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W
OH

BUSINESS

SKROW
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 OceanofPDF.com

W
OH

BUSINESS

SKROW
$

The FACTS visuallyexplained

 OceanofPDF.com

ProducedforDKbyDynamoLimited

1ChatedSout
arlCohu,trenrhaEX1
,yEeraetExs,1AF

Senioreditor GeorgniaPalyf

Contents

Projectarteditor SafrfonStocker

Editors AlsionSturgAnna
eon, Fischel,

HannahAhmed
,Bowen,Suhel

AlexBeeden
JoannaEdwards,

Introduction

Designers ,S,Nattephen
aeilClaBerye

a ,VPhiGambl
l nessa
e

esntiW
gHami
Jemma
toln,

USexecutiveeditor LorHand
i

HOWCOMPANEISWORK

USeditor cW
lioxHeather

Managingeditors GarethJones
, Stephani
arroweF

Seniormanaging LeeGrthifs

arteditor

Publisher Wheeler Liz

Deputyartdirector KarenSelf

Publishingdirector JonathanMetcalf

Artdirector PhiOrl merod

Seniorjacketdesigner MarkCavanagh

Jacketassistant ClareiGell

Jacketdesignmanager SophiaMTT

Pre-productionproducers BenNiMar
koletcausPar,asaki

Producer ChrsinteNi

Amerci2022
anThiEdisotin,

Amerci2015
anFiEdirstoin,

PublsihednitheUnitedStatesbyDKPublsihnig

NY10018
ork, Y New
Suite801,1450,Broadway

Copyrgiht2022
©2015,
DornilgKinderselyLimteid

,KDaDivsionofPenguinRandomHouseLLC

222324252610987654321

001–325014–Mar/2022

Alrgilhtsreserved.

Withoutmil ntigthegrihtsundercopyrgihtre,servedabove

nopartofthsipublciatoinmayberepr,soduced
toredniornitroduced

niortoany
byareany
toerfivalrm
ortrsameans
,ynsstemm,tied

orwioththeroutwsi,e,) recordnimechani
gphot
, ocopyi
,cal,nge(lctronic

theproirwrtienpermsioinofthecopyrgi.htowner

PublsihedniGreatBrtainibyDornilgKinderselyLimteid
 OceanofPDF.com

HOWFINANCEWORKS

Corporatestructure 66

Funocintasurtlcuter 68

Dvosinasurtlcuter 70

Mxairstucuter 72

New
t okrsurtcuter 74

ba
maTe-sedsurtcuter 76

Humanresources 78

Thehumanersoucrescyecl 80

Recurm
tienatndseolcint 82

Evuanligtsaft 84

Mvoaintanderwadrs 86

Leadesrhpiasretgyandesytl 8

Leadesrhpoeitframbdnulig 90

Empolyeeoarilntsand

communcoanits 92

Peorcm
jtanagement 94

Negnaiogtasretgy 96

Febxliwonkrig 98
 OceanofPDF.com

HOWSALESAND

MARKETINGWORKS 176

Marketnigmxi 178

Porduct 180

Porducpotnitsig 182

Poredfuicltyecl 184

Pceir 186

Pacle 18

Pormonit 190

Makretseacrh 192

Makrestgmenoanti 194

Marketnigapproaches 196

Nchievm
s.asmakrneigt 198

Toanirdm
tailankreigt 20

Dm
agtliakrneigt 202

Engagemenm
takrneigt 204

Sensoyrmakrenitg 206

Roaenitlshpimakrneigt 208

Outboundmarketnig 210

Tnaoridetlaoifdlnvsiegtr 212

Onieladvnseitrg 214

Dercm
itlai 216

mearlTekneigt 218
 OceanofPDF.com

HOWOPERA
TIONS
Resources

Index
ANDPRODUCTIOWNORK 268

Acknoweldgments

Manufacturnigandproductoin 270

Jobporduocnit 272

Bacthporduocnit 274

Fow
l porduocnit 276

Mascusotmzoanit 278

Coniutousporduocnit 280

Hybdirporceses 282

Management 284

Contrbiutors

Economesianddseiconomesiocfeal 286

Leanporduocnit 28

. r Danm
iSJuacol)ntrue(sdli
m
Jniut-ste 290

K.H.e S.hena.dUt yruelntredfhusecrafUti

latToqyutm
ialanagement 292

reurtcem
nsh,tkcbnefM
oDialrpem
gneatBinte

Tmibe-asedmanagement 294

;)usA A CP(Anatouc ;deKre.aC.thra U ytisrevLoUfnd,i

Aegploirduocnit 296

c eoneriTt.iTCPoactg)IysH(hrnoli onmiordetanrefadICthra

.shdesnlaouyriwdacm
pekjulbori
Kzaein 298

piaAPlhindosner

Product 300

Aongl ngudinlcM
3i ,,snaotliunowcldteasihdom
avstul

Newporducdtevoeplment 302

,naciedatborAmleandh.SCwcoelta-i

, sonm
him
eroi , moreCfEOBofP , dowBLrne
nInovoanitandniveonit 304

sneBius ,aorbutindworonDtacsḰ

Degsin 306

Qyutm
ialanagement 308

AexalndaBckrl

Pordupc-otrcesmxairt 310

eWlhi npan.Ji langaiciortncoufwpiekINgrpasei

onisivsyodAfinla orhewstknatdReis o,yk T ni

, mtnsevtPbinaM
JNkgowna.rdeCibsagm
eibr

Control 312
OceanofPDF.com

$
 OceanofPDF.com

H O W B U S I N E S S WO R K S

Introduction

Thetm
r “bunsies”erfsrotanogranzoaintocrommeacril

enetprseingagedniporduncigandartdniggodsandsevcreiosfr

ecanar.W
tcehtegnoirsobfunm
siesothenveyryofundoanits

Homosapenis
.Whoefunmansoecyti

htenomadchiunget-raehtfsyeilortbecomeam
freTsr.ohsw
laied

ofsrpzoeainctlowfow
kr,henridviusaw
l oudlbecomedlski

astpceatifcsiksotsevreapcauitrclommunytiedO.vm
eitrhtesi,

enabedlmoercompexlgodsandsevcreisotbeporducedandartded

niodreotrpo.Trdviheolm
afurhs,uemabnesorscyotfiehcytias

benengagnigni“bunsies”ohftrousandsoyfeasr.

h,tewdolrbfunsieysnaideoTscapabe—
l bunsiesesno

onlgearueojscltpalorvdiesrogfodsandsevcreisbuetxetnd

otvasctoproaretnetpsreisopenaritgonagoblsacAel.hte

samm
eitetc,hnoglcaidlvanceshavemadetiaehstiranever

ofernertperneusortsahtroew
i ncompaneisandporpedl

nIetnreb-tasedbunsiesesotheh.eahotrfegobleaclonomy

Buw
thehtebrunsiesesaersmaogrlpael,ucobipvralet,

optnriofhnte,ptyoirefachpaylakeyeorl

outfnocintandeconomeoisultfhiarn,dotgehtehtreyofm
rhte

backboneohtfemodenrwdoBlr.unsiesundeprniseveyraspecotf

,ahntedw
undolw
resatnveidnolitgdhayowtw
i okrshtie

.keyotundesartndnigsoecyti

Thsbiokexpanilshtecompexlwdolrbfunsiesniam
sipealnd

te.Ixamnigeasrepvhecw
ri yaspecohtfowabunsieswokrs,

niucldnigofm
rnas,ignciapg,ortaldicoum
cdtevpoeaplnmyent
OceanofPDF.com
 OceanofPDF.com

WOH

A P MO C NESI

KROW

Bnuoisewnehspri Sat-urps

Bunyig nig&les bunises s ’W

owhho

Copurctoserat Humaenrosucres
 OceanofPDF.com

Business

ownership

Everytypeofbusinesshastochooseanownershipstructure.Althoughthere

areglobalvariations,mostcountriesofferanalogouslegalentities,fromasingle-

personprivateenterprisetoalargeorganizationtradingonastockexchange.

Therearethreekeyconsiderations:howbigtheventureisexpectedtogrow;the

complexityoffinancialrecording,management,andreportingthattheowneris

wilingtotakeon;andtheamountofliabilitythattheowneriswilingtoaccept.

