CHAPTER ONE
others and gets wages/salary in return
Define the term business?
A Business is an economic system in which goods
and services are exchanged for one another or
money, on the basis of their perceived worth
Discuss the nature and scope types of business?
BUSINESS AND ITS NATURE
"Nature of business" refers to the type or general
category of business or commerce you are
describing.
Characteristics or features which are as follows: 1)
an economic activity, 2) includes the activities of
production or purchase and distribution, 3) deals in
goods and services, 4) implies regularity of
transactions, 5) aims at earning profits through the
satisfaction of human wants, 6) involves risk,
creates utilities and 7) serves a social purpose.
Discuss the economic and social objectives of a
business
 This role depends upon business enterprises
operating within the framework of a
competitive market economy.
 The purpose of the business is to fill a need.
 Business exists to supply goods and services to
customers, rather than to supply jobs to
workers and managers, or even dividends to
stockholders. The role of business has
always been the same, to build and
maintain the condition of well being
Economic Activities are undertaken to earn one s
living and for the production of wealth
Types of Economic Activities
Business: Activities connected with the production
or purchase and sale of goods or services with the
object of earning profit
Employment; When a person works regularly for
Vocation; Vocation means an occupation which
involves the use of some basic skills which can be
developed by practice
Types of Business
Service Business; A service type of business
provides intangible products
Merchandising Business; This type of business
buys products at wholesale price and sells the
same at retail price.
Manufacturing Business; A manufacturing
business combines raw materials, labor, and
factory overhead in its production process.
What is the sole purpose of business?
 There is only one valid definition of business
purpose: to create a customer. The customer
is a foundation of a business and keeps it in
existence.
BUSINESS OBJECTIVES
The most effective business objectives a business
must meet : S.M.A.R.T
Specific objectives are aimed at what the
business does.
Measurable the business can put a value to
the objective
Agreed- by all those concerned in trying to achieve
the objective.
Realistic the objective should be challenging, but
it should also be able to be achieved by the
resources available.
Time specific they have a time limit of when the
objective should be achieved, e.g. by the end of
the year.
Why do business firms exist?  Profit motive
 Risk and Uncertainty
Specific objectives of a business
CHAPTER TWO
Survival, Profit maximization, Profit satisfying,
Sales growth A BUSINESS ORGANIZATION is an entity formed
for the purpose of carrying on commercial
CLASSIFICATION OF BUSINESS ACTIVITIES enterprise.
Industry is concerned with the production and Business management is therefore a way in which
processing of goods
a company or business is controlled and ran.
Commerce includes all those activities which are
Importance of business organizations today
necessary for the storage and distribution of
goods. The existence and expansion of business are
justifications of the importance of business.
TYPES OF INDUSTRIES Business provides a lot of services to the human
Primary industries beings that highlight its significance. These services
are as follows:
a) Extractive Industries:
Supply of Goods and Services: Business provides
b) Genetic Industries: goods and services to the society. Business
produces different products, which are sold or
Secondary industries may also be of two types:
supplied to the society. The creator created and
(a) manufacturing, creates things, but processing, the individuals or
business does reprocessing and preservation and
(b) construction. ultimately new utility is created. So business
provides goods and services to the society.
Trade and its types
Harnessing Capital and other Resources in
i) Home Trade:
Production: Business collects the drifts of savings
Wholesale trade and Retail Trade from different individuals, especially through banks
and financial institutions and employs those in
ii) External Trade: productive activities and, thus, harnesses capital in
economic activities to utilize natural resources in
import and export
utility creation or value addition, and
FEATURES/CHARACTERISTICS OF A BUSINESS consequently, helps production, employment and
resource utilization.
 Entrepreneur:
 Creation of utilities: Self-employment and Provision of Employment:
 Dealings in goods and services Business provides employment to the
 Satisfying Social Need: businessman. Further, in the production,
 Continuity in dealings distribution and services of business a large
 Financing number of individuals are employed by the
 Sale, transfer or exchange business organization and income generation
occurs for them and others.
Preservation of Natural Resources: Business
creates new utility to the natural resources by
preservation and value addition. Different new
products are created by business operation,
without which a lot of natural resources would
have been wasted.
Research, Development and Innovation: Business
continuously makes research on alternative uses of
resources, develops new products and methods,
and makes new innovations.
Income Generation: Business organisataions
generates income for the individuals. Business
Utilizes factors of production like land, labor,
capital and organization; and generate incomes
like wage, rent, interest and profit to the factor-
owners.
Interesting Natural Income: Business preserves
natural resources, and creates new utility.
Consequently, national income (NI), per capita
income (PCI), gross domestic products (GDP), etc,
increase.
Contribution to Social Development: Business
contributes to the social development also.
Business growth increases national income, which
contributes to social development. Profitable
corporations provide a lot of money as corporate
taxes in the hand of the government, which the
government uses in the development activities of
the country. Besides, modern corporate business
contributes a lot for Corporate Social
Responsibility (CSR), which ultimately enhances
social welfare.
Contribution in the Development of Education,
science and Technology: Business organizations
contributes toward the development of education,
innovates new technology and applies theory (s) of
science for better production and human welfare.
Development of International Relations: Business
organizations imports necessary commodities and
exports new or surplus products to foreign
countries. In this way, a foreign relation develops.
The common features of a business organization
include:
A group of people who come together to achieve
a common goal
Organizations have a vision and mission.
They have a culture that is guided by their
organizational values.
They develop strategies to achieve their goals.
They have a structure (departments, divisions,
teams) and system to achieve the goals.
They get input, process it and then have an
output.
They have customers for whom the product or
service is developed.
BUSINESS ORGANIZATION is an act of grouping
activities into effective co-operation for specific
objective.
Importance Of Business Organization :-
1. Production of Goods :- Business organization is
very useful for the production process of goods
and services. It increases the efficiency of various
sections.
2. Reduces the Cost :- Business organization
principles are used to minimize the cost of
production. So the profit of the business increases.
3. Distribution :- Marketing and distribution
problem is also being solved by the business
organization.
4. Common Link :- It provides a common link
between various of the business activities. So
effective cooperation among the various factors
increases the profit of the enterprise.
5. Saves the Time :- Due to business organization
we can save our time which is more precious in the
present age.
6. Minimum Wastage :- Business organization
reduces the wastage of material and other
expenditure. So rate of profit increases.
7. Secretariat Function :- Business organization
teaches us the principles of office organization. It
tells us the best way of performing the secretarial
functions.
8. Finance Management :- Business organization
also guides the businessman that how he should
meet his financial needs and expand the business.
9. Transportation Use :- It guides the businessman
that which type of transport he should utilize to
increase the sale and profit of his product.
10. Makes the Businessman Efficient :- Business
organization has enabled the businessman to
conduct the business affairs efficiently. It also
provides the solution of many problems.
11. Fixes Responsibility :- It fixes the responsibility
of ever individual in a different manner. It also
introduces the scheme or internal check with
works automatically.
12. Solve the Market Problems :- Business
organization solves the problems of buying, selling
storage and grading.
13. Technical Development :- It also very helpful
for improving the technology in the country. New
methods and innovations are used in the
production process.
14. Decision Making :- Decision making is very
important factor for the success of business. The
business organization is very useful in making the
decisions in time.
15. Provides Skill :- Business organization provides
the skilled people like salesman to satisfy the
customers.
16. Supply according the Demand :- It guides the
producer that he should produce the goods
according the demand of the market. Facts about
market are collected and demand is produced
accordingly.
Basic legal forms of organization:
1) Sole Proprietorship; 2) Partnerships; 3)
Corporations and 4) Limited Liability Company
follows.
Characteristics of a business leader
Though different leadership styles can be used at
different times in a business, some character traits
are important for all leaders:
Self-awareness - understanding your own
strengths and weaknesses
Decisiveness - the ability to make decisions quickly
Fairness - treating others equally
Enthusiasm - motivating a team with a positive
attitude
Integrity - earning the respect of your team
Knowledge - keeping abreast of the facts and
figures
Creativity and imagination - coming up with new
and innovative ideas
Endurance - persevering when things go wrong.
SOLE PROPRIETORSHIP; These firms are owned
by one person, usually the individual who
has day-to-day responsibility for running the
business.
Formation of a Sole Proprietorship
This is a step-by-step procedure in business start
ups and formation of sole proprietorship; however,
keep in mind that requirements may vary in some
states.
1. Decide the name of the business which is not
previously used by any business establishment or
other entities.
2. Register the business name with the local, state,
or federal government. Doing this is very
important to make a business legitimate.
3. Obtain all the necessary business permits and
licenses from the local, state, or federal
government. By doing this, a business will be
subjected to safety standards, taxes, and other
government requirements.
4. The owner of a sole proprietorship typically
signs contracts in his or her own name, because
the sole proprietorship has no separate identity
under the law.
Characteristics of sole proprietorship
Management and control, Being small in size, it is
managed by the owner himself.
Finance, the necessary capital to run the business
is provided by the sole owner.
Risk, the proprietor himself bears all the risks.
Nobody else has any stake in the business.
Unlimited liability, the sole trader is personally
liable for debts of the business.
Legal status, in law, the sole trader and his
business are considered as one
Relationship with customers, the sole trader tries
to keep good relationship with his customers.
No legal formalities, the sole trader can set up or
close the lawful business
Ease of dissolution, the sole trading business is as
easy to end or dissolve as is its formation.
Advantages of a Sole proprietorship
1) Ease of formation and dissolution, 2) there are
low start-up costs and low operational overhead,
3) Ownership of all profits, 4) Sole Proprietorships
are typically subject to fewer regulations, 5) No
corporate income taxes, 6) It is easy to organize
and 7) The single proprietor is the boss
Disadvantages of Sole proprietorship
1) Unlimited liability, 2) Limited life, 3) It may be
difficult for an individual to raise capital, 4) Scarce
financial resources, 5) Benefits of specialization in
business management are not present in small
scale proprietorship, 6) May be at a disadvantage
in raising funds and are often limited to using
funds from personal savings or consumer loans, 7)
May have a hard time attracting high-caliber
employees, 8) Some employee benefits such as
owner s medical insurance premiums are not
directly deductible.
PARTNERSHIP
Is a business entity where two or more people
share ownership of a single business.
Forming a Partnership
Here are the general steps you need to follow in
order to form a partnership in compliance with
applicable laws. Make sure to consult your state
page for state-specific details.
1. Choose a business name for the partnership and
check for availability. do this with the registrar of
companies
2. Register the business name with local, state,
and/or federal authorities.
3. Negotiate and execute a partnership
agreement. This step is not legally required, but it
is highly advisable that partners execute a formal
agreement. Please see the Partnership Agreements
section for details.
4. Determine what tax obligations the partnership
has, and take care of any necessary registrations.
Partnerships need to apply for an Employer
Identification Number (EIN) from the IRS. There is
no filing fee. You can apply for an EIN:
5. Open a bank account for your business. It is a
good idea to keep your business's finances
separate from your personal accounts.
6. Obtain licenses and permits. Depending on your
type of business, the partnership and/or each
partner may be required to have a license or
permit to operate legally.
7. Choose a location. Decide the "official" address
for the partnership. With technology enabling
partners to work from remote locations, it is
helpful to designate one place to receive
partnership mail. If partners operate from their
respective homes, the partnership can obtain an
address from such companies as a UPS Store or a
virtual office.
8. Obtain insurance. Because each partner's
personal assets are exposed to the claims of the
partnership's creditors, the best way to obtain
protection is to carry adequate insurance for the
unexpected. Discuss these and other types of
coverage with an insurance agent: property and
liability coverage, auto insurance, and health
coverage.
CHARACTERISTICS/FEATURES OF PARTNERSHIP
Agreement, There must be agreement between
the parties concerned.
Number of Partnership, There should be more
than one person to form a partnership.
