organization

different from others.

Strategic planning: the process of establishing an organizations

major goals and objectives and allocating the resources to achieve

them.

a) Establishing goals and objectives

Goal: an end result that the organization is expected to achieve over

a one to ten years period.

Objective: a specific statement detailing what the organization

intends to accomplish over a shorter period of time.

Goals and objectives can deal with variety of factors such as:

Sales, company growth, costs, customer satisfaction, and employee

moral.Optimization: a balancing process conflicting goals.

b) Establishing plans to accomplish goals and objectives

Plan: an outline of the actions by which the organization intends to

accomplish its goals and objectives.

There are several types of plans:

Strategy- An organizations broadest set of plans,

developed as a guide for major policy setting

and decision making.

- It is set by the board of directors and topmanagers.

- The strategy designed to achieve the long-term goals of the organization.

- It defines what business the company is in orwants to be in.

Tactical plan


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- It is a smaller-scale plan developed toimplement a strategy.

- It covers a one to three years period.- Tactical plans may be updated periodically

as conditions and experience dictate.- Tactical plans can be changed more easily

than strategies because of their more limited

scope.

Operational plan- It is a type of plan designed to implement

tactical plans.

- It established for one year or less.- It deals with how to accomplish the

organizations specific objectives.

Contingency planIt is a plan that outlines alternative courses of

action that may be taken if the organizations other

plans are disrupted or become ineffective.

2- Organizing the enterpriseThe grouping of recourses and activities to accomplish some end results

in an efficient and effective manner.

3- Leading and Motivating (Directing)Leading: the process of influencing people to work toward a common

goal.Motivating: the process of providing reasons for people to work in the

best interests of the organization.

Directing: the combined processes of leading and motivating.

* The leading and motivating function in concerned with the humanresources within the organization.

4- Controlling and ongoing activitiesControlling is the process of evaluating and regulating ongoing

activities to ensure that goals are achieved.

The control function includes three steps:

a) Setting standardsb) Measuring actual performancec) Taking corrective action


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The steps in control function must be repeated periodically until the

goal is achieved.

Levels of Management Top managers

-A top manager is an upper-level executive who guidesand control overall fortunes of the organization.

-Top managers constitute a small group.-They are responsible for developing the organizations

mission and they also determine the firms strategy.

-Ex. Of top managers: president, vice president, chiefexecutive officer, and chief operating officer.

Middle managers-A middle manager is a manager who implements the strategy

and major policies developed by top managers.

-Middle management comprises the largest group of managersin most organizations.

-They develop tactical plans and operational plans.-They coordinate and supervise the activities of first line

managers.-Ex. Of middle managers: division manager, department head,plant manager, and operations manager.

First-line managers-A first line manager is a manager who coordinates and

supervises the activities of operating employees.

-They spend most of their time working with andmotivating their employees, answering questions, and

solving day-to-day problems.

-Ex. of first line managers: office manager, supervisor, andforeman.

Areas of management:

Financial managers-A financial manager is a manager who is primarily

responsible for the organizations financial resources.

-Specific areas within financial management are accountingand investment.


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-Many of the CEOs (chief executive officer) and presidentsare people who get their basic training as financial

managers.

Operations managers-An operations manager is manager who manages the

systems that convert resources into goods and services.

-Operations management has been equated withmanufacturing.

-Operations management has produced a large percentageof todays company CEOs and presidents.

Marketing managers-A marketing manager is responsible for facilitating the

exchange of products between the organization and its

customer or clients.

-Specifics areas within marketing are marketing research,advertising, promotion, sales, and distribution.

-A sizable number of todays company presidents have risenfrom the ranks of marketing management.

Human resources managers-A human resources manager is charged with managing the

organizations human resources programs.-The human resources manager:

1) Engages in human resources planning

2) Designs systems for hiring

3) Training

4) Evaluating the performance of employees5) Ensures that the organization follows government

regulations

Administrative managersAn administrative manager (general manager) is a manager who

is not associated with any specific functional area but who

provides overall administrative guidance and leadership.

The management skills:

Technical skills- A technical skill is a specific skill needed to

accomplish a specialized activity.