Private

companies
 OceanofPDF.com

HOW COMPA NIES WO R K

NAMINGACOMP
ANY

Do

7 noi tsegus nm
ioada esU

lot ava rof hcraes eolbatl i

ogfolbal economci

dna smeannimoad tenretni

.ereht mor f drawkcab krow

acvtiy asicounetd

evi tpi rcsed eB

eht psarg yl tnatsni srmeotsuc

obfrhstywe’dorl

. sseni sub eht fo erutan

manduoehl t tuoyaSe

100alrgest companeis.

naht tneref f id dnuos yma t i sa

rof s i laog ehT .dednetni

mor f tsuj t i dni f ot elpoep

t i gni raeh .

maeneht twahkcehC

sname . segaugnal rehto ni

itrohpseeKt dna emlpi s dna

. snup diova

Multinationals

ohpanveirstonailM
titul
Franchises

ocousiravenagibeu,slinrt

. ytilbiexlofagnwrdht

nbmesuaishoitn,deIl

mavsecnosM
nibaletyitul

anaezhusotianr)schfiet(

ocnionsioupatnergitesuensirt

estotanersc)hfiet(dnuvidal

. cheaperwscotsher

e.faorfnuretnibanrchau,p
 OceanofPDF.com

Sole proprietorships

and partnerships

seurm
tcroThnsetifabrdupslyonepasr

phisorteipow
lrbshytinorm
etapfseorl

elt.Mioanteysulcpdom
,suoeyartsvin.itm
ocalam
icre

Howitworks

Manybunsiesesatoruatshtemost

bacsuin—
ti hetiarseoplorpeoitrshpi

oarpantresrhpAi.soelporpeoisrtan

nidviuw
alhoshtieonyolwneorf

htebunsiesT.hsiurtcutersiasyot

Unmiletiadytbli:i

busniesdebt
ss

seutpan,dhteraernoexartxesot

padipersonyal

n,u.Iksentiaw
ld,htaicompany

hteseoploerpsleoitrafpesronatxl

erutnrT.hesrkiatchedht,ough.

,Aseoplorpeotihrasumnyitealidbli

sofhtiebunsies,alhtfieownem
r ust

pesronyalpaydebPst.antresrhpishave

moerhta,nodneaochwcanber

hadeiblohftrewheodlebhotfe

a T x-ceifnt

bunsiesnicaseualoerfi.

wobatye opniaortesrgcies

e-m
fsl polyed

$
Pros and cons

Bothsoleproprietorshipsandpartnership

Lietl
 OceanofPDF.com

HOW COMPA NIES WO R K

FROMINDIVIDUAL

OTMUL
TINA
TIONAL

Soleproprietorshipsandpartnerships

66

maygrowintoglobalnames.

of EUp.vri.aet-

chRBadirnosn -oretopireSol

ermeipnigrViotni denapxe taht pihs

sectoojrbs arein

WoaStneodbJvseSteznaik

nAbatendrpcrlhatpPhsier

smal or meduim-

ackardPdvaHDnideawtellBi

ygolonhcetHPedneuotfworhasPr
szienterprsies.

amauchi YorFiuasj adretrSol

hswodbcanrpegcyhaimolese

dNehnogdtviam
-comepany

ancodtiPonrfotl

ofhtebusniess

shared

Aolwofsr
 OceanofPDF.com

Limiting liability

Bysettingupanorganizationthatislegallyandfinancialy

independentbusinessownerscanlimittheirlevelofrisk,

aspersonalassetsarelargelyprotected.

Howitworks reponirtgandsrutcuteraqluerm
i enbst,usaitol

Bunsiesownesrcansurtcuterhtberiunsiesso porvdiesmoerporetcinorfm
ytaibolhftrieownesr.

htesagliythaelsameyntaitsheowneso(rl Theraersevefdranlyitpesocfproarintshtat

porpeoitrshopt,ri)eycanchoseasurtcuterhtsait anownecranergsetairbs,usliateshaershotfe

separetlgm
aeiylnte(itdpantresrhpcio,proarint, coproarintandhteownesrbecomeshaerhdolew
sr,hti

miyotleraidblciompanyL[LC.)h]onsigoneof htesphtoifrecoproarnibtdisrutiedasdviends.

m
hsitehstleiowspn’ersytoainbolfadrilebstand

poretcshtemorfmhtsekirsourfnnigabunsies.

LLCsandcoproarintsaerbyahftremosctommon

ofsrmblaunsiesesandenertperneusrbecauseof

hteatxmicpoaintlAs.nLLCeslisurtcuterdandhas

efwerpnoitrgerquerm
i enshtanacoproarintso,

manyenertperneusrchos.etAi coproarinthasmoer

US business structures

ThefourmainbusinessstructuresintheUSare:soleproprietorship,limited

partnershpicor
, poration,andlimitedliabilitycompanyC)(L.ALsole

proprietorshiptreatsthebusinessasthesameasthepersonwhoownsit ,and

doesnotprotecttheownerom
fr anydebtsorliabilites.Alimitedpartnership,

corporatoin,andLCprotecttheownerom
sfr debtand,todiliabifelityrent

degreesdependingontheform.Thefourformsfiletaxesdi,and
ferehave
ntly

diferentreportingrequirements.
 OceanofPDF.com

HOW COMPA NIES WO R K

NAMINGCONVENTIONS

Limiting liability Thenamesgiventodiferenttypesofbusinessentitiesdiferfrom

countrytocountry
.IntheUS,acorporationendswithCorp.orInc.

(shortforCorporationorIncorporated)andanCLLendswithLLC .
Companiesstructuredtolimit

IntheUK ,acorporationendswithLtdorPlc.InCanada,acorporation
liabilitycomeinvariousforms,

ends with Inc,Corp,orLtd.

butalloperateasentitiesthatare

legallyandfinancialyindependent

fromtheirowners.

LC

AnLCisahybridformat

thatprotectstheownerom
fr

personalliabilityandfrom

debts,butallowsprofitsand

lossestobepassedthrough

directlytotheownerswithout

beingtaxedatacorporaterate.

35
 OceanofPDF.com

Private and public

companies

Whiletheowner-shareholdersofaprivatecompanymaybuyandsell

theirsharesprivately(usuallywithdirectorapproval),anyinvestorin

thefinancialmarketcantradethesharesofapubliccompany
.

Howitworks

Ahtoulghmhotesfwsdco’lm
r paneisaerseutpas

Differences between private

pviarpet,ucbiolmpaneisaersenasmoerpegrositus

and public companies

andpatboFerif.lobrunsiesvenuterserqnuirgairle

amounstocafp,atluicbiolmpanyeofsrgeraetr

Prviatecompanydirectorshavetoocnsiderthepotential

oppoutrnytonfaisrgufndsbecauseshaerscanbe

capitalincreaseofjoiningthestockexchangeagainsthe

sdoltpuncibvelsotrgenearetcashPv.iaret

legalredtapeaimedatprotectingpublicshareholders.

companeismuyesrtolnpviarentivesotroursehte

cnaipvtleism
tenhotferw
i nePsr.ucbiolmpaneis

aersubeocjtmonerisgtengltcaolnsohrtlanpviaret

onesandaerxpectdotdsocnileafndacsile.ati

27 million

Directors

Usuallycontrolalltheshares.

thenumbeorf companeis

Reporting

in the US, fewer than

IntheUK ,itismandatorytofileaccountsat

CompaniesHouse;nodisclosureisrequired

1% of which are public

outsidethecompanyintheUS.

Shareholdersandmanagement
 OceanofPDF.com

HOW COMPA NIES WO R K

GOINGPUBLIC

Therearelegalrequirementsateachstageofconverting

3,800
acompanyfromprivatetopublic,includingvotinginthe

boardofdirectorsanddecidingonanewname.

companeis are siteld on

the oT kyoStEckxchange.

Public

Directors

Notnecessarilyshareholders.

Reporting

Companyhaslegalobligationtodiscloseaccounts

andsubmitregularfinancialreports.

Shareholdersandmanagement
 OceanofPDF.com

Multinationals

Amultinationalcorporationhasbusinessoperationsinmorethan

onecountry
.Itusuallystartsasanationalcompanyandsetsup

subsidiary(branch)companiesabroadforproductionandsales.

Howitworks .secnem
o/ucartleflakrdeti

Mniuotanlsahlavesevegarlosa:l evehiym
ncuoapAsam
cyagoasl

onticeraservenuebnyidfnignew byoutsourcing(usingexternal

mnsoerastm
kinre,tiaopler supeposir)hflnoirgoe(clnaitg

egng
atnikanviodopanutrycb functions).Companiesmayalso

nositabw
corlahflw
goreti nisoucrem
( oveopeoarintshi-ouse)

tro,psrnoatps/oradnatc gotirhstouncirdef(agodbanlce.)

Case study: mapping a multinational

SportswearcompanyNikehassuccessfulyspreadaroundtheglobeom
fr

tiscorporatebaseintheU.S.Ithasmanufacturingfunctionswheretechnical

expertisemaximizesefficiencyandkeepscostsdown,distributionhubsin

strategiclocations,andmarketingandretaildepartmentsinocuntrieswhere

itsestablishinglocalmarkets.