Business, The object of the formation of
partnership is to carryon any type of business
Profit motive, the basic motive of the formation of
partnership is to earn profit.
Conduct of Business, The business of
partnership is conducted by all the partners or
any of them acting for all
Entity, it has no separate entity apart from its
members
Unlimited liability, this is the prominent
feature of partnership that the liability of each
partner is not limited
Investment, each partner contributes his share in
the capital according to the agreement.
Position, one partner is an agent as well as
principal to other partner
Mutual Confidence, the business of the
partnership cannot be conducted
legal Operation, There are no strict rules and
regulations to control the partnership activities
KINDS OF PARTNERS
1) General partners, invest in the business, take
part in running it and share in its profits.
2) Active Partner (Managing or Working Partner), a
person who takes active part, in the affairs and
management of the business is called active
partner
3) Nominal Partner, he is not in reality a partner of
firm but his name is used as if he is a member of
the firm.
4) Sub-Partner, the person who receives a share of
profit from one of the regular partners
5) Silent Partner; He is that kind of partner who
does not participate in the affairs of the business
but is known to outsiders as a partner of the firm.
He is liable to pay the debts of the firm like
6) Secret Partner; He is active in the running life
of the firm but public does not know him as
partner of the firm.
7) Sleeping Partner or Dormant Partner; A person
who (a) does not conduct the management of the
firm personally
8) Minor Partner, there is no restriction to join the
minor in the partnership by law.
9) Quasi Partner, a person who has retired from
the running management life of the firm but he
does not withdraw his capital from the business
10) Senior Partner, A person who brings large
portion of capital in the business is called senior
partner
11) Junior Partner, He invests minor portion of
capital in the business and so he has small share in
the profits.
Advantages of partnerships
Synergy; there is clear potential for the
enhancement of value resulting from two or more
individuals combining strengths.
Partnerships are relatively easy to form;
Fewer regulations than corporations.
There is stronger potential of access to greater
amounts of capital.
No corporate income taxes.
Better management because of the presence or
more participants in the operations of the
business.
Possibility of bigger resources than in the
single proprietorship exists.
Financial loans Financial institutions may extend
bigger loans to such business organization
considering the combined resources of the
partners.
Disadvantages
Unlimited liability. General partners are
individually responsible for the obligations of the
business, creating personal risk.
Limited life. A partnership may end upon the
withdrawal or death of a partner.
There is a real possibility of disputes or conflicts
between partners which could lead to dissolving
the partnership.
Conflicts or quarrels between or among the
partners regarding the management or policies of
the business are likely to crop up.
It lacks stability. The death or withdrawal of one
partner dissolves the partnership. To continue its
operation, a complete reorganization is needed.
Requirements for formation of a partnership
Two or more persons who bind themselves to
contribute money or industry to a common fund,
with the intention of dividing the profits among
themselves.
It has a personality distinct and separate from that
of its members.
Applicable Laws; These are the provisions of law
which govern all aspects of partnerships from their
creation, formation, existence.
Partnership deed forms the basis of partnership.
Partnership deed is a document containing all the
matters according to which mutual rights, duties
and liabilities of the partners in the conduct and
management of the affairs of the firm are
determined.
MAIN CONTENT OF PARTNERSHIP DEED
 Name of the firm and Its Address:
 Name and Address of Partners:
 Nature of Firm s Business:
 Duration of Partnership.
 Partners Capitals
 Interest on Capital:
 Drawing and Interest on Them:
 Division of Profit:
 Partners Salary and Commission:
 Rights and Duties of Partners:
 Admission and Retirement of Partners;
 Death of a Partner:
 Valuation of Goodwill;
 Revaluation of Assets and Liabilities;
 Accounts and Audit:
 Dissolution of Partnership:
 Arbitration Clause;
COOPERATIVE
A cooperative is also defined as a duly registered
association of persons, with a common bond of
interest and have voluntarily joined together to
achieve a lawful common social or economic end.
Forming a cooperative
There are seven main steps in forming a
cooperative or a "cooperative-like" organization.
1. Establish a steering committee; In some cases, a
group of people who share an idea for a
cooperative forms a steering committee and
develops a plan and a timetable for researching
and developing a co-op. A steering committee is
formed from participants in this meeting.
2. Conduct a feasibility study; The steering
committee either conducts a feasibility study itself
or hires a consultant to carry out the study. The
purpose of a feasibility study is to examine critical
opportunities and obstacles that might make or
break the formation of the cooperative. These
critical issues include the number and interest level
of potential members; market issues (Can the co-
op get better prices, better quality or better
services than potential members currently get
through other means?); operating costs; and
availability of financing.
3. Draft Articles of Incorporation and Bylaws; In
order to conduct business, a cooperative has to be
incorporated under the appropriate state statute.
Most countries have statutes specifically for
cooperatives; others have more general corporate
statutes. The steering committee should select
legal counsel to draft or review the articles of
incorporation and bylaws.
4. Prepare a business plan; The business plan is a
more in-depth version of the feasibility study. It
serves two primary purposes: to provide a
blueprint for the development and initial operation
of the co-op and to provide supporting
documentation for potential members, financial
institutions and other investors.
5. Secure financing; Cooperatives vary greatly in
the amount of capital they need to get up and
running. The business plan should include the
amount and type of financing needed by the co-op
and a strategy for getting it.
6. Recruit members; Although member
recruitment is listed as the sixth step in forming a
co-op, laying the groundwork for the co-op's
membership base needs to begin when the
steering committee first meets.
7. Recruit personnel; The recruitment of personnel
is listed as the last step in the co-op formation
process . One or more key persons can be hired as
consultants at an early stage with the mutual
intent that they will work for the co-op once it is
formally established.
x-tics/features of cooperatives
Voluntary And Open Membership; Co-operatives
are voluntary organizations, open to all persons
able to use their services and willing to accept the
responsibilities of membership.
Democratic Member Control; Co-operatives are
democratic organizations controlled by their
members, who actively participate in setting their
policies and making decisions.
Member Economic Participation; Members
contribute equitably to, and democratically
control, the capital of their co-operative. At least
part of that capital is usually the common property
of the co-operative.
Autonomy and Independence; Co-operatives are
autonomous organizations controlled by their
members. If they enter into agreements with other
organizations, including governments, or raise
capital from external sources, they do so on terms
that ensure democratic control by their members
and maintain their co-operative autonomy.
Education, Training and Information; Co-
operatives provide education and training for their
members, elected representatives, managers and
employees so they can contribute effectively to
the development of their co-operatives.
Co-operation Among Co-operatives; Co-operatives
serve their members most effectively, and
strengthen the co-operative movement by working
together through local, national, regional, and
international structures.
Concern For Community; Co-operatives work for
the sustainable development of their communities
through policies approved by their members.
The advantageous factors of the cooperative type
of organization are given below: -
 Elimination of middlemen. The management of
the consumer cooperative society directly
purchases the finished goods from the
manufacturer and producer. Producer
cooperative society procures the raw material
from the producer.
 Saving in management expenses. Cooperative
society enjoys some economies in the field of
management due to voluntary services
performed by the members themselves.
 Minimum stock. Society purchases the same
goods which are actually demanded by its
members. Thus there is need to have minimum
stock at hand due to constant and regular
demands.
 Economy in distribution and production
expenditure. Society is saved from any
distribution and production expenses. It has
got its regular customers; therefore society has
not to face any trouble for marketing its goods.
 Integration. Under this type of organization,
complete integration between producers,
wholesalers and retailers is always possible.
This is thus a clear advantage over capitalist
economy.
 Unlimited commercial life. The corporation is
an entity of its own and does not dissolve
when ownership changes.
 Greater flexibility in raising capital through the
sale of stock.
 Ease of transferring ownership by selling stock.
 Limited liability. This limited liability is
probably the biggest advantage to organizing
as a corporation. Individual owners in
corporations have limits on their personal
liability.
Disadvantages of a cooperative organization.
 Regulatory restrictions. Corporations are
typically more closely monitored by
governmental agencies, including federal,
 state, and local. Complying with regulations
can be costly.
 Higher organizational and operational costs.
These legal and clerical expenses, along with
other recurring operational expenses, can
contribute to budgetary challenges.
 Double taxation. The possibility of double
taxation arises when companies declare and
pay taxes on the net income of the
corporation, which they pay through their
corporate income tax returns.
 Lacks of capital, its members are generally
related to the poor group of the society and
they are not in a position to invest a large
amount.
 External financial resources of the society are
limited.
 It cannot borrow money from non-members.
 It cannot issue any kind of debentures.
 Shares cannot be transferred to nonmembers.
JOINT VENTURE
Is a contractual agreement joining together two or
more parties for the purpose of executing a
particular business undertaking. All parties agree
to share in the profits and losses of the enterprise.
Advantages of forming a joint venture
 Provide companies with the opportunity to
gain new capacity and expertise
 Allow companies to enter related businesses
or new geographic markets or gain new
technological knowledge
 Access to greater resources, including
specialized staff and technology
 Sharing of risks with a venture partner
 Joint ventures can be flexible. For example, a
joint venture can have a limited life span and
only cover part of what you do, thus limiting
both your commitment and the business'
exposure.
 In the era of divestiture and consolidation, JV s
offer a creative way for companies to exit from
non-core businesses.
 Companies can gradually separate a
business from the rest of the organization,
and eventually, sell it to the other parent
company.
Disadvantages of Joint Ventures
 It takes time and effort to build the right
relationship and partnering with another
business can be challenging. Problems are
likely to arise if:
 The objectives of the venture are not 100 per
cent clear and communicated to everyone
involved.
 There is an imbalance in levels of expertise,
investment or assets brought into the venture
by the different partners.
 Different cultures and management styles
result in poor integration and co- operation.
 The partners don't provide enough leadership
and support in the early stages.
 Success in a joint venture depends on
thorough research and analysis of the
objectives.
FORMATION OF A JOINT VENTURE
In any business situation, it's best to have a written
agreement. When there is a formal joint venture
agreement, it should be comprehensive, and
should include specifics such as:
 Ownership percentages
 Shares of profits and losses
 Partner investment
 Administrative responsibilities
 Business asset sharing and transfers
A written Joint Venture Agreement should cover:
 The parties involved
 The objectives of the joint venture
 Financial contributions you will each make
whether you will transfer any assets or
employees to the joint venture
 Intellectual property developed by the
participants in the joint venture
 Day to day management of finances,
responsibilities and processes to be followed.
 Dispute resolution, how any disagreements
between the parties will be resolved
 How if necessary the joint venture can be
terminated.
 The use of confidentiality or non-
disclosure agreements is also
recommended to protect the parties when
disclosing sensitive commercial secrets or
confidential informant.
Limited Liability Company (LLC)
The LLC is a relatively new type of hybrid
business structure that is now permissible in
most states. It is designed to provide limited
liability features of a corporation and the tax
efficiencies and operational flexibility of a
partnership. Formation is more complex and
formal than that of a general partnership.
The owners are members, and the duration of the
LLC is usually determined when the organization
papers are filed. The time limit can be continued if
desired by a vote of the members at the time of
expiration.
LLC s must not have more than two of the four
characteristics that define corporations: Limited
liability to the extent of assets; continuity of life;
centralization of management; and free
transferability of ownership interests.
Formation of LLC
Forming an LLC (limited liability company) is not as
hard as most people think. Here are the steps you
need to take to make your LLC a legal reality.
 Choose an available business name that
complies with your state's LLC rules.
 File formal paperwork, usually called articles of
organization, and pay the filing fee.
 Create an LLC operating agreement, which sets
out the rights and responsibilities of the LLC
members.
 Publish a notice of your intent to form an LLC
(required in only a few states).
 Obtain licenses and permits that may be
required for your business.
Characteristics of LLC are
Separate Legal Existence; it has a separate legal
existence apart from its members. Although state
law regarding LLC operation varies, an LLC can
usually continue existing even after a member
withdraws.