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- First-line managers (and to a lesser extent,middle managers) need the technical skills.

- Top managers do not rely on technical skillsas heavily as do managers at other levels.

Conceptual skills- Conceptual skill is the ability to think in

abstract terms.

- Conceptual skills are useful in a wide rangeof situations, including the optimization of

goals.

- Conceptual skills are more crucial for topmanagers than for middle or first-line

managers.

Interpersonal skills- An interpersonal skill is the ability to dealeffectively with other people.

- Ex. Of interpersonal skills is the ability torelate to people, understand their needs and

motives, and show genuine compassion.

- Top managers, middle managers, and first-line managers must possess interpersonalskills.

________________________________________

CH. 8 Producing Quality Goods & Services

Operations management: all activities managers engage in to produce

goods and services.

The most successful firms have focused on:

1- Reducing production costs

2- Replacing outdated equipment with art manufacturing equipment.

3- Using computer-aided and flexible manufacturing systems

4- Improving control procedure

Analytic process: a process in operation management in which raw

materials are broken into different component parts.

Synthetic process: a process in operations management in which rawmaterials or components are combined to create a finished product.


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Todays successful operations managers must:

1. Be able to motivate and lead people2. Understand how technology can make a manufacturer

more productive and efficient3. Appreciate the control processes that help lower production

costs and improve quality

4. Understand the relationship between the customer, themarketing of a product, and the production of a product.

Utility: the ability of a good or service to satisfy a human need.

Types of utility:

Form, place, time, and possession

Form utility: utility created by converting raw materials, labor,

and other resources into finished products.

Conversion process vary in terms of:

1- Focus

The focus of a conversion process is the resource or resourcesthat comprise the major or most important input.

2- Magnitude

The magnitude of a conversion process is the degree to which theresources are physically changed by the conversion.

3-Number of production processes

- larger firms that make a variety of products use multiple

production process.

- smaller firms use one production process or very few productionprocesses.

Service economy: an economy in which more effort is devoted to

the production of services than to the production of goods.

The production of goods is different form the production of

manufactured goods in the following:1) Services consumed immediately and cannot be stored.2) Services are provided when and where the customer desires

the service.

3) Services are usually labor intensive.4) Services are tangible, and it is more difficult to evaluate

the customer satisfaction.


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Three major activities involved in operations management:

1) Product development2) Planning for production3) Operations controlWhere do new products come from?

1) Research and development2) Product extension and refinementResearch and development (R&D):

A set of activities intended to identify new ideas that have the

potential to result in new goods and services.

There are three general types of R&D:1- basic research

Aimed at uncovering new knowledge. Its goal is scientific advancement, without potential use.2- applied research

Discovering new knowledge with some potential use.3- development and implementation

Using new or existing knowledge to use in producinggoods and services.

Planning for productionPlanning for production involves three major phases:

1. Design planning2. Facilities planning and site selection3. Operational planning

1.Design planning

- It is the development of a plan for convertinga product idea into an actual product.

- It involves decisions about: product line,required capacity, and use of technology.

Product line- A product line is a group of similar products

that differ only in relatively minor

characteristics.


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- During this stage, management mustdetermine how many different product

variations there will be.

- Important issues in deciding on the productline are:

1) Balance customer preferences and production

requirement

2) Identify the most effective combination of

product alternative.

- Marketing managers play an important role

in making product-line decisions.

- Product design is the process of creating a

set of

specifications from which a product can beproduced.

Required capacity- Capacity is the amount of products or

services that an organization can produce in

a given time.

- Operations managers must determine therequired capacity.

- Determining the required capacity in turndetermines the size of the production facility.

- If the facility is built with to much capacity,valuable resources will be wasted. If the

facility offers insufficient capacity,

additional capacity may have to bee added

later.

Use of technology- Management must determine the degree to

which automation will be used to producegoods or services.

- Hence management must choose between alabor-intensive technology and a capital-intensive technology.

- A labor-intensive technology is a process inwhich people must do most of the work.

- A capital-intensive capacity is a process inwhich machines and equipment do most of

the work.


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2.Facilities Planning and Site Selection

- Managers must decide whether they willbuild a new plant or refurbish an existing

factory.