UnitedStates

GLOBAVLS.TIMUL
TANIONAL

Beaverton,Oregon

Aglobalcompanyhasfacilitiesindiferentocuntries

Seniormanagementarelocatedatthecompanyscorp’orate

butoperatesasasinglecorporateculturewith

baseor,“campus,
”itscenterfordecisionmaknoginblal

commonprocesses.Amultinationalhasfacilitiesin

m,dgneis,nakgrie,tandegytacore
rts fuonct
esfitilacions.F

diferentcountries,buteachfunctionsasitsown

nM
IonvagiruAantciuyfardiusbNotikein(AwMh,c)iI

,adapti
entityn,gwilothcallitlytleocmmunication

niaswlasehlra,smaldeousnipvredalts

betweengeographicdivisions.
 OceanofPDF.com

HOW COMPA NIES WO R K

TheNetherlands

NEEDTOKNOW

Hilversum

na r Tocpraoniaslt

Basedinacentrallocation,aEuropean

boum
ntialotulm
arSili

headquarterssupportsoperations

hwtifesltiyfdeindtoest

acrosEurope,theMiddleEast ,and

onipaetnrtaculipantyr

m
oyncap eht ot esoAflcricasand
is ’

mu.igleBni buhnoitubirtsidnaeporuE

EuropeaHnQ Management,

China

an,dadmni nifaneTIlcgea,l

Shanghai

Thecompanysfaste’st-growingmarket ,Chinaisalsoamanufacturingand

Dsitrbuotin Euorpeoclasgint

distributionbaseduetolocalexpertiseandlowproductionocsts.

cenebtrasendLiakBdegua,lim

ChnieseHQ Opeoaritns

andcoesruppuofntrocitns

Makrneigt Campaginofsr

hteChniesmakret
 OceanofPDF.com

Franchises

Afranchiseisabusinessmodelinwhichanindependent

entity—thefranchisee—isentitledtosetupabranchofan

establishedbrand.Thereareadvantagesforbothparties.

Howitworks business with modest capital

Ratherthandevelopinganoriginal outlay
, while the franchisee takes

business idea, the franchisee on a proven business model and

pays for the right to represent brand name, so everyone reaps

an existing, successful brand the benefits.

in a particular location. The size

of a franchise can vary from a

single unit—one outlet only—

“put
I the

to an area development in which

the franchisee takes on the option

hamburger on

to represent the brand through

several branches in a city or region.

eht eni l ymelbssa

The franchisor can develop the

oKryRaofc,underofMcDonalds ’

Three types of franchise

Thefranchiselvelsoofr’contolrvareisfrommanagingthecontractsfortheentiresupplychain

toinputoneverydetaildowntothelastFre.Innch
aprofryductfranchiset,hefranchisorlends

tistrademarkandbrandbutnotanentirebusinesssystem.

Manufacturingfranchise

Thisisasupplier-dealerelationshipinwhich

thefranchiseeseslthefranchisprsoroduct
’ s
 OceanofPDF.com

HOW COMPA NIES WO R K

TOP10

CASESTUDY

Fatsest-growingfranchises

Business-formatfranchise:astf -foodoutlets

worldwide

Thebusiness-formatfranchise,in

1.Century21RealEstate

whichafranchiseetakesonawhole

property

blueprintforrunningthebusiness

aswellastheproductitsel,was
f
2. KFC fast-foodoutlets

pioneeredintheUSinthe1940s.

3. CircleK conveniencestores

saF t-foodoutletswereanew

4.Jan-Pro commercialcleaning

conceptatthetimeandwere

5.McDonald’s fast-foodoutlets

generatinggreatdemand.
oincreaseT

therateofexpansion,theseoriginal

aco6.BelTl fast-foodoutlets

fast-foodentrepreneursdeveloped

7.7-Eleven conveniencestores

afranchisesystemunderwhich

8. F45
airninTg fitness

thefranchiseewasocntractually

9.StratusBuildingSolutions
requiredtoruntheoutletaccording

ocmmercialcleaning
tostrictguidelines.

10.AnytimeFitness gyms

Business-formatfranchise
 OceanofPDF.com

Not-for- p r o f i t s

Someorganizationsarerunnotforthebenefitofshareholdersbut

forthebenefitoftheirmembersoranexternalcommunityorchari
. ty

Unlikeconventionalbusinesses,profitisnotthegoal.

Howitworks

Ogranzoaintshtadtonoietndotgenearetporif

ohftrsehiaerhodleasre,gs-efolvenriga,ndaer

8.6

commetdiotacommoncauseaercaetgzoeirdas

pa-,tornifd,topnm
rif-oyrt-nlaiprtorif

l la fo

eOinst.itnhtsipecurtmco,pevarietsmaydsbiusre

psotm
rifembebsr,ucethisytacelirtnsonp.torif

or f m
eoc SU eht ni diapm

s,nphto-friAatvheolam
usiagrlhitgreiosfardli

ytpeocfmpanysatusandsurtcuterasbunsieses.

eht rot ces t i forp- ro.f - ton

Thenot-for-profituniverse

Cooperative

Ownedbymembers;

Therearemanyformsofnot-for-profit

canbenefitfromprof i t ;

organization(NPO).JoelL .Fleishman,

clearethosofpursuing

profesorofpublicpolicyandlawat

commoneconomic, social,

DukeUni,hasvchar
ersityacterized

orculturalgoals;one

thenot-for-profitsectorasa

member
,onevote

universethatembraces

allNPOs,whatever

theirmision.

Privatefoundation

Simalirtoachartiybut

unfdeboadsynuecr,

oppohgener
tosed publ
al ci;

generaeovtrsmnfue
 OceanofPDF.com

HOW COMPA NIES WO R K

NEEDTOKNOW

❯ ❯

aoePnschtrlocip venrAital 50c31 hcoatgndxiaets T

tpio-nrhfo-etm
eorutfmalbelr soainghrztaniecadsti

esuvrnoiroecrts ytexm
a-hcitarptylegal

❯ ❯

NoygaCrtvihar An Aosaecthdyiair Oogranizti

mhotangirzotdsirn hatymtacohnitaerdelr

onmfrihposaeunbiotlut ofpasectarculiptaornakest

cophneultsmedscisetrchiar wytoskchrieta ’

uspototesriwtchiar

Nongovernmental

organization(NGO)

Fundedbygovernment

orbyinternationaldonor

agencies,suchastheWorld

Health Organization (WHO);

operatesindependently

Mutual

Raisesfundsfrom

itsmembers(usually

customers);oftentakesthe

formoffinancialinstitutions;

profitsreinvestedinthe

mutualortosustainor

growtheorganization

Chamberofcommerce
 OceanofPDF.com

Start-ups

Astart-upisanewbusinessintheearlystagesofdevelopmentandoperation,

duringwhichanentrepreneurorfoundinggroupcomesupwithanideafor

aproductorservice,researchesit,developsabusinessplan,raisesfunds,

andlaunches.Registeringintellectualproperty(IP)—auniquecreation,not

justanidea—inordertoprotectitisanimportantstageofthestart-up

process.Protectionincludestrademarks,patents,andcopyright.

The early days

Beforeacompanyisfulydeveloped

withaworkingbusinessmodel,it

isknownasastart-up.Thestart-up
4.35

evolvesfromanentrepr,oreneur

newbusniesappcilaotins

groupofentrepreneurs,withanidea

orinvention.Itcantakeafewyearsto
submteid

ni2020nitheUS.

turntheinitalconceptorprototype

intoaviable,profitableventure,sothe

start-upfoundertriestoattract

supportandfinancialbackingto

achieverapidgrowth.Duringthis

phasewhi
, chcantakeanywherefrom
INTELLECTU
ALPROPERTY(IP)ALUE
V
 OceanofPDF.com

HOW COMPA NIES WO R K

i g
b i
d

e e

h a

Consider Launch

❯
theIP
WnLoi?es?

❯
. PIertsegiR

esncatdRicehasr

❯
that,
Wmetnosi estnr

namdFie.

80–p9ce0nr,etcsouirnt

dBoaumyn.ai

.laifu-ptasrof

mtekhcraeRs .

Preparetolaunch
Choosea

start-uptype mcanganiPkeatlrgpna.i

❯
❯

enco?isalosciaWhti
aunleiachnfredtRsuan

. meranfogsed
❯

og?m
wrboiPtred

❯ Seepp.196–197.

o T e?yltesfil tif

Seepp.30–31.

Makea Findfunding

❯
businessplan
.ngsiavstnevsI

❯
hnohawEixeptl

endirsfAks
 OceanofPDF.com

Start-ups, from

concept to launch

Anewbusinesscanbedescribedasastart-upintheearlyphasesof

itslaunch,whenanentrepreneurcomesupwiththeideafora

productorserviceanddevelopsitintosomethingthatwilsell.