Limited Liability; As the name suggests, an LLC
offers limited liability to its members. Although
members, managers and employees remain
responsible for their own torts, or civil wrongs, an
LLC member is protected from liability for torts
committed by other members, managers or
employees. This feature allows members the
freedom to hire employees and conduct high-
liability business that would otherwise put the
members' personal assets at risk in a lawsuit.
Flexibility in Taxation; LLCs are also characterized
by flexibility in terms of how they are taxed. The
IRS does not have a separate category for LLCs, so
these entities are taxed as either sole
proprietorships in the case of single-member LLCs
partnerships for multi-member LLCs or
corporations single or multi-member
organizations.
Simplicity in Documentation and Operation;
While a separate legal existence, limited liability
and flexible tax treatment are all important LLC
features, these entities are also characterized by
simplicity in terms of documentation and
operation.
Creation; A limited liability company is created by
filing articles of organization in the state where the
business is headquartered. The secretary of state
provides a standard form for this purpose.
Advantages of a Limited Liability Company
Limited liability: As the name implies, members
liabilities for the debts and obligations of the LLC
are limited to their own investment.
Pass-through taxation: For taxation purposes,
income from your business can be treated as your
own personal income, and is therefore not subject
to certain federal taxes for which corporations are
liable.
Limitless ownership: Some legal structures limit
the number of people allowed to file as owners.
With an LLC, there is no limit to the number of
owners. An LLC can have one member or hundreds
of members.
Allocation flexibility: In an LLC, the amount of
money that owners invest into the business
doesn t need to equal their percentage of
ownership. When an LLC is formed, members
create an operating agreement, in which different
percentages of company profits and losses can be
assigned to owners regardless of the amounts of
their initial investments.
Freedom in management: Unlike standard
corporations, LLCs are not required to have a
board of directors, annual meetings, or strict book
requirements. This can free up a lot of time and
stress to let you run your business on your own
terms. As you can imagine, this can be an
important advantage of a limited liability company
as well.
Disadvantages of a Limited Liability Company
Building capital: Unlike corporations, which can
issue stock in order to increase funds for their
companies, LLCs have to work a little harder to find
investors and sources of capital due to the greater
legal obligations and state filings involved to add a
new member to an LLC.
Higher fees: LLCs must typically pay more fees to
file as LLCs compared to some other business
entities or sole proprietorships. Additionally, many
states require yearly renewal fees. However, these
fees are usually less than what a C-corporation has
to pay.
Government regulation: Because of the
protections afforded to LLCs, some types of
businesses are ineligible to file as LLCs. Banks,
insurance companies, and medical service
companies are examples of businesses that may be
barred from filing in your state.
Lack of case law: The LLC business form is a
relatively new concept. As a result, not a lot of
cases have been decided surrounding LLCs. Case
law is important because of predictability
Taxation: Although LLCs allow owners to avoid
federal taxes, your firm may actually end up paying
more that it would with a different model,
depending upon your state s personal income tax
requirements, and the nature of the business.
Confusion across countries: The rules regarding
LLCs vary from state to state. If you decide to start
doing business in multiple states, it may become
tricky to understand and abide by all the
requirements of each state, and in some cases it
may be necessary or preferred to form subsidiary
entities to operate in other states.
CHAPTER THREE: MANAGEMENT
Is the process of getting activities completed
efficiently with and through other people; The
process of setting and achieving goals through the
execution of five basic management functions:
planning, organizing, staffing, directing, and
controlling; that utilize human, financial, and
material resources.
There are four basic functions of Management.
These are:
Planning: Planning relates to decisions on about
the present and the future. It relates to how
resources should be efficiently allocated.
Leading: Leading deals with proper communication
of goals and plans and motivating the employees
to achieve them.
Organizing: In this function, managers have to
decide the optimum usage of resources.
Controlling: Keeping a check on the progress of
plans and performance.
Apart from these four functions, Staffing is also
considered a main function of management.
Business management is therefore a way in which
a company or business is controlled and ran.
A business manager is a person who drives the
work of others in order to run a major business
efficiently and make a large profit. A manager's job
is highly crucial to the success of any organization.
The more complex the organization, the more
crucial is the manager's role in it.
TYPES OF MANAGERS
The Problem-Solving Manager; This boss is task-
driven and focused on achieving goals.
The Pitchfork Manager; People who manage by a
pitchfork are doing so with a heavy and often
controlling hand: demanding progress, forcing
accountability, prodding and pushing for results
through the use of consequence, threats, scarcity,
and fear tactics.
The Pontificating Manager; these managers will
readily admit they don t follow any particular type
of management strategy.
The Presumptuous Manager; Presumptuous
Managers focus more on themselves than anything
else
The Perfect Manager; Perfect Managers possess
some wonderful qualities. These managers are
open to change, innovation, training, and personal
growth with the underlying commitment to
continually improve and evolve.
The Passive Manager; Passive Managers take the
concept of developing close relationships with
their team and coworkers to a new level.
The Proactive Manager; The Proactive Manager
encompasses all of the good qualities that the
other types of managers possess, yet without all of
their pitfalls.
RESPONSIBILITIES OF A BUSINESS MANAGER
Supervision; Business managers are responsible
for overseeing and supervising a company's
activities and employees.
Overseeing; Business managers oversee the day-
to-day operations in large and small organizations
Human resource management; Business managers
oversee the activities of workers; hire, train and
evaluate new employees; and ensure that a
company or department is on track to meet its
financial goals.
Budgeting; Business managers might also develop
and implement budgets, prepare reports for senior
management and ensure the department complies
with company policies.
Evaluation of performance; Managers assess the
performance of the department or company
against the business s goals and plans.
Some of the essential skills are:
Technical skills. Technical skills basically involve
the knowledge, methods and techniques and the
ability to use these techniques in performing a job
effectively. For example, engineers, accountants,
computer programmers etc
Human skills; Human skill is the ability to work
with other people amicably. It involves patience,
trust, and genuine involvement in interpersonal
relationships.
Analytical skills; a successful manager must
possess the analytical skill, involving the ability to
logically, objectively, and scientifically analyze the
problems and opportunities and scientific
approaches to arrive at feasible and optimal
solutions.
Conceptual skills; The conceptual skills usually
depend upon the organized thinking process
which deals with understanding of various
functions of an organization, their
interdependence, the relationship of the
organization with the external environment and
recognizing the opportunities and challenges.
Diagnostic skill. Diagnostic skill is used to
investigate problems, decide on a remedy, and
implement a solution. Diagnostic skill involves
other skills technical, interpersonal, conceptual,
and politic. For instance, to determine the root of a
problem, a manager may need to speak with many
organizational members or understand a variety of
informational documents.
Political skill. Political skill involves obtaining
power and preventing other employees from
taking away one's power. Interacting with
competitors, suppliers, customers, shareholders,
government, and the public may require political
skill.
BUSINESS SKILLS THAT WILL NEVER, EVER GO OUT
OF STYLE
Communication skills. Management is still tight
with budgets, and needs to be sold on new project
ideas. The ability to construct an argument and
make your case forcefully and clearly to your boss,
client or coworkers will move your ideas to
fruition.
Time management and organization. The ability to
stay organized and prioritize tasks will go a long
way to moving you and your team forward.
Goal setting. No business operation no matter
how automated and virtualized will get anywhere
without a vision of the end result.
Delegating. No matter how talented and educated,
one individual cannot do everything that needs to
be done to keep an organization on track toward
its goals. The ability to surround yourself with
talented people who can augment your skills will
get things done every time without fail.
Public speaking and presentation skills. The ability
to communicate your ideas to audiences will raise
your profile to new levels. Web-based
conferencing services make it easy, but face-to-
face encounters will make lasting impressions.
Relationship building. Must be able to cultivate
and maintain good relationships. Social media
and email may help make it easier to keep in
touch, but the key is to keep those contacts going.
Involvement in professional groups/conferences:
The best way to exchange ideas, learn new things
and expand your network is to become involved in
groups relevant to your craft.
Passion and determination. Motivation has to
come from within; the drive to excellence is
entirely an internal affair. Totally out of reach of
any IT system.
Civility, politeness, and respect. This should be a
golden rule for every tech startup, Fortune 500 and
public organization that wants to make a positive
difference in the world.
Entrepreneurial and innovation skills. Even in the
techiest of places, it takes a sense of imagination
to conceive new ways to create value. New ideas
aren't generated by machines; they come from the
minds of the people using those machines.
Desire to learn. Nothing beats the value of
education, whether it's formal college degrees or
completion of training skills in your profession.
Even seeking out coworkers on the job for
opinions and experiences means the growth of
knowledge.
Flexibility and adaptability. Rigidity never worked
in the 1990s or 1930s, and it certainly won't work
now. Be open to new ideas, environments, and
responsibilities. Technology will constantly be
changing; professionals need to change as well.
MANAGERIAL LEVELS
Managers are organizational members who are
responsible for the work performance of other
organizational members.
Top-level managers; Top-level managers, or top
managers, are also called senior management or
executives. These individuals are at the top one or
two levels in an organization, and hold titles such
as: Chief Executive Officer (CEO), Chief Financial
Officer (CFO), Chief Operational Officer (COO),
Chief Information Officer (CIO), Chairperson of the
Board, President, Vice president, Corporate head.
Middle-Level Managers; Middle-level managers,
or middle managers, are those in the levels below
top managers. Middle managers' job titles include:
General manager, Plant manager, Regional
manager, and Divisional manager.
First-Level Managers; First-level managers are also
called first-line managers or supervisors. These
managers have job titles such as: Office manager,
Shift supervisor, Department manager,
Foreperson, Crew leader, Store manager.
The difference between managers and leaders
Management and leadership complement each
other, but they are separate roles. A leader
inspires, motivates and encourages people to
achieve visionary goals. A manager, on the other
hand, deals with the actual operation of a business
- for example, by:
Ensuring products and services reach clients in the
way they expect. Learn more about understanding
customer service
Evaluating business operations, legal requirements
and workplace health and safety responsibilities
Planning budgets and arranging suitable training
for staff.
Each business will include both leaders and
managers, but they can sometimes be the same
person. Both leaders and managers are likely to
benefit from having the leadership traits listed
above.
However, there is a clear difference between the
two. A leader can only inspire a team to success if
there is a management structure in place to ensure
tasks are carried out. Likewise, a leader who wants
to be effective must be careful that they are not
spending too much time managing and not enough
time leading.
Characteristics of a business leader
Though different leadership styles can be used at
different times in a business, some character traits
are important for all leaders:
 Self-awareness - understanding your own
strengths and weaknesses
 Decisiveness - the ability to make decisions
quickly
 Fairness - treating others equally
 Enthusiasm - motivating a team with a positive
attitude
 Integrity - earning the respect of your team
 Knowledge - keeping abreast of the facts and
figures
 Creativity and imagination - coming up with
new and innovative ideas
 Endurance - persevering when things go
wrong.
There are also characteristics that any successful
leader will avoid, such as:
 Poor communication - leads to
misunderstandings and errors
 Reluctance to delegate - leads to resentment
and inefficiencies
 favoritism among staff - leads to resentment.
CHAPTER FOUR; PRODUCTION
A production function is a function that specifies
the output of a firm, an industry, or an entire
economy for all combinations of inputs.
In business production is the processes and
methods used to transform tangible inputs (raw
materials, semi-finished goods, subassemblies) and
intangible inputs (ideas, information, knowledge)
into goods or services.
TYPES OF PRODUCTION
There are four types of economic production that
are considered to be the most significant: The
primary sector, the secondary sector, the tertiary
sector, and the quaternary sector. Nations with
more types of sectors tend to be wealthier.
FACTORS OF PRODUCTION
Resources required for generation of goods or
services, generally classified into four major
groups: (1) Land (including all natural resources),
(2) Labor (including all human resources), (3)
Capital (including all man-made resources), and (4)
Enterprise (which brings all the previous resources
together for production).