- A business will choose to produce a newproduct in an existing factory if:1) The existing factory has enough capacity to

handle customer demand for both the new product

and established product.

2) The cost of refurbishing an existing factory is

less than build a new one.

- In determining where to locate productionfacilities, management must consider a

number of variables: Geographic location of suppliers of parts and rawmaterials.

Locations of major customers Transportation costs to deliver finished product to

customers

The cost of land and construction required to build anew production facility

Local and state taxes The amount of financial support offered by local and

state government

Human resourcesAt this stage, human resources and operations managers work

closely together. Human resources manager have to recruit

employees with appropriate the skills.Plant layoutPlant layout is the arrangement of machinery, equipment, and

personnel within a production facility.

Three general types of layout are used:

1. Process layout- It used when different operations are

required for working in different parts of a

product.

- The plant is arranged so that each operationis performed in its own particular area.

- Once the operation in one area is completed,the work process is moved to another area.

- Ex. Of process layout: auto repair shop.


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2. Product layout- It used when all products undergo the same

operations in the same sequence.

- Work stations are arranged to match thesequence of operations.

- Ex. Of product layout: assembly line.3. Fixed-position layout

- It used when very large product is produced.- Aircraft manufacturers and shipbuilders

apply this method because of the difficulty of

moving a large product like an airplane or

ship.

- The product remains stationary while peopleand machines are moved as needed toassemble the product.

3.Operational Planning

Operational planning focuses on the use of production facilities and

resources.

The objective of operational planning is to decide the amount of

products or services each facility will produce during a specific periodof time.

The steps of operational planning include:

Step 1: Selecting a planning horizon- A planning horizon is the period during which a plan will be

effect.

- A common planning horizon for production plans is one year.- Before each year is up, management must plan for the next.- Firms that operate in a rapidly changing business environment

may select a short planning horizon.

Step 2: Estimating market demandThe quantity demanded must be estimated for the time period

covered by the planning horizon. Step 3: Comparing market demand with capacity- Market demand and facilitys capacity to satisfy the demand must

be compared.

- One of three outcomes may result: demand exceeds capacity, orcapacity exceeds demand, or capacity and demand equal.

- If they are equal, the facility should be operated at full capacity.But if market demand and capacity are not equal, adjustment may

be necessary.


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Step 4: Adjusting products or services to meet demand

What happens when the market demand exceeds the capacity?The firm may do one of the following:- Operating the facility over-time with existing personnel or by

starting a new shift work.

- Subcontract a portion of the work to another producers.- If the excess demand is permanent, the firm may expand the

current facility or build another one.

- Ignore the excess demand.

What happens when the capacity exceeds the market demand?The firm may do one of the following:

- Laid off workers and part of the facility shut down.- Operate the facility on shorter-than-normal workweek.- Shift the excess capacity to the production of other goods or

services.

- Selling unused capacity.


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CH.10 Human Resources

Management

Human resources management (HRM): it is all the activities involved

in acquiring, maintaining, and developing organizations human

resources.

i. Acquisition:Getting people to work for the organization.

-Human resources planning: determining the firms futureresources needs.

-Job analysis: determining the exact nature of the positionto be field.-Recruiting: attracting people to apply for positions in the

firm.

-Selection: choosing and hiring the most qualifiedapplicants.

-Orientation: acquainting new employees with the firmii. Maintaining:

Motivating employees to remain with the firm and to work effectively.-Employee relations: increasing employee job satisfaction.-Compensation: rewarding employee effort through

monetary payments.

-Benefits: providing rewards to ensure employee well-being.iii. Development:

-Training and development: teaching employees new skills,new jobs, and more effective ways of doing their present

jobs.

-Performance appraisal: assessing employees current andpotential performance levels.

Human resources management is a shared responsibility of line

managers and staff HRM specialists:

Human resources planning and job analysis: done by staffspecialist, with input from line managers.

Recruiting and selection: handled by staff experts, and linemanagers in hiring decisions.


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Orientation: orientation programs are devised by staffspecialist, and the orientation itself carried out by both staff

specialist and line managers.

Compensation systems (and benefits): developed andadministered by the HRM staff.