Howitworks satu-rpso,stiwohtrspendnig

ThedieausjishtesNat.rext somm
eitedonigonielrseacrh

comeshteporcesoefxpandnig otcheckhtantoneseluinsig

hteconcepniotavibeblunsies. adersdinames,pyneilac

Spzeiacdlhpelmaybenededni negvaietconetLx.tocoaintsi

someaeras—adgm
atil akrneitg anohtecrondsieoarint—m
tiay

advsoiranacounatnotadvsei beposbeioltceraetauvtrial

onhtebesturcuterandnifanacil ceiofandwokrfmhome.

seu-topfer,xampeW
l. hahte Fnidnigceiosfainexart

bunsiesandporducotsrevrcei satgeb,uhteami astau-rp

aercdlacanmakeobreakhte .sotikepcosw
tl

Comeupwitha

goodidea

Developaproductor

ATS RT

anideaforaproduct

orservice.
 OceanofPDF.com

HOW COMPA NIES WO R K

CASESTUDY

OmEngineeringWorks

OmEngineeringWorkswasstarted NowknownasHighflowIndustries

in1987byOmPrakashJaiswal. andrunbyOmPrakashJasiswal’

OperatingfromashopinUttar son,SumitJaiswal,thecompany

Pradesh,innorthernIndia,heused makesbatteriesfore-rickshaws,

tosellrubbercontainersandplates solarpanels,inverters,cars,

tobatterycompanies,butin2000, tractors,two-wheeledvehicles,

hecameupwiththeideaof andmore.

producingthebatterieshimsel, f

“ T hereisahugemarketpotential

and
,witlahtertheideaofsmelting

withtheadventofsolarand

andrecyclingthem.

e-rickshawsegment
”saysSumi
s, t

Sincethen,themarketfor Jaiswal.“ Thisisbecausetheyhelp

thesebatterieshasgrown,and cutdownairpollutionandreduce

breakthroughsinmanufacturing overalcarbonemissions.The

technologyhaveallowedthefirm batterieshavealwysaplayedavital

togofrommaking20to300 rol”einthis.

batterie. saday

Rem
sachretakr

Studyyourproposed

targetmarketand

potentialcompetitors

andevaluatethe

viabilityoftheidea.
 OceanofPDF.com

pyT e s o f s t a r t - u p

Entrepreneursgointobusinessformanyreasons:somestart-up

decisionsarebasedonpersonalconvictions;somearefounded

onthedesiretomakemoney
,andothersareamixofthetwo.

Howitworks htosehtatenritndedorfmhte

Nosaltu-rptsihtfesamemodl. ousteotbaegrlevenuterswhtni

Ahtolughteyeotnfw
lofam
siarli acoproaretnovrnimenatnd

porcesnaihntleirvuoilnt, htosenitndedotwokronamoer

hteyaerasveaidrniytpeashte pesronsacleotshutviels

pesroenistbiaelhnidhtemSat-.r andpasonisoidvfiusa.l

upscanboradybledviedniot

s t y
e
f l
i e

Motivation

Worknigisapassion

Example

Ex-athletestarts

fitness-consulting

business
 OceanofPDF.com

HOW COMPA NIES WO R K

a l a
r
n g
i
e
h

t c

i
o

w r

p
Motivation

o
v

Innovatnig

r
t

a
a

t
i

i
t

o
i

n
n
I
0101010011

0100010101

Example

PCmanufacturerstarts

aseparatebusiness

providingcloud

b u
s
l i
l n

a e

s
datastorage
m
s

Motivation

Feedingthefamily

Typeoffunding

Internalcompany

funding

t
i
s
i

Motivation

Example

Lookingtosellthebusiness

Neighborhoodgrocery
fromthebeginning

shop
 OceanofPDF.com

Business plans

Writingabusinessplanisoneofthemostimportantstepsin

developingastart-up.Theplanprovidesthenewbusiness’s

goals,marketanalysis,andprojectedincomeandprofit.

Howitworks newbunsiesw
bleuinqiuyeplointsiedotcaputer

Beoferasuat-rpenertperneucranwetairbunsies htam
t akrgev,tienhtesevcreisoprorducbtenigeofrd.

pahnlte,ynedothavedonenougherseacrhot Annoiuelotenfxsitgafncesandanacuaret

dieynfaietclaorppoutrnytihtemakreohftre peorcjintoseafslandpateroifsecnaoiltmponenst,

porducotsrevcreiandotdneifhowhteporposed espyfhetilaceiownseireknigexetnrufanldnig.

Key elements

Executive summary

Preparingabusinessplancantake

Completethissectionlast ,bearing

severalweeksand
, itsworthdoing

inmindthatitmaybetheonlypart

thor.Iotisughl
avitayldocument

thatabusypersonreads:

forsecuringfunding,sothefinancial

Bunsim
esmayr

forecastmustbebothrealisticand

nampoured,ctuesc,t

accurate.Ifitsbeingshowntoothers,

eloam
cuntisopdrfecr,viers

paretheexecutivesummarydownto

Bm
nuaiess Tvhoesribctj

twoA4pages,writeitinplain

yeveifandeh,rtonseao,rv

language ,andexplainanytechnical

nusFiam
nalcimayr
terms.

unafgdi,scots,esals

chtpeivoEaltr ow T m
-knaltiue

onrtvesianotdeaiyourlelsot

Products and

services

Describewhatthebusiness
 OceanofPDF.com

HOW COMPA NIES WO R K

TOPFIVEREASONSOTWRITEAPLAN

❯ ❯

posTerch nW
ikhortuegahc esxApoietfras Mankig

.nettogrof si gnihtonserusnemetnele wedshoieusfrtiarclpnbuesi

noerfsdaenidtphsce—,lorf
❯

Cnoigts ondifowtyaoTnhleut

bm
nog.iknertgpai

otsiaebvilwsihbnteuhsiter

.esalnsdscotsofsldawieotuoktr knotngwhiGctoem
toinpteit

hCteonsm
deigcushartkaert
❯

Fundnig Agoabpndulesi

vgioeadntwbgesua.iyetbes

oanl.angitghncaemofoiesvpr

Competitor analysis
Operations

Showhowthebusinessidea

and logistics

compareswiththecompetition:

Describehowthebusiness

b a Tcom
ofeostrlpiet Whoand

wilrundaytoday:

andwlhestlhyaer,t

Suvaepynrdiel

howrfmhouwchgoe,artyd

oBrmtfAgetlwlceiversgords

sW
iySsnalOT uhndogcliIw

Equpiment

em
roteadwnyeakneds

oniaecm
ltdi,s

comuaschknobw,atshern

myaPent,
anusiadreng,lcae
ogdpacrenbgtariy

Hpanodywcultmswlsier

USP hteonpUgfoitqlneusil

e;siarlsontiesatnrlhstohwat

ecviersorpdutc

awlhethwoctm
anecipl

SeeNeedtoKnowpanel,above.

Costs and pricing Financial forecasts

Predictsalesandcostsovert,heyear

strategy

allowingforseasonalfluctuation,such

Workouthowmuchtheproductor
 OceanofPDF.com

Raising money

Almosteverynewenterpriseneedsfundingtogetitgoingandto

keepitafloatuntilitturnsaprofit.Financialhelpisavailablefrom

avarietyofsources,suitableatdiferentstagesofstart-upgrowth.

Howitworks casVt(piliCp,sor)vdiequyti

Caopfnrtliewenetprseiscomes canpaithleofm
r oafshaer

orfmw
t omanisoucres—elndesr nihtebunsieshtnaiutcldes

andnivesoLtr.endesur,chas aporpoitnraetshaerocfonortl

bankps,orvdiedebctanpihtlie anderwadrBs.ohtypesof

ofm
r oaflanhtaseritunred ufndnigcanbecoproaret—orfm

whtnientIrvs.tesotur,ch acompany—ocromeorfmohter

asbunsiesangsealndvenuter soucresu,chascorwdufndnig.

Lend
$

pyTes of start-up funding

Debtcapitalm

Corporateandtraditionalfunding,whichtendto
theformoflo

besubstantiacome
,l alrgelyfrombanksandVCs,
withinterest

whielsmalelrsumscomefromindividualsinstead

ofinstiutions.

r e T mloan Paidbackregularly Bankoverdraftorcreditcard

overasetperiodoftime Interestchargedmonthlyifbalance

notpaidinful
 OceanofPDF.com

HOW COMPA NIES WO R K

f
u
p
n

- d

i
r

n
a

g
t
S

Investors

Equitycapitalispaidtothe

start-upinreturnforashare

ofthebusiness.

Founders,friends,family(FFF)

Maybuysharesinthecompany

ratherthanlendingmoney

Crowdfunding Largenumber
 OceanofPDF.com

RAISING MONEY

Alternativemodels

CREDITANAL
YSISCRITERIAFORLENDING
nIhtewakeohtfeconomci

downutrnhtastaertdni2008,

Capacity

sevneairnlovaietandmoer

pesronytaplesuofndnigsu,ch
Theborrower’
sabilitytorepaythe

loanisshownbythebusinessplan.
ascorwdufndnigandpeopt-err

P(2ePnl)dnigh,avevoeldand

Capital

bolsomedonhtenIetnrAe.tl

Manylendersassessaborrower’
snet

nivoelhtepniprcenolasrifg

worthtoverifyassetsversusdebts.

smalmounstom
f oneyorfm

Character

aglrenumbesnroidfviuas,l

hTbsogrewntaoedrs

whopohtelrsioucresot

uscoedt.ytianlbodyitrshitedcri

pordviehtoealnoerqyutnieded.

d
n s
e ,
i
f
Life cycle of r a
f
m
,

i
r

y
e

investment
d
n
u

Thekeyotsucesuflndinotgsi
o

choosehtegrihytpenoifanceat
F

eachsatgeoacofmpanysearyl ’

growhtSa.r-tupussuyablegni

,wihtmse-fulondidneysgltandhelp

,androfmanyerifnadfoms,neylelise

whoprsieparedotakeahighsrki.