These factors are classified also as management,
machines, materials, and money (this, the 4 Ms).
ENTREPRENEURSHIP
Entrepreneurship is the special sort of human
effort that takes on the risk of bringing labor,
capital, and land together to produce goods.
Entrepreneurship is the factor that organizes the
other three.
PRODUCTION PROCESS
Refers to the mechanical or chemical steps used to
create an object, usually repeated to create
multiple units of the same item. Generally involves
the use of raw materials, machinery and
manpower to create a product.
The production process is concerned with
transforming a range of inputs into those outputs
that are required by the market. This involves two
main sets of resources - the transforming
resources, and the transformed resources.
The transforming resources include the buildings,
machinery, computers, and people that carry out
the transforming processes.
The transformed resources are the raw materials
and components that are transformed into end
products.
TYPES OF PRODUCTION PROCESS
Some of the most important types of production
are: (i) Job Production; standardized products are
produced in accordance with the orders received
from the customers
The job production possesses the following
characteristics
1. A large number of general purpose machines are
required.
2. A large number of workers conversant with
different jobs will have to be employed.
3. There can be some variations in production.
4. Some flexibility in financing is required because
of variations in work load.
5. A large inventory of materials, parts and tools
will be required.
6. The machines and equipment setting will have
to be adjusted and readjusted to the
manufacturing requirements.
7. The movement of materials through the process
is intermittent.
Job production has the following limitations:
1. The economies of large scale production may
not be attained because production is done in
short-runs.
2. The demand is irregular for some products.
3. The use of labour and equipment may be an
inefficient.
4. The scientific assessment of costs is difficult.
(ii) Batch production
Batch production pertains to repetitive production.
It refers to the production of goods, the quantity of
which is known in advance.
The batch production method possesses the
following characteristics:
1. The work is of repetitive nature.
2. There is a functional layout of various
manufacturing processes.
3. One operation is carried out on whole batch and
then is passed on to the next operation and so on.
4. Same type of machines is arranged at one place.
5. It is generally chosen where trade is seasonal or
there is a need to produce great variety of goods.
(iii) Mass or flow production
This method involves a continuous production of
standardized products on a large scale. Under this
method, production remains continuous in
anticipation of future demand
The mass or flow production possesses the
following characteristics.
1. The units flow from one operation point to
another throughout the whole process.
2. There will be one type of machine for each
process.
3. The products, tools, materials and methods are
standardised.
4. Production is done in anticipation of demand.
5. Production volume is usually high.
6. Machine set ups remain unchanged for a
considerable long period.
7. Any fault in flow of production is immediately
corrected otherwise it will stop the whole
production process.
Suitability of flow/mass production:
1. There must be continuity in demand for the
product.
2. The products, materials and equipments must
be standardised because the flow of line is
inflexible.
3. The operations should be well defined.
4. It should be possible to maintain certain quality
standards.
5. It should be possible to find time taken at each
operation so that flow of work is standardised.
6. The process of stages of production should be
continuous.
Advantages of mass production:
A properly planned flow production method,
results in the following advantages:
1. The product is standardised and any deviation in
quality etc. is detected at the spot.
2. There will be accuracy in product design and
quality.
3. It will help in reducing direct labour cost.
4. There will be no need of work-in-progress
because products will automatically pass on from
operation to operation.
5. Since flow of work is simplified there will be
lesser need for control.
6. A weakness in any operation comes to the
notice immediately.
7. There may not be any need of keeping work-in-
progress, hence storage cost is reduced.
Factors governing plant location:
Regional factors: These factors include proximity
of the plant to the market and also to the sources
of the raw materials. They also include
infrastructural facilities, transportation facilities,
and availability of skilled workers, legislation, the
taxation and also the work attitude of the workers.
Community factors: These involve
accommodation, education, entertainment and
transport facilities. It also includes attitude of the
community, supporting industries and services,
suitability of the land mongo others.
Information Technology. Industries depend largely
on availability of skilled personnel, infrastructure
among others. Because of these reasons most of
such organizations operate in urban areas of the
country
Nearness to fuel and power: It is a decisive factor
in plant location. It is necessary to ensure that the
phases, voltage, frequency, rates, regularity,
special discounts allowed are suitable to factory.
Transport: Getting raw materials to place of
manufacture, transporting finished goods to place
of consumption and carrying employees to the
factory and sales representatives to the
consumers are functions of transport. James
Lundy quoted ideal plant from the point of view
of transportation is one which is centrally located
and directly connected by water, rail, road and air.
Market: A place where particular products are
sold. Nearness to market Influences reduces cost
of transportation of finished goods and
promotional expenses, enables to study the
consumers, enables to render quick service and
after-sales services, execute replacement orders
without delay.
Meteorological conditions & Topography: A cool
climate develops the best of worker. For e.g.
Agro-industries.
Labour: The need of adequate supply of labour is
obvious, but a number of considerations such as
cost of living and the character of labour available
as to both skill &temperament should be taken
into account.
Environmental and Safety Considerations; then
it may be necessary to choose another site. Thus,
environmental considerations may be, overall, the
most important sitting factor.
Site Purchase, once the site is selected, the land
purchase must be made. It is advisable to first
secure an option to buy the land so that all of the
potential problems can be evaluated or solved
before the purchase is made.
Speci c Plant Site Considerations, once a general
plant location has been established, a speci c plant
site location needs to be determined. This requires
developing a list of requirements for the plant.
INVENTORY MANAGEMENT
Is the process of efficiently overseeing the
constant flow of units into and out of an existing
inventory.
Inventory management has to do with keeping
accurate records of finished goods that are ready
for shipment.
TYPES OF INVENTORY
Merchandising Inventory; Wholesale and retail
companies purchase goods that are primarily in
finished form.
Manufacturing Inventories; Inventory for a
manufacturer consists of (1) raw materials; (2)
work in process, and (3) finished goods.
WAYS TO MANAGE INVENTORY
Supplier Assistance, an effective way to manage
inventory is to solicit the help of suppliers.
Supplier-managed inventory gives the vendor
access
Inventory Control Personnel, hire a dedicated
inventory control specialist. Inventory specialists
manage all merchandise items that are on hand
and in transit. They also perform adjustments,
manage returns, validate received merchandise
and implement inventory reporting strategies.
Lead Time, Lead time is the amount of time it
takes to reorder inventory.
Suppliers deliver products at varying times after
an order is placed. A useful way to manage
inventory is to establish lead time reports to
understand how long it takes to replenish your
inventory.
Monitor Inventory Levels, having high levels of
inventory adds to expenses and increases
overhead costs. An effective way to manage
inventory is to determine the inventory demands
of the business. Limit seasonal inventory and cut
back on inventory that does not sell.
Customer Delivery, an effective way to manage
inventory is to measure inventory turnover and
delivery turnaround time. This involves measuring
how often your inventory sells and how long it
takes to get into the hands of your customers.
Inventory Consultant, many organizations hire
inventory consultants outside the company to
develop and manage internal inventory systems.
Inventory consultants are responsible for
maintaining accuracy, cycle counting, shipping and
receiving, and managing order-picking operations.
Purchase Software, many businesses manage
inventory by designing an inventory management
database or purchasing inventory management
software. Inventory management software
enables distributors to customize the database
to fit their individual needs.
Product Turnaround, all businesses have products
that sell and products that sit on the shelves. A
helpful way to manage inventory is to establish a
system that pinpoints which products move quickly
and which products take more time to sell.
Tracking System; Inventory tracking system
formats range from spreadsheets to computer
programs. They provide complete inventory
control allowing business owners to organize item
levels and take cycle counts in distribution centers
or stock rooms.
Work in Progress, businesses successfully manage
inventory by tracking units as they move through
different operational stages. Many businesses
utilize some inventory to create other products.
INVENTORY CONTROL TECHNIQUES
Inventory control means that you have identified
every facet of your supply chain and its logistics.
These include;
FIFO, if you deal in perishable items, FIFO (first
in, first out) is an important concept to
understand and maintain throughout the supply
chain. If a grocery store did not rotate their stock,
new stock coming in would get taken immediately
and older stock would expire, causing great loss.
Stock must be arranged by date received.
'Last In, First Out -LIFO', An asset-management
and valuation method that assumes that assets
produced or acquired last are the ones that are
used, sold or disposed of first. LIFO assumes that
an entity sells, uses or disposes of its newest
inventory first. If an asset is sold for less than it is
acquired for, then the difference is considered a
capital loss. If an asset is sold for more than it is
acquired for, the difference is considered a capital
gain. Using the LIFO technique to evaluate and
manage inventory can be tax advantageous, but it
may also increase tax liability.
illustration
Compile a list of inventory purchases made over
time, noting the time that the purchase was made,
the amount that was purchased and the price. For
example: a business purchases 800 chairs in June
for 30,000 each, 1,000 chairs in July for 25,000
each and 500 chairs in August for 45,000 each,
1,200 chairs are sold in September.
Calculate FIFO inventory costs by assuming that
every item sold came out of the first-purchased
inventory. By this method, of the 1,200 chairs sold,
800 came from the stock purchased at 30,000
each, and 400 came from the stock purchased at
250,00 each,
For a total price of (800 x 30,000) + (400 x 25,000),
for a total of 34,000,000, or 28,300 on average per
chair
CHANGING FROM LIFO TO FIFO.
Calculate LIFO costs by assuming the reverse, that
the most recently purchased inventory is the first
to sell. These 1,200 chairs are 500 from the August
purchase for 45,000, and 700 from the July
purchase at 25,000
Their total price = (500 x 45,000) + (700 x 25000)
for a total of 40,000,000, with an average cost of
33,300.
Cutting Edge Control, for a great deal of stock that
needs constant management, considers bar codes
or RFID (radio frequency identification) where
hand-held readers can immediately tell you where
valuable merchandise is.
Costs versus Convenience, a business owner
must balance space available for extra stock
versus speed of product turnover, fees for storage,
cost in bulk versus regular ordering, and whether
clients/end users would be willing to wait.
Stock Levels, Defining your minimum stock level
will allow you to set up regular inspections and re-
ordering of supplies. Take into account
emergencies and vendors taking longer than
average to replenish stock. This will aid you in
arriving at JIT (just in time) ordering, where stock is
held for a minimum amount of time before moving
on to the next stage in the supply chain.
Security, Stock security is a necessary cost. Many
experts recommend separating staff that is
responsible for stock management from staff that
has financial responsibility. Many times, shoplifting
and thievery is committed by employees rather
than a stranger
Stock on Hand, Having a great deal of stock on
hand has both positive and negative
consequences. Having an immediate supply means
that end users get their product that much sooner.
Speed and immediate gratification for a client can
make the difference not only in a sale, but
recommendations, repeat business and client
loyalty. Of course, one must take into account
using capital in bulk buys, management and
insurance costs as well as goods perishing or
becoming obsolete.
QUALITY MANAGEMENT
Quality management is a principle that ensures
quality in a company's products and services
Quality can be defined as "delivery of reliable
information within an agreed span of time under
agreed conditions, at agreed costs, and with
necessary aftercare"
Quality management has four main components:
quality planning, quality control, quality
assurance and quality improvement. Quality
management is focused not only on
product/service quality, but also the means to
achieve it.
Principles of quality management
The principles include:
Customer focus, Since the organizations depend
on their customers, therefore they should
understand current and future customer needs,
should meet customer requirements and try to
exceed the expectations of customers. internal and
external customers are satisfied.
Leadership, Leaders of an organization establish
unity of purpose and direction of it.
Involvement of people, People at all levels of an
organization are the essence of it.
Process approach, the desired result can be
achieved when activities and related resources are
managed in an organization as process.
System approach to management, An
organization's effectiveness and efficiency in
achieving its quality objectives are contributed by
identifying, understanding and managing all
interrelated processes as a system.