Training and development: it is the joint responsibility of staffspecialist and line managers.

Performance appraisal: it is the job of the line manager,although the HRM staff personnel design the firms appraisal

system.

* In very small organizations, the owner is usually both a line

manager and the staff HRM specialist.

Human resources planning

It is the development of strategies to meet a firms future humanresources needs.

1. Forecasting Human Resources DemandPlanners should base forecast of the demand for human resources on as

much relevant information as they can gather.

The firms strategic plan will provide information about future business

ventures, new products, and projected expansion or contractions of

particular product lines.

HRM staff uses all this information to determine both number ofemployees the firm will require and their qualifications. planners use a

wide range of methods to forecast specific personnel needs.

2. Forecasting Human Resources Supply The forecast of the supply of human resources must take into

account both the present work force and any changes or

movements that may occur within it. When forecasting supply, planners should analyze the

organizations existing employees to determine who can retrained

to perform required tasks.

Two useful techniques for forecasting human resources supplyare : 1) replacement chart 2) skills inventory

A replacement chart is a list of key personnel and their possible

replacements within the firm.The chart is maintained to ensure that top managers positions can be

failed fairly quickly in the event of unexpected death, resignation, orretirement.


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A skills inventory is a computerized data bank containing information

on the skills and experience of all present employees.

It is used to search for candidates to fill new or newly available

positions. A skills inventory is useful when a assessing whether acompany can do a specific project.

3. Matching Supply With DemandOnce they have forecasts of both the demand for personnel and the

firms supply of personnel, planners can devise a courses of action for

matching the two.

* When demand is predicted to be greater than supply, plans must be

made to recruit and select new employees. The timing of these actions

depends on the types of positions to be failed.* When supply is predicted to be greater than demand, the firm must

take steps to reduce the size of its work force. Several methods are

available:

a) Laid offDismiss the employees from the work force until they are needed again.

b) AttritionIt is the normal reduction in the work force that occurs when employees

leave t he firm. Attrition may be a very slowly process.

c) Early retirementPeople who are within t he a few years of retirement are permitted to

retire early with full benefits.

d) FiringThis is the last resort, and because of it its negative impact, this method

is generally used only when absolutely necessary.

Job Analysis

It is a systematic procedure for studying jobs to determine their various

elements and requirements.

The job analysis for a particular position consists of two parts:

1- A job description 2- A job specificationAjob description is a list of the elements that make up a particular job.

Job analysis must includes:

1. duties the job holders must perform2. conditions under which the job must be performed3. responsibilities4. the tools and equipments that must be used on the job


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The process of gathering information about applicants for a position and

then using that information to choose the most appropriate applicant.

- in selection the idea is not to hire the person with the mostqualifications but to choose the applicant with the qualificationsthat are most appropriate for the job.

- Selection made by one or more line managers. HRM personnelusually help the selection process.

- Common means of obtaining information about applicantsqualifications are:

Employment applications* an employment application is useful in collecting information on a

candidates education, work experience, and personal history.

* the data obtained form applications are used to: identify applicants

who are worthy of further scrutiny, and to familiarize interviewers with

t heir backgrounds.

* a resume is a one or tow page summary of the candidates background

and qualifications. It may include a description of the type of job the

applicant is seeking.

Employment tests*tests administered to job candidates focus on aptitudes, skills, abilities,

or knowledge relevant to the job that are to be performed.

* Such tests indicate how well the applicants will do on the job.

Interviews*It is the most widely used selection technique.

* job candidates are usually interviewed by al least one member of theHRM staff and buy the person for whom they will be working.

Candidates for higher-level jobs may also meet with a department head.

* interviews provide an opportunity for the applicant and the firm to

know more about each other.

* interviewers can pose problems to test the candidates abilities. They

can probe employment history more deeply.

* interviewing may the be the stage at which discrimination enters the

selection process.

* in a structured interview, the interviewer asks only a prepared set ofjob-related questions.


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References* a candidate is asked to furnish the names of references people who

can verify background information and provide personal evaluations of

the candidate.

* applicants tend to list only references who are likely to say good

things about them. Thats why personal evaluation obtained form

references may not be of much value.