Crowdufndearseamaetuwrsho

arewinilgothelphteentrepreneur

suceedw,healingnievlesotarsnd

venutrecakpiwseatlyilkie

moreskihtsanohtelrndesur,ch

asbankhtfieys,beleivehtatniejcnitg
 OceanofPDF.com

HOW COMPA NIES WO R K

Financing5,000startupsoverthelastdecade

Thechartshowssourcesofstart-upfinancesfromover5,000entrepreneursintheUSfrom2005to

2015,takenfroma2015surveybytheKaufmanFoundation.,thByemost
far fundingcomesfrom

bankloansandindividualsavings.

s rePonal

30% nasvgis 6.2%

Bankor

34.9% ohtoelran

n v
i e a
c p
l s e i
e t r t
o a
g
u

r t l
n
i
s
s
n

A
t

e
s
V
 OceanofPDF.com

Business accelerators

and incubators

Startinganewventurecanbealongprocess.Business(alsocalled

venture)acceleratorsandincubatorsarespecialistorganizations

devotedtodevelopingandsupportingstart-ups.

Howitworks
niucldnigmenotsrhpbi,unsiesadvcei,

Bunsiesacealrotsrandnicubaotsrporvdiexpseitr andconneocintsotpoetsnaoiltucrensioafnce.

andconneocintnsihteofm
rvaietsatgesoafbunsies Bunsiesnicubaotsrn,hteohtehrandp,orvdiea

nierutnrofarpecrenatgeofwnesrhpTi.heyaerw
to suppvoietrnovrnimenitwhcehildfngilsat-urps

separetypesofevcreBi.unsiesacealrotsraer candevoenplofirg,etchncaislatincw
e,oknrig

shorte-rmporgarmshtaeotfw
rdiear-ngnigsuppo,tr spacea,ndnew
t okrnigoppoutrenist.

Business accelerators

Suitedtostart-upsthathavelimitedfinancing,acceleratorsoffershort–term(onetothreemonths)

bootcampsI.ndividualacceleratorsmayspecializeinaspecificarea,suchassoftwaredevelopment .

Helpwithbank

loans ,funds,

andguarantees

programs

noitcudortnI

laitnetopot

srentrap

Accounting
 OceanofPDF.com

HOW COMPA NIES WO R K

Business incubators

Oftensponsoredbynonprofit

organizations,incubatorstendtobe

longerterm(onetofiveyears)and

catertoavarietyofclients,many

science-based.

Start-up

introduced

toincubator

NEEDTOKNOW

Support andeducation
nIcubnaowetrokrs

ncouibnoabtCnifolatrl

,esitilacifechasr ,cesnrt

aencspideaksr

bnuVtircaeslbaotr

u-ptsartshOnoeirtfnuels
 OceanofPDF.com

g n gni iylul&sBe

businesses

Bothprivateandpubliccompaniesregularlychangehands—theyarebought,

sold,andrestructuredtoreflectchangingbusinessconditions.Thesedeals

allcomeundertheumbrellatermofmergersandacquisitions(MandA).

Acquisitionfinancingisusuallyneededtopayforthepurchaseofanother

company
,oftenintheformofaloanorventurecapital.

How to acquire a company

Acompanyistypicallyacquiredinoneoftwoways—eitherbya

managementteamorbyanothercompany
.Whenacompanyis

buying,theresultcanbeamer
,inwhigerchtwocompaniesjoin

forces;anacquisiton,oranoutrightpurchase;orademer
,in ger

whichpartofacompanyisbrokenoffandmaybesold.

Managementteampurchasesareoftenfundedbyprivate.equity
 OceanofPDF.com

HOW COMPA NIES WO R K

Buying & selling businesses

45 652

the number of MandA

, degasol,bayl ni2020

Anothercompanyacquiring

Companiesmaywanttoexpandby

joiningupwithanotherbusiness.

Merger

Thecompanycombineswith

anothercompany
. Seepp.42–43.
 OceanofPDF.com

Mergers and

acquisitions

Twoofthequickestwaystoaccelerateexpansionare

forabusinesstobuyoutanother—anacquisition—or

tocombinewithanotherbusinessinamerger
.

Howitworks onerasonabyelquofaniltgot

“Megresrandacqoiuntsi” ceraeta,wnew
hciwclomipany

M
( andAsai)geneartm
l used benbteiofhtpeaitsr,nacqouitns

otdesbcirehtewaynsiwhchi suisuyalpucrhaseoafsmerla

companeisaerbougshdoa,tlnd companybyaglreorneT.hsi

ercombniendIht.ecaseohetfir benshteifcompanymaknighte

amegreoranacqoiw
nutsi,o pucrhasebum
t aynonteceyslair

separetgleaisnltaietrueidnfi .behnteaitgfrectompany

.Wehali noitansigeleaytnlit MandAcanbeinrfdylor

megrecrombniesw
t ocompaneis haeg,olesritdotmirposed.

CompanyA

Merger

manufactures

ulxurycarsnitheUS.

mergeswith

A
 OceanofPDF.com

HOW COMPA NIES WO R K

Buying & selling businesses

FRIENDL
YSV.HOSTILE

❯ ❯

ocmgetarpsbtnThyoeadorf ’ T conm
gaihcqreuipbanypesa

anmdoesctrdainagemaegrnt manoatgem
hatiratngseodts

boetought . ocmgetarptnhsyeardt.oserl ’

❯ ❯

conm
giTachqreupim
anyankes ocmm
getarpstnThyaenagement’

gaerhteotcskoahsroferof d.hetalgshtif

bocosandmrmpany’
anagement .
❯

ocmngboucTiyhpneayvices

aatestsierofcahsTtchkre hteovehustardoselr

or

pemr.uem
vli gh,i)m
tfopyxrangem(ent

ohtseoardtsem
rlfoankes
❯

abuoactslveierfoBhetcaus

abnocevma-ptirhbesakurty

yhusleardloser,em
vlkeart

.)erfontdaer(

tiotaegr .

NewcompanyA+B nowhas

anexpandedmarketspanning

EuropeandNorthAmerica.

B + A

htveuale
 OceanofPDF.com

Demergers

Whileamergerresultsinabiggercompany
,ademergerreduces

thesizeofabusinessbybreakingitdownintosmallercomponents

ordivisions,whicharethensoldoffordissolved.

Howitworks w
,eivhtosehtahtavepormseibut

Theytpcsailenoaifrdemegrer aernoytepatobriTef.lheporces

saicompanyhtasiturgngigl oerfsurtcutnirgbydemegresir

otpaydofebthitasatkenonot degsinedoertfhtecompanyof

expandniotnewaerasobfunsies dvosinswhtoilwerutnrote,duce

htaernb.yolTpietrfo debatnndiafncigerquerm
i enst,

savehtershotfecompanyorfm andotgviehteshaerhdolesra

htebudrenodfem
b,tanagement sortngerutnrT.hemakreptceirof

dedcieso.tsatrdemegrer htepancorm
tpasnyh’aersoetfn

h,tem
aisotishedhteGenyelar ,anbsdtoiuncesbackosrtngyl

e,alsptbeoiraflerasofpeoarnitor spncofi-mpanesimayhvteirot.

om
rfhtebpaeluosntpiy’eroniotf

Demerger in practice

AnnidusatrpaiilnctonglomerPoae,twPaenriLtshasd,.grownrapidyloverthepast

vifeyeardue
s, toannicreaseniprotfisromtisexpandingsaelsniChina.Thecompany

diveresifdnitoagrciulturachemi
l caltes,xeltiand
s, biotechnologyandseup
t aseparate

divsionofreach.Shareprciesefnilresponsetopoornifanciaperl ofrmance.

Makingadecision Announcingthesale

caFedwhatoiwnhbutcnieorisem, pany PowPeraintsLtd.nowannouncesthesaleofitsthree

demhegtnreswbhenuatriesvnyot remainingdivisions:agriculturalchemicals,textiles,

hsogowrntfisevuhdrnpgti.esopis andbiotechnol. ogy

 OceanofPDF.com

HOW COMPA NIES WO R K

Buying & selling businesses

NEEDTOKNOW

❯ ❯

nSfop-i Newcomomprfanyased esrevm

Reegr Nobtet

deamofgerteusrhlet asihs,ti demahwcoutegdnsrfi

aqnckuhdieampaheotfrd
❯

ca r Tonktscig ypteSpaleci

ocmepatvbgipoycrtnuibyl

upsebadnriyhtsearof

o—kcts lhelsangbpauiycbil

onriscovm
idhietoprfany

opanerglosnocitmghatpany

nagckrit ;lesl lhwetlyhiatyardusbis

wbwetanouctikarpset

om
phrfetotaendceitsiotcks

m
oesdcilypl

ohtanhaoetrnisvidcipfshectiof

kncohsm
etwalanphea;osnly uertiDvtesi merocmmyonl T

otcksegadrtas deamorufegdsr

ofertneLitnt ngiatseLrt

dobnteu,iostuiesr

coenM
tocegfrianAd

Theshareholdersbenefit

Shareholdersintheoriginalcompanyalsoreceivethesame

percentageholdinginsharesofthethreenewcompanies.

Onecompanybecomesfour
 OceanofPDF.com

r eV t i c a l v s . h o r i z o n t a l

integration

Companiesthatwanttoexpandthroughamergeroranacquisition

maydecideonastrategyofeitherhorizontalorverticalintegration,

combiningbusinessesinvolvedinsimilarordissimilaractivities.