Continual improvement, One of the permanent
quality objectives of an organization should be the
continual improvement of its overall performance.
Factual approach to decision making, Effective
decisions are always based on the data analysis
and information.
Mutually beneficial supplier relationships, Since
an organization and its suppliers are
interdependent, therefore a mutually beneficial
relationship between them increases the ability of
both to add value.
Six Sigma Management Guide
Six Sigma is a business management strategy
for improving the operational performance of a
business by eliminating variability and waste.
Six Sigma Program Examples
 Total Quality Management Guide
 Quality Management Presentation
 Quality Manager Job Description,
 Equipment Maintenance Log
 The Preventive Corrective-Action Report
 The Smart Vendor Audit Checklist
 Packing List Order Form
THE IMPORTANCE OF QUALITY MANAGEMENT
Product quality, Through the use of a quality
management program, the company can produce
a product that performs according to its stated
promises. The will endure normal, everyday use.
Use quality management programs to improve the
quality of a product and to design new products.
Customer Satisfaction, Conduct customer
satisfaction surveys to understand the qualities
of the product important to the customer. Also
conduct surveys with those who are not the
company's customers.
Increased Revenues, Quality products and services
give the company a spotless reputation in the
industry. This reputation allows the company to
gain new customers and sell additional products
and services to existing customers. A quality
management program also removes inefficient
processes within the system.
Reduce Waste, Companies that house inventory
are paying for the storage, management and
tracking of the inventory.
Teamwork, Quality management systems force
company departments to work as a team. Different
areas of the company become reliant upon one
another to produce a quality product that meets
and exceeds the customers' expectations.
International Competition, Business competition
increases as more businesses operate not only on
a national level, but also internationally.
Organizational Culture, Introducing quality
management into a company's organizational
behavior involves modifying the organizational
culture inside the company.
QUALITY RELATED COSTS:
Cost of poor quality/ costs of non-conformance /
failure costs.
Internal failure - costs the provider incurs directly;
prior to delivery to customers, as a result of
defective output. Eg. Wasted time,
Rework costs; the costs of fixing defective
products to conform to quality specifications.
Scrap costs: the costs of poor quality products that
must be discarded, including labor, material and
indirect costs.
Process failure costs: The costs of determining
why the production process is producing poor-
quality products.
Process downtime costs: The costs of shutting
down the production process to fix the problem.
Price downgrading costs: The costs of
discounting poor-quality products- i.e. selling
products as seconds , repair, bad feelings.
External failure - costs to the provider when
defects are discovered after delivery to customers
and are basically related to customer service.
Customer complaints costs: The costs of
investigating and satisfactorily responding to a
customer complaint resulting from a poor- quality
product.
Product return costs: the costs of handling and
replacing poor-quality products returned by the
customer.
Warranty claim costs: The costs of complying with
product warranties.
Lost sales costs: The costs uncured because
customers are dissatisfied with poor-quality
products and do not make additional purchases
resulting in lost goodwill,
Product liability costs: The litigation costs resulting
from product liability and customer injury.
LEVELS OF QUALITY MANAGEMENT
Uncertainty or Dormant: management has no
knowledge of, and/or does not recognize and
appreciate quality as a positive management tool.
Quality is not an issue and is not discussed at all,
they do not feel any market threat and are happy
with their income.
Awakening: dramatic change in market forces; i.e.
loss of market share, reduction in revenue, profits
deep, employee morale is low and they are openly
disgruntled. Management awakens and recognises
that there is a crisis.
Enlightenment or Groping: management realises
that they have to something in the area of quality.
But they lack sound knowledge on quality
management. Nonetheless they embark on
trial and error methods acquired from seminars
and conferences.
Wisdom or action: the trial and error
methods may fail and management decides to
engage formal quality programs for a more
effective change; where problems are identified
and implemented with employees participation.
Certainty or Maturity: full customer satisfaction is
achieved through perfect processes in all area of
the organisation. Quality programs are applied
and at this level, the organisation trains for TQM
and gets certified by reputable quality standard
organizations.
CHAPTER FIVE; FINANCIAL MANAGEMENT
Financial Management covers a wide range of
topics and functions within an organization. The
three main areas we will look at in this course
relate to answers to the following questions:
These questions are more commonly referred to
as: (a) The investment decision
(b) The financing decision
(c) The dividend decision.
The role of a Financial Manager
1) Raising Funds; This is subject to costs,
availability and risks due to the nature of the funds
such as high interest rates, transaction costs,
underwriting costs, etc.
2) Efficient allocation of financial resources to the
core activities of the firm in order to create value
for the firm.
3) Maintaining control over the resources to
ensure that the firm s objectives are met.
To perform the above roles, the financial manager
has to make four (4) generic financial decisions;
1) The investment decision also known as capital
budgeting decision.
2) The financing decision or the capital structure
decision
3) Liquidity management or working capital
management decision
4) Dividend decision; The financial manager will
also spend considerable effort in defending the
firm against business failure, managing mergers
and acquisitions.
The financial manager has also to carry out
financial planning and control
FUNCTIONS OF FINANCE
The five basic corporate finance functions are
described as those functions related to;
 Raising capital to support company operations
and investments.
 Selecting those projects based on risk and
expected return that are the best use of a
company's resources.
 Management of company cash flow and
balancing the ratio of debt and equity
financing to maximize company value.
 Developing a company governance structure
to encourage ethical behavior and actions
that serve the best interests of its
stockholders.
 Management of risk exposure to maintain
optimum risk-return trade-off that maximizes
shareholder value
The different functions of a financial manager are:
The Controller; This role encompasses capital
budgeting and investment appraisal, stock and
credit control, the selection of short-term
investments and the internal and external audit
functions.
The Accountant; The accountant will be
responsible for the records of financial data and
for producing management reports and
company accounts. The role is split into the
disciplines of management and financial
accounting.
The Treasurer/Cashier; This involves budgeting for
cash flows, procuring adequate liquid funds and
the physical security of cash resources. In a
business which deals internationally this function
will also include foreign currency management.
Financial Strategist; This involves procuring and
managing the correct volume and optimum mix of
funds, whilst organising a suitable channel of
communication with external bodies such as
government and investors and, as a member of
general management, in meeting the demands of
fellow functional managers.
Considerations for making Investing Decisions
Draw a personal financial roadmap. Before you
make any investing decision, sit down and take an
honest look at your entire financial situation
especially if you ve never made a financial plan
before. The first step to successful investing is
figuring out your goals and risk tolerance either
on your own or with the help of a financial
professional.
Evaluate your comfort zone in taking on risk. All
investments involve some degree of risk. If you
intend to purchase securities such as stocks,
bonds, or mutual funds it's important that you
understand before you invest that you could lose
some or all of your money. The reward for taking
on risk is the potential for a greater investment
return. On the other hand, investing solely in cash
investments may be appropriate for short-term
financial goals. The principal concern for
individuals investing in cash equivalents is inflation
risk, which is the risk that inflation will outpace and
erode returns over time.
Consider an appropriate mix of investments; By
including asset categories with investment returns
that move up and down under different market
conditions within a portfolio, an investor can help
protect against significant losses. By investing in
more than one asset category, you'll reduce the
risk that you'll lose money and your portfolio's
overall investment returns will have a smoother
ride.
Lifecycle Funds; To accommodate investors who
prefer to use one investment to save for a
particular investment goal, such as retirement,
some mutual fund companies have begun offering
a product known as a "lifecycle fund." A lifecycle
fund is a diversified mutual fund that automatically
shifts towards a more conservative mix of
investments as it approaches a particular year in
the future, known as its "target date."
Be careful if investing heavily in shares of
employer s stock or any individual stock; One of
the most important ways to lessen the risks of
investing is to diversify your investments. It s
common sense: don't put all your eggs in one
basket. By picking the right group of investments
within an asset category, you may be able to limit
your losses and reduce the fluctuations of
investment returns without sacrificing too much
potential gain.
Create and maintain an emergency fund. Most
smart investors put enough money in a savings
product to cover an emergency, like sudden
unemployment. Some make sure they have up to
six months of their income in savings so that they
know it will absolutely be there for them when
they need it.
Pay off high interest credit card debt. There is no
investment strategy anywhere that pays off as well
as, or with less risk than, merely paying off all high
interest debt you may have. If you owe money on
high interest credit cards, the wisest thing you can
do under any market conditions is to pay off the
balance in full as quickly as possible.
Consider monetary cost averaging. By making
regular investments with the same amount of
money each time, you will buy more of an
investment when its price is low and less of the
investment when its price is high. Individuals that
typically make a lump-sum contribution to an
individual retirement account either at the end of
the calendar year or in early April may want to
consider dollar cost averaging as an investment
strategy, especially in a volatile market.
Take advantage of free money from employer.
In many employer-sponsored retirement plans, the
employer will match some or all of your
contributions. If your employer offers a retirement
plan and you do not contribute enough to get your
employer s maximum match, you are passing up
free money for your retirement savings.
Consider rebalancing portfolio occasionally;
Rebalancing is bringing your portfolio back to
your original asset allocation mix. By rebalancing,
you'll ensure that your portfolio does not
overemphasize one or more asset categories, and
you'll return your portfolio to a comfortable level
of risk.
Avoid circumstances that can lead to fraud. Scam
artists read the headlines, too. Often, they ll use a
highly publicized news item to lure potential
investors and make their opportunity sound
more legitimate. The SEC recommends that you
ask questions and check out the answers with an
unbiased source before you invest. Always take
your time and talk to trusted friends and family
members before investing.
The following factors should be put into
consideration when determining dividend
decision.
Legal consideration This focuses on the laws in
relation to distribution of profits. The net profit
rule states that dividends must be paid out of
earnings and not from capital invested (capital
impairment rule). The insolvency rule also states
that a company cannot pay dividends when
declared insolvent. Therefore dividends can only
be paid out when the company has earned profits.
Availability of profitable investment
opportunities. If a firm has identified profitable
investment opportunities, it should retain earnings
but if there are none, dividends should be paid.
Access to capital markets Small companies may
find it difficult to access funds from the capital
market and banking sector. In this case, retained
earnings would be preferred to paying out
dividends. The level of development of the capital
markets should also be put into consideration.
Leverage position of the firm. If the debt: equity
ratio is high (high leverage), the firm will encounter
difficulties in raising additional funds by borrowing.
They will force the firm to rely on retained
earnings to finance further investment.
Desire for control; Where shareholder of the firm
fear loss of control if new issues are made,
retained earnings will be used to finance the firm s
investment opportunities and therefore little
can be available for dividends.
Preferences of the majority of the shareholders;
In situations where most of the shareholders
prefer dividends today than financing future
investments, then the firm has to pay dividends. In
widely held companies, small shareholders will
require constant dividends, retired and old persons
will also require constant dividends
Restrictions in loan agreements; Lenders may
generally put restrictions on dividend payment to
protect their interests in situations when the firm
is experiencing liquidity or profitability difficulties.
Management attitude towards risk; Risk averse
managers fear to contract debt and will therefore
prefer retention of earnings.
Income bracket of shareholders In a
progressive tax system, if majority shareholders
belong to the high-income bracket, they ll
discourage payment of dividends because a higher
portion will be slashed by taxes and therefore
prefer capital gain while shareholders of low-
income bracket would prefer cash dividends.
SOURCES OF FINANCE
Sourcing money may be done for a variety of
reasons.
Normally, such developments are financed
internally, whereas capital for the acquisition of
machinery may come from external sources.
In this day and age of tight liquidity, many
organizations have to look for short term capital in
the way of overdraft or loans in order to provide a
cash flow cushion. Interest rates can vary from
organization to organization and also according to
purpose.