Assessment centers* it is used to select current employees for promotion to higher level

management positions.

* a group of employees sent to the center for two or three days , and participate in activities designed to simulate the management

environment and predict managerial effectiveness.

* although this technique is gaining popularity, the expense involved

limits its use to larger organizations.

Orientation

It is the process of acquainting new employees with an organization.


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Ch.12 Marketing

Marketing: the process of planning and executing the conception,

pricing, promotion, and distribution of ideas, goods, and services to

create exchange that satisfy individual and organizational objectives.

Utility: the ability if a good or service to satisfy the human need.

There are four kinds of utility:1. Form utility

It is the utility created by converting production inputs into

finished products.

2. Place utilityIt is the utility created by making a product available at a location

where customers wish to purchase it.3. Time utility

It is the utility created by making a product available when

customer wish to purchase it.4. Possession utility

It is the utility created by transferring title (or ownership) of a

product to the buyer.

Marketing may indirectly influence form utility, it only addsvalue in the form utility.

Place, time, and possession utility are directly created bymarketing.

Place, time, and possession utility have real value in terms ofboth money and convenience.

Marketing concept: A business philosophy that involves the entire

organization in the process of satisfying customers needs while

achieving the organizations goals.

Evolution of the marketing concept:

1- production orientation (from the industrial revolution 1920)

- business effort was directed mainly towardthe production of goods.


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- Consumer demand for manufacturedproducts was so great.

- Business emphasis was placed on increasedoutput and production efficiency.

2- sales orientation (1920 1950)

- producers had to direct their efforts towardselling goods rather than just producing

goods that consumers readily bought.

- This new sales orientation was characterizedby increased advertising, enlarged sales

forces, and high pressure selling technique.- Manufacturers produced the goods theyexpected consumers to want.

3- customer orientation ( 1950 today)

- Business people recognized that theirenterprises involved not only producing and

selling products, but also satisfying

customers needs.- the organization had to first determine what

customers need and then develop goods and

services to fill those particular needs.

Relationship marketing: developing mutually beneficial, long-term

partnership with customer to enhance customer satisfaction to simulate

long-term customer loyalty.

Implementing the marketing concept:

To implement the marketing concept, a firm must:

1- obtain information about its present and potential customers.

2- use this information to pinpoint the specific needs and potentialcustomers toward which it will direct its marketing activities.

3- mobilize its marketing resources to provide, price, promote, and

distribute a product.4- obtain marketing information regarding the effectiveness of its

efforts.

Market:

A group of individuals or organizations, or both, that need products and

have the ability, willingness, and authority to purchase such products.


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Markets are classified as consumer or industrial markets.

1) Consumer marketsPurchasers and/or individual household members who intend to

consume or benefit from the purchased products and who do notbuy products to make profits.

2) Industrial markets (business to business market)These markets purchase specific kinds of products to use in

making other products, for resale or for day-to-day operations.

a) Producers marketsIndividuals and business organizations that

buy certain products to use in the manufactureof other products.

b) Reseller marketsIntermediaries such as wholesalers and

retailers that buy finished products and sell

them for a profit.

c) Governmental marketsFederal, state, country, and local government.They buy goods and services to maintain

internal operations and to provide citizens

with such products as highways, education,water, and national defense.

d) Institutional marketsChurches, not-for-profit private schools and

hospitals, civil clubs, fraternities and

sororities, charitable organizations.

Marketing strategy:

A plan that will enable an organization to make the best use of its

resources and advantages to meet its objectives.

A marketing strategy consist of:

(1)the selection and analysis of a target market(2)the creation and maintenance of an appropriate

marketing mix

Marketing mix: a combination of product, price, distribution,

and promotion developed to satisfy a particular target market.


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Target market: a group of individuals or organizations, or both,

for which firm develops and maintains a marketing mix.

When selecting a target market, marketing managers take either

the undifferentiated approach or the market segmentationapproach.

Undifferentiated approachDirecting a single marketing mix at the entire market for a

particular product.

This approach assumes that individuals customers in the

target market have similar needs, and therefore theorganization can satisfy most customers with a single

marketing mix.

This marketing mix consist of one type of product with

little or no variation, one price, one promotional program,

and one distribution system to reach all customers in target

market.