Howitworks megreoracqoihnutsie,newyl

Companeiscanchoseorfmsevearl ofm
r edcompanycansavecosnti

asrtegeiswhenhteymegreoare porduocibntdsru,ointsea,slnd

paotrfnacqoinTutsi.wohtfe ercaim
dtlesalerkneigtV.

mosctommonaerhzoirnatnld usuym
laadebew
t enbunsieses

vecniatreltgaroitn. nivoeldnihtesameniduysrtbut

Hzoirnadtleaslermade eafdrtnisatges—oferxampe,l

bew
t encompoteshritaptorduce acompuetarndacomponent

m
siaytrlpiesopforduscut,chas .Thm
esedaensaculanfcuter

casropcrlehoneasn,deotnf beupesrtamotw
( adrhtemakre)t

shaer—ocrompetof—
r htesame odrownesrtamniht(edorcnit

supepsiralndeincAlst.saersoutfl ofpeoarnitsandporduocnit.)

Integration models in practice

Inthesehypotheticalexamples,aclusterofprinters,publishers,andbookshops

mergeoracquireeachotherinhorizontalorverticaldealsthataimtostrengthen

theirmarketpositon,takeadvantageofeconomiesofscale,andexploitsy.nergy

Horizontal integration

owT publishingcompaniesbot
, hinvolved
 OceanofPDF.com

HOW COMPA NIES WO R K

Buying & selling businesses

ONLINE

BOOKSHOP

PUBLISHER/ONLINE

BOOKSHOPA

Fworda

u(perstam)

PubsihleAr Onlnie
buys

BookshopA
miotporve

basrtnidpersncaendpvordie

adercihtannofsaerls.

reV tical

integration

Apublisheracquirestwo

relatedbusinesses—a

PUBLSIHERA

printerandabookshop—

sothatitcanhavegreater

controlverboththe

productionofitsbooks

andtheiroutetomarket .
 OceanofPDF.com

Management buy-ins

and buyouts

Acompany’sownershipmayundergoachange,whichcanbe

driveneitherexternal
,known
ly asamanagementbuy-in,or

internal
,known
ly asamanagementbuyout.

Howitworks m
ocsenpxas’yitgmanagement

nIamanagemenbtunyM
i(- B,)I etampucrhasesoalpraothrfe

agorupom
f anagesrnoirvesotr compa.nyhtahteywokrf

orfmoudstiehtecompanyasreis DespethienamM
e,BOsaernot

htemoneyotbuyamytoasirjtke ecrtisdotmanageasrn,dhtey

nihtecompanyandhtenatkes caniucldempolyeosrfmany

ovstem
ir anagemeTn.thsytipe evlhoetfleogranzoaintwhowshi

oafcintocusrwhenacompany otmakehteartonitsorifm

appeasrotbehtieurndevrauled emoyetw
pl.ner

orunderpeorfrmnignI.aytpcail

managemenbtuyouM
(tBOht,e)

Buy-in

Somecompanies,uchasinvestmentbanksorventurecapitalists,canmake

sizeableprofitsbypurchasingundervaluedbusinessesandtransformingthem.

Company
 OceanofPDF.com

HOW COMPA NIES WO R K

Buying & selling businesses

BUY
-INMANAGEMENTBUY
OUT(BIMBO)

Inthistypeoftransaction,theexistingmanagementofaocmpanystagesa

buyout,butadditionalexternalmanagementisbroughtinbyfinancersto

strengthenthecompanysleadershi
’ pandtoprovideexpertiseinparticular

areasthatmightbelackingintheoriginalteam.

Company Company

+ =

Exnsitgmanagement Outsdiemanagement Newmanagementatm

. bcuoym
s pany bosriungi.ht

Buyout

Abuyoutalol wsacompanytoseloffallorapartofthebusiness

orithelpsasmallbusinessownerretireormoveon.

Company Company
 OceanofPDF.com

Who’s who

Acompany’sstructureandhierarchywildevelopasthebusinessgrows.

Thetendencynowistocutdownonunnecessarylayersofmanagementand

toensurethateveryoneintheorganizationknowswhattheirroleisandtowhom

theyreport.Mostimportantisthatthehierarchyfitsthetypeofbusinessandthat

authorityisdelegatedtotheappropriateleveltoenabletimelydecisionmaking.

Who’s who in an organization

Stakeholdersand Boardofdirectors

shareholders

Theboardofdirectorsmakessurethat

thecompanysirunprofitablyto
Stakeholdersareanyonewithavested

providereturnstoshareholders.The
interestinthecompany
.Shareholders

boardvotesin,who
achaiirs
arestakeholderswhohavebought

sometimesalsothechiefexecutive
stockinthecompany
. Seepp.60–63.

officer(CEO). Seepp.52–55.
 OceanofPDF.com

HOW COMPA NIES WO R K

FRONTLINEANDBACKOFFICE

Someemployeesaredirectlyinvolvedin

operationalactivities,suchasmakinggoodsand

1/3

deliveringservices,ormarketingandsellingthem.

ogoflbeam
l peoleys

Theyaresometimessaidtobeworkingonthefront

line.Theirworkisimportant ,buttheycannot

ortsnayglere
functionwithoutthesupportofback-officestaf.

Thesestaf includepeopleworkinginsuchrolesas

thathey trust the

fi,nand
ance,human
IT resources.Itisimportant

toensurethatbothgroupsworkwelltogetherto

eladershpi of enablethebusinesstorunsmoothl
. y

theorirganziaotin.

Mid-levelmanagement Juniormanagement

Divisionanddepartmentheadsare Supervisors,managers,orteamleaders

usuallycalleddirectorsormanagers. directlymanagegroupsofemployees

Jobsatthislevelareoftenthefirst carryingoutspecifictasks.Examples

togowhenacompanydownsizes includeaheadnurseoraforeman.

orrestructures. Seepp.56–59. pp.56–59andpp.74–75.

 OceanofPDF.com

Board of directors

Publiccompaniesarerequiredbylaw

Board of directors

toappointaboardofdirectorsto

provideoversight.

Theboardofdirectorsofapubliclylistedcompany

sitsbetweenthecompanyanditsshareholders.

Howitworks

Acolmpaneismushtavealtsone

fa.Icompanydegrcoitrespucabinld

siueshaestrgliyse,rlaquerdiothave

aboadroderfcioTtsr.heboadrsm
i ade

upoefxpeinrcedbunsiesadvseisrwho

porvdienidependenotvegsrihotfe

sredlohderyenom
atdhoprndm
asfcna

y.lbisnopw
rysenam
hovpoyrctglb

Boadrmembesrmaycomeorfmwhtni

htecompanyobrenidependenotudstiesr

andshoudlcovearngeoefxpseitr—

suchnaeisgflan,acldimakrneigt—

deziyrl.aetgdsieudcnw
eovlpnrakisho

sdyerezoklhisrgew
iohlritfphaNe

laisynotneuidtlclhefnoitbuiw
ctai

elstaetrm
nuegoprenirhvdongactif

sred.lsoehdreshaprom
bSseb

tned,istercehrlinpm
oachuesli(care

, )sno,i)tnaezdriensacrgieoahirpv(co

hguohtlar,loaitcncaenridnidf,aratercesy

erutcumoltyrcehm
yranlotxpcfvw
seti

. ynm
oapct
SE UEVAAL T
 OceanofPDF.com

HOW COMPA NIES WO R K

Chair

Appointedby

sredloherahs ro draob ehT

Responsibleorf

cohmetngeipnsrtanycispciloPluibl ’

sgni temedraob gni tcudnoc ,draob eht gnidaeL

bhoetdDcahrmeotnfgitpois

Mnaem
goditChrneEgoOitrni

M
m(oecatrnDdaig)

Commhseawrndtogseiurlcanti

Vicechair

Appointedby

sredloThe
heraboar
hs dro

Responsibleorf

rchaoirfnaniStdgi

Undpaskegtilrc

rhcaiorfsetcopjr

gnicnalbani riahcgnitsisAs

yti lanosr,aenpd,ecneirepxe

draobnosrotcerid foega
 OceanofPDF.com

BOAR D O F D I R E C T O R S

Balancingtheboard ocfmpanyexecuvietasn,dcla

Theboadrhashterecalreasof htemotacouW
n.thenpoetnailt

erspoytnd:ibselivoeplnigbunsies cosntieflrsateirbew
t en

,anddsvightecompasretngy managemenatndshaerhodlesr,

ovesrenighowhtm
reifsurin. nidependendetrciotsrcanwegih

Senclitghtgeirhm
txioderfciotsr deoscinm
- aknignaifvoranfcitgni

loiuthfleseufnocintsciur.acil heoctmpsbany’esiterst.