Every company requires funds for investment in
business. In a business, funds are required to
purchase various fixed assets such as land and
buildings, machinery, furniture etc and for meeting
the day to day requirements of the business such
as for purchasing raw-materials, paying salaries
and wages and incurring expenses. While
estimating the needs for funds, the period for
which they are required is also to be ascertained.
Funds may be required for long term, medium
term and short term. It is the period of finance
which determines the source of finance i.e. agency
from where the funds can be procured. The main
sources of funds are;
Long-term finance is required for investment in
fixed assets and for financing expansion
programmes. Long-term finances are raised for a
period of 10 years or more. Main sources for
raising long-term funds are shares, debentures,
retained earnings and financial institutions
providing long term funds.
Medium-term funds are those funds which are
required to invest in permanent working capital
and for repayment of debts. These are raised for a
period ranging from more than one year but less
than ten years. Most possible sources for medium
term funds can be redeemable preference shares,
debentures, public financial institutions, public
deposits and commercial funds.
Short-term funds are required to meet the short-
term needs of working capital. These are raised for
a period of not more than 12 months and from the
sources of public deposits, trade creditors and
commercial banks, installment credit etc.
Various sources of finance can further be grouped
in two parts (a) owner's funds and (b) borrowed
funds. Owner's fund includes share capital and
retained earnings. Borrowed funds include
debentures, loans and credit from public financial
institutions, public deposits, banks etc.
SOURCES OF FUNDS CAN BE EXPLAINED AS
FOLLOWS;
1. Ordinary (equity) shares; Ordinary shares are
issued to the owners of a company. The market
value of a quoted company's shares bears no
relationship to their nominal value, except that
when ordinary shares are issued for cash, the issue
price must be equal to or be more than the
nominal value of the shares.
2. Loan stock; Loan stock is long-term debt capital
raised by a company for which interest is paid,
usually half yearly and at a fixed rate. Holders of
loan stock are therefore long-term creditors of the
company.
3. Debentures are a form of loan stock, legally
defined as the written acknowledgement of a debt
incurred by a company, normally containing
provisions about the payment of interest and the
eventual repayment of capital.
4. Security; Loan stock and debentures will often
be secured. Security may take the form of either a
fixed charge or a floating charge.
Fixed charge; Security would be related to a
specific asset or group of assets, typically land and
buildings.
Floating charge; With a floating charge on certain
assets of the company (for example, stocks and
debtors), the lender's security in the event of a
default payment is whatever assets of the
appropriate class the company then owns
(provided that another lender does not have a
prior charge on the assets).
5. Retained earnings; For any company, the
amount of earnings retained within the business
has a direct impact on the amount of dividends.
Profit re-invested as retained earnings is profit that
could have been paid as a dividend.
6. Bank lending; Borrowings from banks are an
important source of finance to companies. Bank
lending is still mainly short term, although
medium-term lending is quite common these days.
A loan may have a fixed rate of interest or a
variable interest rate, so that the rate of interest
charged will be adjusted every three, six, nine or
twelve months in line with recent movements in
the Base Lending Rate.
7. Leasing; A lease is an agreement between two
parties, the "lessor" and the "lessee". The lessor
owns a capital asset, but allows the lessee to use
it. The lessee makes payments under the terms of
the lease to the lessor, for a specified period of
time.
8. Hire purchase; Hire purchase is a form of
installment credit. Hire purchase is similar to
leasing, with the exception that ownership of
the goods passes to the hire purchase customer
on payment of the final credit installment,
whereas a lessee never becomes the owner of the
goods.
9. Government assistance; The government
provides finance to companies in cash grants and
other forms of direct assistance, as part of its
policy of helping to develop the national economy,
especially in high technology industries and in
areas of high unemployment.
10. Venture capital; Venture capital is money put
into an enterprise which may all be lost if the
enterprise fails. A businessman starting up a new
business will invest venture capital of his own, but
he will probably need extra funding from a source
other than his own pocket.
11. Franchising; Franchising is a method of
expanding business on less capital than would
otherwise be needed. For suitable businesses, it is
an alternative to raising extra capital for growth.
Under a franchising arrangement, a franchisee
pays a franchisor for the right to operate a local
business, under the franchisor's trade name.
CHAPTER SIX; MARKETING
The main principles of marketing
 A main objective of marketing is to create
customer value.
 Marketing usually involves an exchange
between buyers and sellers or between other
parties.
 Marketing has an impact on the firm, its
suppliers, its customers, and others affected by
the firm s choices.
 Marketing frequently involves enduring
relationships between buyers, sellers, and
other parties.
 Processes involved include creating,
communicating, delivering, and exchanging
offerings.
The 4 Ps of marketing include; 1. product, 2. place
(distribution), 3. promotion, and 4. price
represent the variables that are within the control
of the firm.
a. Identification, selection, and development of a
product b. Determination of its price
c. Selection of a distribution channel to reach the
customer's place
d. Development and implementation of a
promotional strategy.
MARKETING MANAGEMENT PHILOSOPHIES
Marketing philosophies that are key concept or
ideas to management of marketing practices as
advocated by scholars.
The production concept: The philosophy that
consumers will favor products that are available
and highly affordable, that management should
therefore focus on improving production and
distribution efficiency.
The product concept: The idea that consumers
favor products that offer the most quality,
performance and features, and that the
organization should therefore devote its energy
into making continuous product improvements; a
detailed version of the new product idea.
The selling concept: The idea that consumers
won t buy enough of the organisations products
unless the organization undertakes a large-scale
selling and promotion effort.
The marketing concept: Achieving organizational
goals depends on determining the needs and
wants of its target market and delivering the
desired satisfaction more effectively and efficiently
than competitors.
The societal marketing concept: The idea that the
organisation should determine the needs, wants
and interests of target markets and deliver the
desired satisfaction more effectively and efficiently
than competitors in a way that maintains or
improves the consumers and society's well being.
IMPORTANCE OF MARKETING
Obtain more sales and profits; Today, no business
around the world, can afford to ignore the
importance of marketing. Either it is a large
business or small, nonprofit organization or
industrial product manufacturers. A company s
pecuniary success largely depends upon prudent
marketing efforts along with financial, operational,
accounting and other business functions.
Informing customers; the first importance of
marketing and that is self evident is that the
consumers get an opportunity to know about
various products that are available in the market.
Healthy competition; Marketing fosters healthy
competition among brands and this increases the
level of competence among firms. Consumers are
able to enjoy better products and they are at
affordable prices. Marketing helps in earnings and
revenue generation of many companies, either
directly or indirectly.
Innovation of new quality products; With large
number of companies fighting for quality, the
consumer can demand low price and high quality.
Marketing helps in innovation of new products,
designs and quality so that consumers buy only the
latest products.
Customer attraction; Preferred brands command a
premium price; short and long-term, Go through a
process of determining your company's unique
value proposition, and then start purposefully
communicating that to the marketplace
(promotion.)
Customer loyalty; this is the only way you will
create a point of differentiation between you and
your competitors. As your customers and the
industries you sell to begin to recognize your
company (brand) as the preferred choice for a
certain product or service, it allows you to charge
premium pricing. Not only does this boost sales in
the "now," it creates a perception in the minds of
future investors that your business has more
value than another one that claims to do the same
thing.
CHAPTER SEVEN; HUMAN RESOURCE
MANAGEMENT
Human Resource Management is the function
within an organization that focuses on recruitment
of, management of, and providing direction for the
people who work in the organization.
HUMAN RESOURCE FUNCTIONS
Human Resource Planning: The ongoing process of
systematic planning to achieve optimum use of an
organization's most valuable asset its human
resources.
Main objective of human resource (HR) planning is
to ensure the best fit between employees and
jobs, while avoiding manpower shortages or
surpluses.
Key elements of the HR planning process are
forecasting labor demand, analyzing present labor
supply, and balancing projected labor demand and
supply.
A job description spells out work duties and
activities of employees. Job descriptions are a vital
source of information to employees, managers,
and personnel people because job content has a
great influence on personnel programmes and
practices.
Staffing: It is the role of Human resource manager
to facilitate both the job description and the job
specification are useful tools for the staffing
process, the first of the seven HR functions to be
discussed. Someone (e.g., a department manager)
or some event (e.g., an employee's leaving) within
the organization usually determines a need to hire
a new employee.
Employee Recruitment; Recruitment and staffing
provide the overall framework for the process of
planning, recruiting, selecting, and hiring
employees. The goal of recruitment and staffing is
to identify the smartest, most versatile
employees you can find. .
Recruitment involves the utilization of
organizational practices to influence the number
and types of individuals who are willing to apply
for job vacancies
Employee Selection; Employee Selection is the
process of putting right men on right job. It is
a procedure of matching organizational
requirements with the skills and qualifications of
people.
Effective selection can be done only when there
is effective matching.
By selecting best candidate for the required job,
the organization will get quality performance of
employees.
Selection must be differentiated from recruitment,
though these are two phases of employment
process. Recruitment is considered to be a positive
process as it motivates more of candidates to
apply for the job. It creates a pool of applicants. It
is just sourcing of data. While selection is a
negative process as the inappropriate candidates
are rejected here. Recruitment precedes selection
in staffing process. Selection involves choosing the
best candidate with best abilities, skills and
knowledge for the required job.
New employee Orientation: A new employment
orientation program is the HRM practice designed
to assist newbies in adjusting to their jobs and
work environment and to instill a positive work
attitude and motivation at the onset. New
employee orientation is the process organization
use for welcoming a new employee.
New employee orientation generally contains
information about safety, the work environment,
the new job description, benefits and eligibility,
company culture, company history, the
organization chart and anything else relevant to
working in the new company.
New employee orientation often includes an
introduction to each department in the company
and training on-the-job.
New employee orientation frequently includes
spending time doing the jobs in each department
to understand the flow of the product or service
through the organization.
Employee Placement Program
Placement of individuals in jobs matching their
abilities. Personnel offices interview and test
applicants for the purpose of achieving suitable job
placements where there is a good match between
management needs and employee qualifications.
An employee placement program minimize the
number of layoffs. Usually other job opportunities
offered through an employee placement program
are jobs that are in house and comparable to the
current job the employee holds.
Employees in a employee placement program may
be asked to take a lower paid and lower
responsibilities job, or accept relocation in order to
remain employed.
A downsizing company may offer an employee
placement program that helps workers find jobs
outside of the company.
Employee Performance Management: This
function monitors employee performance to
ensure that it is at acceptable levels.
Human resource professionals are usually
responsible for developing and administering
performance appraisal systems, although the
actual appraisal of employee performance is the
responsibility of supervisors and managers.
Employee Training and Development: The training
and development function gives employees the
skills and knowledge to perform their jobs
effectively. In addition to providing training for
new or inexperienced employees, organisations
often provide training programmes for
experienced employees whose jobs are undergoing
change. Large organisations often have
development programmes which prepare
employees for higher level responsibilities within
the organisation. Training and development
programmes provide useful means of assuring that
employees are capable of performing their jobs at
acceptable levels.
Employee Career Planning: Career planning has
developed partly as a result of the desire of many
employees to grow in their jobs and to advance in
their career. Career planning activities include
assessing an individual employee s potential for
growth and advancement in the organization.
Employee Compensation: compensation is a major
cost to many organisations, it is a major
consideration in human resource planning.
Compensation affects staffing in that people are
generally attracted to organisations offering a
higher level of pay in exchange for the work
performed. It is related to employee development
in that it provides an important incentive in
motivating employees to higher levels of job
performance and to higher paying jobs in the
organization.
Employee Benefits management: Benefits are
another form of compensation to employees other
than direct pay for work performed. As such, the
human resource function of administering
employee benefits shares many characteristics of
the compensation function.
Benefits include both the legally required items
and those offered at employer s discretion.
The cost of benefits has risen to such a point that
they have become a major consideration in
human resources planning. However, benefits are
primarily related to the maintenance area, since
they provide for many basic employee needs.