Product that marketed with the undifferentiated approach

include staple food items, such as sugar and salts.

Market segmentation approachMarker segment: a group of individuals or organizations

within a market that share one or common characteristic.

Market segmentation: the process of dividing a marketinto segments and directing a marketing mix at a particular

segment or segments rather than at the total market.

There are two types of marketing segmentation approach: Concentrated market segmentationThe organization direct a single marketing mix at a

single marker segment. Differentiated market segmentationThe organization focus multiple marketing mixes on

multiple market segments.

A business firm controls four important elements ofmarketing. These are the product itself, the price of


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the product, the means of distribution, and the

promotion of the product.

A firm can vary its marketing mix by changing anyone or more of these ingredients to reach its targetmarket.

Theproductingredient of the marketing mix includes decisionabout the products design, brand name, packaging, warranties.

Thepricingingredient concern with both base prices anddiscounts of various kinds.

The distribution ingredient transportation, storage, and theselection of intermediaries.

Thepromotion ingredient focuses on providing information totarget markets.

The major forms of promotion are advertising, personal selling,

sales promotion, and public relations.

The ingredients of the marketing mix are controllable elements.The marketing environment includes a number of uncontrollable

elements. The forces that make up the external marketing environment

are:

Economic forcesThe effects of economics conditions on customers ability andwillingness to buy.

Sociocultural forcesInfluences and society and its culture that result in change in

attitudes, beliefs, customs, and lifestyles. Political forces

Influences that arise through the actions of elected and

appointed officials. Competitive forces

The actions of competitors, who are in t he process of

implementing their own marketing plan.

Legal and regulatory forcesLaws that protect consumers and competition, and government

regulations that affect the market. Technological forces


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Marketing plan:

A written document that specifies an organizations resources,

objectives, strategy, and implementation and control efforts to beused in marketing a specific product.

The marketing plan:

1- describes the firms current position andsituation

2- establishes marketing goals and objectives3- specifies how the organization will attempt to

achieves these objectives.

the marketing plan can be:

1- Short-range: for one year or less

2- medium-range : covers two to five years

3- long-range: covers periods of more than five years

Ch. 16 Business Research, Management Information & Computers

The more information that a manager has, the less risk there usthat a decision will be incorrect.

Information produces knowledge and empowers managers andemployees to make better decisions.

Without correct and timely information, individual performancewill be undermined so will the performance of the entireorganization.

Businesspeople use information rules to shorten the time spentanalyzing choices.

Information rules emerges when business research confirms thesame results each time it studies the same or a similarcircumstances.

Data:

Numerical or verbal description that usually result from some sort of

measurement.

Ex. Wage level, amount of profit, retail prices.


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* Data can be nonnumerical . A description of individual as a tall,

athletic person would qualify as data.

Information:

Data presented in a form useful for a specific purpose.

Database:

A single collection of data stored in one place that can be used by

people through-out an organization to make decisions.

* The organization must establish a procedures for gathering,

updating, and processing facts in the database.

Kinds of Business research:

1- secondary researchThe original research done by someone else.

2-primary researcha- qualitative research

b- quantitative research

Qualitative ResearchA process that involves the descriptive or subjective reporting of

information discovered by a researcher.

Qualitative research is conducted on one of three ways:

(1) Observation

the act of nothing or recording something, such as the

facial expressions of shoppers in a retail store.(2) Interviews

a conversation conducted by a researcher with an

individual to elicit responses and information.

(3) Focus group

a conversation conducted by a researcher with a smallgroup of people to elicit responses and information.

Quantitative ResearchA process that involves collection of numerical data for analysis

through a survey, experiment, or content analysis.

(1) survey

A research method that relies on asking the same question to a

large number of people to elicit responses and information.(2) experiment


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current and projected market share, and development within

channels of distribution.

Human resources management concern with anything thatpertains to their firms employees.Examples include wagelevels and benefits packages both within their firm and in

firms that compete for valuable employees.

Administrative managers are concerned with thecoordination of information, material, human, and financial

resources. Administrators must ensure that all employees have

access to the information they need to do their jobs, and that

the information is used in a manner consistent.