Boadrmembesrmaycomeorfm Thediebalanlcesaihotpci

ndise.orudstiehtecompany nicoproaretgovenrancneI.US

Thosewhowokrhftecompany compm
Csaen,rEiOlioahnrcd

e(xecuviteoniretnraderlicotsr) yl lanoitidaerveabthncombnied,

havemoerexpesitrniurnnnig bouw
lftnigaspaetocfproaret

htebunsiesb,unitdependent scandhtsae,lorslaernowmoer

membesrn(one-xecuviteoerxetnral .slaudivndeitdnw
sefoIitv

derciotasr)ebetpracledotefr etsgnae,erpilaoepherustkE

pesrpevcitesc,urnzitehteaocitns gncotanesreapbslhcei.t

Board structure variations

Independentboardofdirectors CEOaschairman

Theboardsitsbetweenshareholdersandcompany
.The AsetupinwhichthecompanysCEO’ servesastheboar
s d’

CEOisthemainchannelofcommunicationbetweenboard chairman.Whilethisofferslessindependentscrutinyof

andcompany
,whilethechairmanistheprincipalconduit onitacidupldsoivayapt,idnaygetm
,aecnoratfsre,p,secnaif

betweenshareholdersandboard.Thisstructuregivesthe ofrolesThi
. setupisfoundinUSocrporatoi nsandinmany

boardmostindependence. small-andmedium-sizedcompaniesinothercountries.

Sharehodlers Sharehodlers
 OceanofPDF.com

HOW COMPA NIES WO R K

WHATDOBOARDMEMBERSDO?

The board exists to ensure the Different companies face different

success of the company and to legal requirements for their boards,

meet the appropriate needs of its depending on whether the

stakeholders. It must enable the c o m p a n y i s p u b l i c o r p r i va t e ,

business to move forward but also a n d w h e r e i t i s l o c a t e d g l o b a .l l y

exercises control. Some tasks are These requirements typically relate

carried out by the members of the to matters such as the filing of

board themselves – these include accounts and the accurate recording

establishing the vision and values for of board meetings. Company board

the company and setting strategy

. members are answerable to both

Others are delegated to senior shareholders and to regulators.

managers, such as deciding how to

implement a particular stra.tegy

Seniormanagementasdirectors Two-tierboard

Astructureinwhichseniormanagersalsositontheboard. Anarrangementthatismadeupofseparatesupervisory

apCsnebo(daurFtsiOcedari)fonainlcfTehcfi andexecutiveboards.Thesupervisoryboardisocmposed

andthechiefoperationsofficer(COO)isvice-chairman.In ofoutsidedirectors,ledbyachairman.Theexecutiveboard

somecountries(Ger,fomrexampl
any e),employeesmustbe comprisesseniormanagers,includingtheCEO.

includedontheboardby.law Thetwoboardsalwaysmeetsepar. ately

Sharehodlers Sharehodlers
 OceanofPDF.com

Company hierarchy

Almosteveryorganizationhasastructuredarrangementoflevelsfor

members,fromtheboardofdirectorsatthetoptojunioremployees

atthebottom.Thereisatrendtowardreducingthenumberoflevels.

Howitworks execuvietas,ehotslbjerieotnf

Theraveriflvnesihlte begniwhtia“C”B.oew
l hteCevl-el

convenoitnacolproaretsurtcuter, sm
i anagemensihrt,eafdrti

whtniaeloafuhtyorfm
i otpot orm
f com,wphtainyotcompany

botmT.hecheifxecuvcietofr empolyesofm
rnightebotmelve.l

C(EOshti)ehgihears-ntknigpesron Aswaesldklainduendlski

e,rpornhitegtcothm
epany empoylehtse,rmaybeosaftn

boadroderfciotsrandsomm
eites xiefdet-m
r conartcstk,enonofr

asnoiltgsionhteboadrR.epnoitrg hteduoarintoafpeorcjotfar

otheCEOaeranumbeohrgfih- senltghtmiotfniea,dodintoi

evlexlecuvietksn,ownasCevl-el consautnlstborughnoitfsrpeacil

puproseTs.hercoudlasolbe

casuaetlmpoarywokresras

C-SUITEVARAITIONS

wasleoustoucredwokresr—hte

empolyesoafnexetnracolmpany

TherangeofC-levelpositionsavries

conartcetdotpearetniaceatnri

foreachcompany
.Aswellasthe

aerahotfebunsies.
threetopposts,theremaybe:

CAO ChiefAdministrativeOfficer

CIO
ChiefInformationOfficer

OCT echnol
ChieofTgyOfficer

CPO ChiefProduct/Production

,responsi
Officer bleforoverseeing

productdevelopmentand

production

CMO ChiefMarketing, Officer

51
 OceanofPDF.com

HOW COMPA NIES WO R K

CHIEFEXECUTIVE

OFCIERC(EO)

Dedociensoproarte

pcaoyinladrestgy

OCHPEFRIATING

OFFCIER(COO)

Responobfesirl

doya-tdo-yapeoaritns;

repotsCrEOand

seacsotnd

ncoimmand

CHIEFFINANCIAL

OFCIERC(FO)

Managescompany’
s

nifanreskciap;losrt

toCEO

MARKETING

MANAGER

Dreicmst arkenitg

department

dayotday

ATREOPIONS M
ADNARDNAGER

MANAGER

Headuspresearch

Ovesreospeoaritns
andeveolpment

odvsimn;aysol
R(andD)ofnew

derpictorduocitn
pordusct

depam
rt ent
 OceanofPDF.com

COMPA N Y H I E R A R C H Y

Flatteninghierarchies dvosinheadsnowerponitrg

Thertndnimanagemenotver deryociltheCEOnIs.uch

htepaesfw
t decadeshasbenot caseso,medegerohefairchysi

meilniaetlyeosrfmcompany manitedb,uothecrompaneisgo

heairchew
is,hcimeanshteyaer ,evoneligvotecnoum
fhtrepreylt

becomniaegt—
lrfniohtew
r odrs, atlhfeaircheiswhtinoboses.alt

hteraernoatsmaneyvlseotlgo ,rHw
eovseuchapporachesetndot

htorughniodreotrachteotp. wokrbeosftrmm
reialfrps,orvnig

nImosctasehtsi,ansivoeld eslcabnleagirleorganzoanits.

psirtpnigawaymanagement Sometimes companies decide to

pointsiodreontricerase restructure the other way around

communcoaintandacblooarint instead—from flat to tall—by

acorsevlaFse.olerxamhpte,l eliminating a number of senior

eorlchfeoifpenaritgceCio(frOO) management posts and replacing

hasbendsaippenairgniercent them with a greater number of

yeasr,havaeylesrom
fdidel junior supervisory roles.

managemenw,thtimanymoer

Tall vs. flat hierarchies

Thereareprosandconsforboth

laThilerarchy

typesofhi,and
erarchyeach

companyhastofindthenumber

Thetraditionalmodelissuitableforaformalchain

oflevelsandpositonswithin

ofcommand,suchasinthemi
. litary

eachlevelthatsuithenature

ofitsbusiness.

CEO

ohrtesi
 OceanofPDF.com

HOW COMPA NIES WO R K

CASESTUDY

Goingflatalv
ateV

l a V vesthiedeveloperbehindsuch sawnumeroojupserctsabandoned

hivitdeogamesas Hef-Lail and troPal . aftertheyfaelidtogainmomentum.

Beleivingthattsihierarchicalstructure Theexpalerveitonctweleak
dVtsi

wahsodlnigbacnkinovation, ardacpilporach,maintaninigtisaflt

managementdecidedtoswtcihtoa structurebutunintigstaefmporayrli

a alfstructu,VreNow
. vlehasno toofcusonanew Hef-Lail tielAs.

bosseand
s, staarfefreetoworkon onedeveloperadmited,e“W
were

hteproejchtseywant In.returnth,ey wrongonhtepremisehtatyouwibel

takeresponsbitylofitrheimir stakes happieyou

sfit workonsomethnig

andtheproductstheycreateWhi
. el youpersonalylwanttoworkonthe

manypeoplethrviednitherfeer most.
”Relasedni2020, HAa-efLy:lix

envroinment ,otherstruggledto wasmi mediateylacclami edasa

adaptanddeparted.Therim
f also alndmarknivirtualrealtyigaming.

Flathierarchy

Thisloosermodelismoreflexibleandsuitablefor

companiesthatfostercreat
. ivity

ay

❯
 OceanofPDF.com

Stakeholders

Astakeholderisanyonewhoisaffectedbytheoperationsofthe

company
,directlyorindi.Stakehol
rectly dersincludesuchgroups

asemployees,shareholders,regulators,suppliers,andcustomers.

Howitworks
Sometimes, the needs of stakeholders conflict.

Companies have an impact on many groups of people For example, a community may rely on a business

through their operations. These include employees, to provide local employment opportunities but

who rely on them to pay salaries, and customers, who will likely be unhappy if the operations of the

want the products and ser vices that they supply

. It is business are noisy or cause pollution. In such

important for managers to understand what all these cases, the managers of the company must find

various stakeholders are looking for from them, ways to maximize the benefits to stakeholders

whether they can meet their needs, and if so, how

. and minimize the drawbacks.

Stakeholders’ areas of interest

Diferentstakeholdergroupstakediferentlevelsofinterestindiferentfactors.Somepredominantlycareabout

acompanysenvir’onmentas,lociaand
,l governance(ESG)factorsOt
. hersmaybemoreinterestedinitsfinancial

performance,whilestilakingESGconcernsintoaccount .Shareholdersf,orexamplewant
, profits,buttheyalso

understandhowsustainabilityiskeytolong-termgrowthandmaywanttoinvestheirmoneyet. hically

StakeholderswithESGocncerns

Stakeholdershavenodirectinvolvementbut

believethatcompanieshavearesponsibiltyto

thecommunitiestheyoperateintorespectthe

environment ,humanrights,andanimalwelfare.