Employee Safety and Health; It is a responsibility
of an organization see to it that employees' rights
are not violated, it must also provide a safe and
healthy working environment. Safety means
protecting employees from injuries caused by
work-related accidents" and health as keeping
"employees free from physical or emotional
illness".
In order to prevent injury or illness, the
Occupational Safety and Health Administration
(OSHA) was created in 1970. Through workplace
inspections, citations and penalties, and on- site
consultations, OSHA seeks to enhance safety and
health and to decrease accidents, which lead to
decreased productivity and increased operating
costs.
Quality of Work life (QOWL); refers to the level of
happiness or dissatisfaction with one's career.
Those who enjoy their careers are said to have a
high quality of work life, while those who are
unhappy or whose needs are otherwise unfilled
are said to have a low quality of work life.
Labour Relations and industrial relations; The
term labour relations refers to interaction with
employees who are represented by a trade union.
Unions are organization of employees who join
together to obtain more voice in decisions
affecting wages, benefits, working conditions, and
other aspects of employment.
With regard to labour relations, the personnel
responsibility primarily involves negotiating with
the unions regarding wages, service conditions,
and resolving disputes and grievances.
Record-keeping: This function involves recording,
maintaining, and retrieving employee-related
information for a variety of purposes. Records
which must be maintained include application
forms, health and medical records, employment
history (jobs held, promotions, transfers, lay-offs),
seniority lists, earnings and hours of work,
absences, turnover, tardiness, and other employee
data. Complete and up-to-date employee records
are essential for most personnel functions.
Personnel Research: All personnel people engage
in some form of research activities. In a good
research approach, the object is to get facts and
information about personnel specifics in order to
develop and maintain a programme that works.
Qualities of a good seasoned Human Resource
Manager
Creativity, Creativity is what separates
competence from excellence. Creativity is the
spark that propels projects forward and that
captures peoples' attention.
Structure, The context and structure we work
within always have a set of parameters,
limitations and guidelines. A stellar manager
knows how to work within the structure and not
let the structure impinge upon the process or the
project.
Intuition, Intuition is the capacity of knowing
without the use of rational processes; it's the
cornerstone of emotional intelligence. The
stronger one's intuition, the stronger manager one
will be. Knowledge, A thorough knowledge base is
essential.
Commitment, A manager is committed to the
success of the project and of all team members.
S/he holds the vision for the collective team and
moves the team closer to the end result. It's the
manager's commitment that pulls the team
forward during trying times.
Being Human, Employees value leaders who are
human and who don't hide behind their authority.
The best leaders are those who aren't afraid to be
themselves. Managers who respect and connect
with others on a human level inspire great loyalty.
Flexibility and versatility are valuable qualities in a
manager. Beneath the flexibility and versatility is
an ability to be both non-reactive and not attached
to how things have to be. Versatility implies an
openness this openness allows the leader to
quickly change on a dime when necessary.
Flexibility and versatility are the pathways to
speedy responsiveness.
Lightness, A stellar manager doesn't just produce
outstanding results; s/he has fun in the process!
Lightness doesn't impede results but rather, helps
to m ove the team forward. Lightness
complements the seriousness of the task at hand
as well as the resolve of the team, therefore
contributing to strong team results and retention.
Discipline/Focus, Discipline is the ability to choose
and live from what one pays attention to.
Discipline as self-mastery can be exhilarating! Role
model the ability to live from your intention
consistently.
Big Picture, Small Actions, Excellent managers see
the big picture concurrent with managing the
details. Small actions lead to the big picture; the
excellent manager is skillful at doing both: think big
while also paying attention to the details.
Be Decisive, the Right Timing, Excellent managers
must know when to make decisions mostly for the
benefit of the group as a whole; sometimes hard
decisions must be made without personal
consideration. In all decisions, the wrong timing
can lead to waste or disasters, especially when
strategic decisions are to be made.
 CHAPTER EIGHT; BUSINESS AND ITS
ENVIRONMENT
The term Business environment may be defined
as a set of conditions, Social, Legal, Economical,
Political or Institutional that are uncontrollable in
nature and affects the functioning of
organization. Business Environment has two
components:
a) Internal Environment b) External Environment
Internal Environment: This includes man, material,
money, machinery and management, usually
within the control of business. Business can make
changes in these factors according to the change in
the functioning of enterprise.
External Environment: Those factors which are
beyond the control of business enterprise are
included in external environment. These factors
are: Government and Legal factors, Geo-Physical
Factors, Political Factors, Socio-Cultural Factors,
Demo-Graphical factors etc. It is of two Types:
1. Micro/Operating Environment
2. Macro/General Environment
Micro/Operating Environment: The environment
which is close to business and affects its capacity
to work is known as Micro or Operating
Environment. It consists of Suppliers, Customers,
Market Intermediaries, Competitors and Public.
Suppliers: They are the persons who supply raw
material and required components to the
company. They must be reliable and business must
have multiple suppliers i.e. they should not depend
upon only one supplier.
The company aspect of micro-environment
refers to the internal environment of the
company. This includes all departments, such as
management, finance, research and development,
purchasing, operations and accounting.
Customers: Customers are regarded as the king of
the market. Success of every business depends
upon the level of their customer s satisfaction.
Types of Customers include: Wholesalers,
Retailers, Industries, Government and Other
Institutions, Foreigners.
Market Intermediaries: Marketing
intermediaries refers to resellers, physical
distribution firms, marketing services agencies, and
financial intermediaries. These are the people that
help the company promote, sell, and distribute its
products to final buyers.
Competitors: Every move of the competitors
affects the business. Business has to adjust itself
according to the strategies of the Competitors.
Public: Any group who has actual interest in
business enterprise is termed as public e.g. media
and local public. They may be the users or non-
users of the product. For example, financial publics
can hinder a company s ability to obtain funds
affecting the level of credit a company has.
Macro/General Environment: It includes factors
that create opportunities and threats to business
units. Following are the elements of Macro
Environment:
Economic Environment: - Another aspect of the
macro-environment is the economic environment.
This refers to the purchasing power of potential
customers and the ways in which people spend
their money.
Infrastructural Facilities, Banking, Insurance
companies, money markets, capital markets etc.
Non-Economic Environment: - Following are
included in non-economic environment:-
(i) Political Environment: - The political
environment includes all laws, government
agencies, and groups that influence or limit other
organizations and individuals within a society.
(ii) Socio-Cultural Environment: - Influence
exercised by social and cultural factors, not within
the control of business, is known as Socio-Cultural
Environment. These factors include: attitude of
people to work, family system, caste system,
religion, education, marriage etc.
(iii) Technological Environment: - The
technological environment is perhaps one of the
fastest changing factors in the macro-environment.
This includes all developments from antibiotics and
surgery to nuclear missiles and chemical weapons
to automobiles and credit cards.
(iv) Natural Environment: - The natural
environment is another important factor of the
macro-environment. This includes the natural
resources that a company uses as inputs that
affect their Business activities. The concern in this
area is the increased pollution, shortages of raw
materials and increased governmental
intervention.
(v) Demographic Environment :- Demography
refers to studying human populations in terms of
size, density, location, age, gender, race, and
occupation. This is a very important factor to study
for marketers and helps to divide the population
into market segments and target markets. An
example of demography is classifying groups of
people according to the year they were born.
(vi) International Environment: - It is particularly
important for industries directly depending on
import or exports. The factors that affect the
business are: Globalization, Liberalization, foreign
business policies, cultural exchange.
(vii) Cultural Environment The final aspect of the
macro-environment is the cultural environment,
which consists of institute ions and basic values
and beliefs of a group of people. The values can
also be further categorized into core beliefs, which
passed on from generation to generation and very
difficult to change, and secondary beliefs, which
tend to be easier to influence. As a marketer,
it is important to know the difference between
the two and to focus your marketing campaign to
reflect the values of a target audience.
CHAPTER NINE; BUSINESS ETHICS
Business ethics is the story of good and evil in
business. Ethics concerns an individual's moral
judgments about right and wrong.
Ethics refers to a code or moral system that
provides criteria for evaluating right and wrong.
Ethics refers to a system of moral principles - a
sense of right and wrong, and goodness and
badness of actions and the motives and
consequences of these actions.
ETHICAL ISSUES IN DIFFERENT BUSINESS/
MANAGEMENT FUNCTIONS
1. ETHICAL ISSUES HUMAN RESOURCE
Decision making; Human resources managers
must make difficult decisions in order to bridge
these gaps to create harmony within the company
and to ensure the company is operating within
acceptable practices in each country in which it
does business.
Cultural Awareness; Multinational managers
inevitably deal with miscommunication and lack
of cultural awareness. They must prepare their
employees for appropriate conduct before sending
them to their overseas destination.
Bribery; The Foreign Corrupt Practices Act
prohibits bribery. However, this law cannot
possibly cover all of the range of payments that
international businesses encounter.
Privacy; Privacy is a pervasive issue for many
companies. In addition, privacy laws vary in
different locations. When the two sets of laws
conflict, human resources managers must make a
decision which to follow.
Compensation; It is a bit unseemly to have people
working side by side earning so differently for
jobs requiring the exact same skill set. In this
case, human resources management may face the
ethical issue of whether to narrow the gap in
compensation.
2. ETHICAL ISSUES IN PROCUREMENT
Good procurement management practices
should identify areas of potential ethics pitfalls,
and address them ahead of time so employees
know what practices to avoid.
Conflicts of Interest; In most organizations, the
largest ethical issue in the procurement process is
the potential for conflict of interest. Employees
who purchase goods or services from individuals or
companies with whom they have a personal or
familial relationship leave the organization open to
fraud at the worst or overpayment for the items or
services procured at least.
Discrimination; Discriminating against vendors for
reasons of nationality or other factors not related
to the quality of the product or service can create
ethical concerns for private organizations, and
legal problems for organizations that are wholly or
partly financed by public money. Any policy, stated
or unstated, that allows discrimination against
vendors due to nationality, gender, race or other
factor should be abolished, especially in
organizations that rely on public funds, as state
and federal laws often prohibit discrimination
against vendors for these reasons.
Substandard Products and Services; The
procurement of products and/or services that are
known to be unsafe, untested or of
substandard quality is perhaps the least addressed
ethical concern when it comes to procurement
management.
Perceived Impropriety; Prevent the intent and
appearance of unethical or compromising conduct
in relationships, actions and communications.
Supply management professionals deal with
internal and external customers and suppliers.
Consequences of a perceived impropriety can be
the same as consequences of an actual
impropriety.
ETHICAL ISSUES IN MARKETING
Ethical marketing decisions and efforts should
meet and suit the needs of customers, suppliers,
and business partners. Unethical behavior such as
price wars, selective advertising, and deceptive
marketing can negatively impact a company's
relationships.
Market Research; Some ethical problems in
market research are the invasion of privacy and
stereotyping. The latter occurs because any
analysis of real populations needs to make
approximations and place individuals into groups.
Market Audience; Selective marketing is used to
discourage demand from so-called undesirable
market sectors or disenfranchise them altogether.
Examples of unethical market exclusion are past
industry attitudes to the gay, ethnic minority, and
plus-size markets.
Vulnerable audiences; Another ethical issue in
marketing relates to vulnerable audiences in
emerging markets in developing countries, as the
public there may not be sufficiently aware of
skilled marketing ploys.
Ethics in Advertising and Promotion; Today an
advertiser who fails to tell the truth offends
against morality in addition to the law. However
the law permits puffery. The difference between
mere puffery and fraud is a slippery slope. Sexual
innuendo is a mainstay of advertising content, and
yet is also regarded as a form of sexual
harassment.
Delivery Channels; Direct marketing is the most
controversial of advertising channels, particularly
when approaches are unsolicited. TV commercials
and direct mail are common examples. Electronic
spam and telemarketing push the borders of ethics
and legality more strongly.