* a management information system MIS must be tailored to the

needs of the organization.

Ch. 19 Financial Management

Financial management:All the activities concerned with obtaining money and using it

effectively.

Short-Term FinancingMoney that will be used for one year or less or one operating cycle

of the business.

The operating cycle of the business is the amount time between the

purchase of raw materials and the sale of finished products to

wholesalers, retailers, or consumers.

There are many short-term needs, but cash flow and current

inventory needs are two of which financing in often required.

Cash flow is the movement of money into and out of an

organization.

Q: What causes cash-flow problems?

Extension of credit Unanticipated emergencies


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Long-Term FinancingMoney that will be used for longer than one year.

Long term financing is needed to:1- start a new business 2- business expansions and mergers

3- product development 4- marketing

5- replacement of equipment that has become obsolete

proper financial management can ensure that:

Financing priorities are established in line withorganizational goals and objectives.

Spending is planned and controlled in accordance withestablished priorities.

Sufficient financing in available when its needed.Excess that cash invested in certificates of deposit (CDs),government securities, or conservative, marketable securities.

* Banks, insurance companies, and investment firms have a

need for workers who can manage and analyze financial data.

So do businesses involved in manufacturing, services, and

marketing.Colleges and universities, not-for-profit organizations, and

government entities also need finance workers.

People in finance must have certain traits and skills. They

must:

1- Be responsible and honest because they are working with

other people money.

2- Have a strong background in accounting and mathematics.3- Know how to use computer to analyze data.

4- Be an expert at both written and oral communication.

_________________________

Financial plan:

A plan for obtaining and using the money needed toimplement an organizations goals.

The steps of financial planning:

i. Establishing organizational goal andobjectives

ii. Budgeting for financial needsiii. Identify sources of funds


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Financial planners must make sure that financing needs are

realistic and that sufficient is available to meet those needs.

Establishing Organizational Goals andObjectives- Goals and objectives must be specific and

measurable so they can be translated into

dollar costs and financial planning can

proceed.

- Goals and objectives must be realistic.Otherwise, they my be impossible to finance

to achieve.

Budgeting for Financial NeedsBudget: a financial statement that projects income

and/or expenditures over a specified future period.

- From the budgets, the financial managerdetermines what funding will be needed and

where it may be obtained.

- The budgeting process begins with theconstruction of budgets for sales and various

types of expenses for individual departments.

- Budgeting accuracy is improved whenbudgets are constructed for separate

departments and for shorter period of time.

Cash budget: a financial statement that projects

cash receipts and expenditures over a specifiedperiod.

In the traditional approach of budgetingeach new

budget is based on the dollar amounts contained inthe budget for the preceding year.

The problem of this approach is that it leaves room

for padding budget items to protect the interest ofthe budgeter or his/her department.

This problem is eliminated through zero-base

budget.

Zero-base budget: a budgeting approach in which

every expense in every budget must be justified.


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Capital budget: a financial statement that

estimates a firms expenditures for major assets and

its long-term financing needs.

Capital budget is used to develop a plan for long-

term financing needs.

Identify Sources of FundsThe four primary sources of funds are:

sales revenue, equity capital, debit capital, and

proceeds from the sales of assets.

(1) Sales revenue

future sales revenue provides the greatest part of firms

financing.One of the primary reasons for financial planning is to

provide management with adequate lead time to solve

cash-flow problems.

(2) Equity capital

It is the money received from the owners or from the

sale of shares of ownership in the business.Equity capital is used almost exclusively for long-term

financing.

(3) Debit capital

It is borrowed money obtained through loans of various

types.

Debit capital may be borrowed for either short-term or

long-term use.

(4) Proceeds from the sales of assets

A firm acquires asset because it needs them for it

business operations. Therefore, selling assets is a drasticstep.

But it may be reasonable as a last sort when neither

equity capital nor debit capital can be found.Assets also may be sold when they are no longer needed.

Once the needed funds have been obtained, the financial

manager is responsible for ensuring that they are

properly used.


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This is accomplished through a system of monitoring

and evaluating the firm needs.

Good luck

Wiaam

ch. 1 free enterprise: the system of business in which

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