Deceptive Advertising and Ethics; Deceptive
marketing is not specific to one target market, and
can sometimes go unnoticed by the public. There
are several ways in which deceptive marketing can
be presented to consumers; one of these methods
is accomplished through the use of humor
Anti-competitive Practices; Bait and switch is a
form of fraud where customers are "baited" by
advertising for a product or service at a low price;
Pricing Ethics; Bid rigging is a form of fraud in
which a commercial contract is promised to one
party, although for the sake of appearance several
other parties also present a bid. Predatory pricing
is the practice of selling a product or service at a
very low price, intending to drive competitors out
of the market, or create barriers to entry for
potential new competitors.
However, ethics can be used as a Marketing Tactic
in the following ways;
Major corporations fear the damage to their image
associated with press revelations of unethical
practices. Marketers have been quick to perceive
the market's preference for ethical companies,
often moving faster to take advantage of this shift
in consumer taste.
Marketing ethics, regardless of the product offered
or the market targeted, sets the guidelines for
which good marketing is practiced.
To market ethically and effectively one should be
reminded that all marketing decisions and efforts
are necessary to meet and suit the needs of
customers, suppliers, and business partners.
4. ETHICS IN ACCOUNTING
Accounting ethics is a form of professional ethics.
These can be ethics enforced by the law or
philosophical ethics accountants, clients, or
business owners can study and introduce to their
workplace.
Ethics in accounting are concerned with how to
make good and moral choices in regard to the
preparation, presentation and disclosure of
financial information.
Fraudulent Financial Reporting; Most accounting
scandals over the last two decades have centered
on fraudulent financial reporting.
Misappropriation of Assets; On an individual
employee level, the most common ethical issue
in accounting is the misappropriation of assets.
Misappropriation of assets is the use of company
assets for any other purpose than company
interests..
Disclosure; As a subtopic of fraudulent financial
reporting, disclosure violations are errors of
ethical omission.
Penalties; Penalties for violations of accounting
ethics laws have increased greatly since the
passage of the Sarbanes-Oxley Act of 2002.
5. ETHICS IN PROJECT MANAGEMENT
Project professionals face unique challenges as
they navigate political and social dynamics both
inside and outside their organizations. It may not
always be clear how you should act when faced
with an ethical dilemma.
Falsification; Project management is a complicated
work, and as such, ethics invariably involve gray
areas of judgment and interpretation.
Integrity; In project management any
professional has a responsibilities to ensure
integrity of the project management process, the
product, and personal conduct.
Confidentiality of Information; Project managers
are required to honor and maintain the
confidentiality of privacy of customer, client,
employer, and similar work information, including
the confidentiality of customer.
Respect; Project coordinators and officials are
also required to respect and protect intellectual
property rights of others, and to properly
disclose and recognize the professional,
intellectual and research contributions of others.
Conflict of Interest; Professionals project
managers are required to report to the
stakeholders, customers, or others any actions or
circumstances that could be construed as a conflict
of interest. Interpersonal project team conflicts.
Challenges with project sponsors.
Acting Professionally; Project coordinators are
required to behave in a professional manner in
difficult situations. Taking Responsibility personal
Actions; Ethically, professionals are required to
accept responsibility of their own actions. As a PM
professional a concern for project and the
organization should take precedence over our own
feelings.
Duty To The Project Team; Most of the
organizations claim a lot for enhancing employees
professional development.
Respecting differences in diverse cultures;
Professionals are required to interact with team
and stakeholders in a professional and ethical
manner by respecting personal, ethnic, and
cultural differences in order to ensure a
collaborative project management environment.
The importance of ethics in business
Ethical behavior and corporate social responsibility
can bring significant benefits to a business. For
example, they may:
Attract customers to the firm's products, thereby
boosting sales and profits make employees want to
stay with the business, reduce labour turnover and
therefore increase productivity
Attract more employees wanting to work for the
business, reduce recruitment costs and enable the
company to get the most talented employees
Attract investors and keep the company's share
price high, thereby protecting the business from
takeover.
Profitability; Unethical behavior or a lack of
corporate social responsibility, by comparison, may
damage a firm's reputation and make it less
appealing to stakeholders. Profits could fall as a
result.
PRINCIPLES FOR POSITIVE BUSINESS ETHICS
1. Business Ethics are built on Personal Ethics.
There is no real separation between doing what is
right in business , and playing fair, telling the truth
and being ethical in your personal life.
2. Business Ethics are based on Fairness. Would a
dis-interested observer agree that both sides are
being treated fairly? Are both sides negotiating in
good faith? Does each transaction take place on a
level playing field ? If so, the basic principles of
ethics are being met.
3. Business Ethics require Integrity. Integrity
refers to whole-ness, reliability and consistency.
Ethical businesses treat people with respect,
honesty and integrity. They back up their promises,
and they keep their commitments.
4. Business Ethics require Truth-telling. The days
when a business could sell a defective product and
hide behind the buyer beware defense are long
gone.
5. Business Ethics require Dependability. If your
company is new, unstable, about to be sold, or
going out of business, ethics requires that you let
clients and customers know this.
6. Business Ethics require a Business Plan. A
company s ethics are built on its image of itself and
its vision of the future and its role in the
community. Business ethics do not happen in a
vacuum.
7. Business Ethics apply Internally and Externally.
Ethical businesses treat both customers and
employees with respect and fairness. Ethics is
about respect in the conference room, negotiating
in good faith, keeping promises and meeting
obligations to staff, employers, vendors and
customers. The scope is universal.
8. Business Ethics require a Profit. Ethical
businesses are well-run, well- managed, have
effective internal controls, and clear
expectations of growth.
9. Business Ethics are values-based. The law, and
professional organizations, must produce written
standards that are inflexible and universal. While
they may talk about ethics , these documents are
usually prescriptive and refer to minimal
standards. Ethics are about values, ideals and
aspirations.
10. Business Ethics come from the Boss.
Leadership sets the tone, in every area of a
business. Ethics are either central to the way a
company functions, or they are not.
CHAPTER TEN; SOCIAL RESPONSIBILITY OF
BUSINESS
Social responsibility is an ethical ideology or
theory that an entity, be it an organization or
individual, has an obligation to act to benefit
society at large. Social responsibility is a duty every
individual or organization has to perform so as to
maintain a balance between the economy and the
ecosystem
Corporate social responsibility (CSR) is: An
obligation, beyond that required by the law and
economics, for a firm to pursue long term goals
that are good for society.
TYPES OF CORPORATE SOCIAL RESPONSIBILITY
Environmental Responsibility; People expect
businesses to exhibit environmentally responsible
behavior, Specific environmental issues that affect
businesses include global warming, sustainable
resources and pollution.
Human Rights Responsibility; The ethical issue for
corporations is ensuring that human rights are
respected throughout all levels of the supply
chain. Major companies have received criticism for
their use of sweat shops and for sourcing
resources that are harvested by unfairly treated
workers.
Financial Responsibility; Financial responsibility is
an important issue in corporate social
responsibility. Employees are expected to act as
whistle blowers in such situations, and white collar
crime is seeing high-profile prosecutions.
Political Responsibility; Trading with repressive
regimes is a difficult issue in corporate social
responsibility. Some businesses argue that working
with these regimes will help to advance them and
bring rights to the countries. responsibility.
AREAS OF SOCIAL RESPONSIBILITY
Pollution Control; Installing pollution controlling
devices and other related actions might cost the
business considerably in terms of money and
effort.
Health and Hygiene: A manufacturing company or
a factory throws up lot of wastes and chemicals
which prove to be health hazards. Although
normally business takes all preliminary precautions
to keep away from inhabited areas and to
safeguard the health and hygiene of workers it
usually tries to shirk its responsibility towards the
people residing in the vicinity often business or
factory premises.
Training and Self-help; Big business provides big
opportunities for both direct and indirect
employment. Self-employed persons outside the
premises of a factory can contribute to the growth
of business if they are well aware of the product
and its raw materials needed by the manufacturing
company.
Philanthropic Activities; The performance of some
charitable trusts promoted by big business houses
is far from satisfactory and even smacks of
favoritism and partisan ends. Genuine
philanthropic activity must benefit the people in
their day to day life.
ARGUMENTS FOR AND AGAINST SOCIAL
RESPONSIBILITY
The major arguments for the assumption of social
responsibilities by business are:
Public expectations: Public opinion in support of
business pursuing social as well as economic goals
is now well solidified.
Long run profits: Socially responsible businesses
tend to have more and secure long run profits. This
is the normal result of the better community
relations and improved business image that
responsible.
Ethical obligation: A business firm can and should
have a conscience.
Public image: Firms seek to enhance their public
image to gain more customers, better employees,
access to money markets, and other benefits.
Better environment: Involvement by business can
solve difficult social problems, thus creating a
better quality of life and a more desirable
community in which to attract and hold skilled
employees.
Discouragement of further government
regulation: Government regulation adds economic
costs and restricts management s decision
flexibility by becoming socially responsible,
business can expect less government regulation.
Balance of responsibility and power: Business has
a large amount of power in society. An equally
large amount of responsibility is required to
balance it. When power is significantly greater
than responsibility, the imbalance encourages
irresponsible behavior that works against the
public good.
Stockholder interests: Social responsibility will
improve the price of a business s stock in the long
run. The stock market will view the socially
responsible company as less risky and open to
public attack.
Possession of resources: Business has the financial
resources, technical experts, and managerial talent
to provide support to public and charitable
projects that need assistance.
Superiority of prevention over cures: Social
problems must be dealt with at sometime.
Business should act on them before they
become serious and costly to correct and take
management s energy away from accomplishing its
goal of production goods and services.
THE MAJOR ARGUMENTS AGAINST THE
ASSUMPTION OF SOCIAL RESPONSIBILITIES BY
BUSINESS ARE:
Violation of profit maximization: This is the
essence of the classical viewpoint. Business is most
socially responsible when it attends strictly to its
economic interests and leaves other activities to
other institutions.
Dilution of purpose: The pursuit of social goals
dilutes business s primary purpose: economic
productivity. Society may suffer as both economic
and social goals are poorly accomplished.
Costs: Many socially responsible activities do not
pay their own way. Someone has to pay these
costs. Business must absorb these costs or pass
them on to consumers in higher prices.
Too much power: Business is already one of the
most powerful institutions in our society. If it
pursued social goals, it would have even more
power. Society has given business enough power.
Lack of skills: The outlook and abilities of business
leaders are oriented primarily toward economies.
Business people are poorly qualified to cope with
social issues.
Lack of accountability: Political representatives
pursue social goals and are held accountable for
their actions. Such is not the case with business
leaders. There are no direct lines of social
accountability from the business sector to the
public.
Lack of broad public support: There is no broad
mandate from society for business to become
involved in social issues.
HOW TO IMPROVE CORPORATE SOCIAL
RESPONSIBILITY;
Corporate social responsibility is a two-edged
sword. On one dangerous edge is the corporation's
social responsibility to its shareholders, employees
and suppliers to avoid business activities that
reduce the financial success of the company.
Determine the true opinions on social
responsibility held by the stakeholders of a
corporation, shareholders, employees, companies
that service the corporation, and municipalities
that depend on revenue from employed
consumers and corporate taxes.
Study ways to meet the corporation's
responsibility to its stakeholders while still
operating in the public good. It has been shown
that a corporation's image improves, and
occasionally its revenues, through public service
projects. That is why oil companies advertise their
support of public television and environmental
projects.
Educate the public regarding the voting power of
their consumer habits. To make it profitable for
corporations to focus on their social
responsibilities, the consumer must take an
interest and be aware of projects and
achievements in CSR by companies they can
patronize.
Deal with reality if you are trying to improve the
social responsibility of your own company. Looking
at socially responsible initiatives to bring in
revenues through new product lines and services.
Announce publicly, through the press and
advertising your company's social responsibility
initiatives and report on their success.
______________END__________SWT SUCCESS