Nongovernmental

organizations

Cbouitnr
 OceanofPDF.com

HOW COMPA NIES WO R K

Shareholders
Government

❯
❯

denvidpiaoytytiAlbi
x a T pm
yasnet

❯
❯

uevalhesarnienascrI
ocm
anecieLgapl

Stakeholders

witheconomic

andESGconcerns

Stakeholdersuse

ESG—arecognized

partofpolicyand

reportingformost

companies—to

evaluatecorporate

behaviorandto

determinefuture

financialperformance.

Concernsrangefrom

profitstoethics.

darTeunionsand Suppliers Employees

laborunions

❯ ❯

depbayot ytiAlbi a yaPsnbtdenief

e r T wmastokerfent ❯ ❯

yEtqnduoilgh hLotenoygftevi
 OceanofPDF.com

STA K E H O L D E R S

Stakeholdersinaction
erspoytCn(ibsliRw,)hehter

Compaerdwhtiohtesartkehdolesr, onrohteyaersyoalcind

shaerhdolesrhavehtemonsietrst enovrnimenyalctonsocius

nihtneifancapileofrmanceoaf htemsvelSse.veharglihepl-orif

.Theyaerscaolcfm
redotpany caseshaveshownhowsatkehdoler

atkeanietrnsithowsoeiurysl eraocinthascausedagscianfit

htecompanyatkestcioproaret dneicnlishaerpceiBrs.yunsig

How stakeholders affect share value

InApril2010,anoffshoreoilrigownedbyBritsetholrPeum(BP)

explodedintheGulfofMexico.BPattemptedtoalleviatestakeholder

concernsbut
, stakeholdersrespondednegat
,startivnelgytheirown

socialmediacampaignstoshamethecompany
.Sixty-sixdaysafter

theoilspssihl,BP’arevalueontheNew
orkStoYckExchangehad

droppedby52percent .

Newsbreaks thatspilis Stakeholder socialmedia

worsethanBPclaims. campaignintensifes.
 OceanofPDF.com

HOW COMPA NIES WO R K

nivestd

132
ESGfunds

$ billion

BANG!

BANG!

Oilrigexplodes ,kiling Newsmedia reporton

11employeesandspewing theevent .

milionsofgallonsofoilinto

theGulfofMexico.

StakeholdersoftheBPoilspil

❯ ❯

nohaInltegsbti BhsPaerhdoelsr

neilcoedtasfa
❯

oGcutmsaser

hsm
erifeLnocal
❯

o T anotsduitsruir

eacnlupllpsiOli nbesui

wserko
❯

Maedi

orEnm
vieanlt
❯

Gnomevrent

stsviact

cpiubGlenalr

emBPoyepsl
 OceanofPDF.com

Business cultures

Everyorganizationhasaparticularworkplaceculture,consciously

orunconsciouslyshapedbythepersonalities,values,andbehavior

ofthepeopleleadingitandworkinginit.

Howitworks e,nm
gklracyirnw
cielairfeshr

nolaieurtazygnaTiuhrlevfoc ytivsi,stareohdturnocpif

ng,inetcreflsnferdibus ylekmidexsa.odbtliemrero

he,t hsoem
ftcoepnay sevdreineftcpoyThftoie

,sm
tehacw
ndbitkpagleor mangemandem
toysplay

.shetdm
ocstijopnaltiIyr ngtceiostafeh,crflw
tapklro

pyhoesfw
otadikno.er evitabevrohrelitlm
oricaepte

lasekngiatcdsingrh-tfahIi e,urtuhaocm
lr.xTbfthei

eurhsenap,tdcr m
ocpnay esaosrncm
eglaiw
rtkoro

hefw
tom
kherotasekphor ng.sedaiuortm
lnuhnlagsciey

pyTes of corporate culture

Managementexpertshavetriedtoexplainhoworganizationalcultureswork.

CharlesHandy
,aformerprofesorattheLondonBusinessSchool,describes

themintermsoffourmajortypes:power
,task,roleand
, person.

Roleculture Powecul
r ture

Whereacompanyisbasedonthestructuarlsupportof Drivenbyapowerfulindividualatthecenterofthe

specializedrolesEach
. olreiscrucialandwilpersistevenif organization,whoisreliedonfordecisionmakingand

thepersonoccupyingitleavesPr.oceduresandsystems thecompanyssucces’ ses.Thoseclosestothecenterhave

arestrictlyfolowed,asinagovernmentdepartment . themostinfluypience.
calofTafamily-ownedbusiness.
 OceanofPDF.com

HOW COMPA NIES WO R K

WHATSHAPESCORPORATECULTURE?

Manyfactorsreinforceaoculbritunre.gabout
T change,theworkforceneeds

tobeinspiredbydiferentmotivations,avlues,andtypesofrolemodel.

Organizationsize
Leaders

Bigbusinessor
Theirpersonality

smallcompany
andbehavior

Companystructure Symbols

Stricthierarchy Titles,dresscodes,

orpowershared interioraesthetic

amongmanypeople

Foundingavlues Controlsystems

Includesorigination Rewards,incentives,

mythsandstories performance

assessment

saTkculture Personculture

Project-orientedworkwhereaprojscompl
ect’ etionis Comphseapm
ndruosyewnlidacofseuvidnalrg

themotivatingforce.eRliesonteamworkandindividuals’ whoworksemaiuotn.Iodvmdiuaocsluyslnoftmr ore

expertise,butresultsaremoreimportantthanpersonal htanht,whi
ecomchmade
sipanyupofpeoplewihtm
sialir

objectviesFound
. intechnologycompanies,forexample. specatrsilninig,suchasnianarchtiectsf’irm.
 OceanofPDF.com

Corporate

structure

Acompany’sstructure—thewayinwhichitisorganized—canhaveamajor

impactonthewayitperforms.Thereareseveralmodelsofcorporatestructure

typicallyusedinthebusinessworld,andtheycontinuetoevolve—allthemoreso

nowasbusinessesembraceremoteworking.Thefirstconsiderationiswhether

powershouldbecentralizedatthetop,withdecisionmakinginthehandsofa

fewkeysenioremployees,ordecentralized,withmorepowerinthehandsofstaff.

Choosing a structure

Acompanysstruct’urechangesasitgrowsMor
. eocmplexstructureswileitherevolveorbedesignedas

afirmmovesforward,dependingonthenatureandsizeofthebusiness,thecomplexityofthework,

anyrequirementforinstantexpertise,andthegeographicallocationofpartsofthebusiness.

Functional Divisional

Centralized

owPerrestsinthehandsofa Goodforstrict Suitscompanieswith

fewpeople,withalongchain controlandformal manyglobaloffices

ofcommand. relationships,asin orproductlines.

themi
. litary Seepp.70–71.
❯

ewotphePatr

Seepp.68–69.

dgRi
 OceanofPDF.com

HOW COMPA NIES WO R K

78 % 100 %

ogfrouprseach ogfrouprseach

soulotinsto soulotinsto

sm
i peltasks compeatlxsk

fastenir fasterni

cenzratield decenrztaield

structures. structures.

Network eam-based
T

Decentralized

Suitscreative Focrmpaniesthat owPerisspreadthroughthecompany

,andstaff

andtechnology relyoninnovation maketheirowndecisions.

companiesinwhich andarecustomer
❯

rewoPhseadr

everyoneisonline. focused.

Ogcarni

Seepp.74–75. Seepp.76–77.

m
Expiereanlt
 OceanofPDF.com

Functional structure

Theclassicwaytoorganizeacompanyisbydividingitinto

departmentsthatreflectthemainfunctionsofthebusiness,

eachheadedbyadirectorormanager
.

Howitworks

Thechaniocfmmandsaigrthofw
rt adrT.he

pyTical departmental hierarchy

bunsiesytpclaoinstoiafcheifxecuviet

Thedepartmentsoperateindependent
,withthlyemanagers

ceCi(orfEOo)predsienahteotpw,htie

reportingtotheCEOorpresident ,whohasoveral

vaoiruspesdtaiclepam
trenstodrvosins,

command.Thesalesandmarketingdepartmentusually

suchasmakrneigtandia.fngcianel,edboew
l

takesresponsibiltyformanagingproductlines.

Eachdepam
trenotpearetsasanidependent

uwn,tihstiownbudgae,ntderpostrdeyocilt

hteCEOw,hoatkeserspyothfnriebsloipeoarint

ohtalfedepam
trenAst.ufnocintasurtlcutershite

mosctommonytpeogfranzoanit.

WARNING

Dangersofsilomentality

Silomentalitydescribesascenarioinwhicheach

departmenthasadiferent ,closedviewofitsrolewithin

theoveralscheme,andinformationdoesnotgetshared.

2for1
 OceanofPDF.com

HOW COMPA NIES WO R K

34

of companeis ays

the rustcutre oftheir

organziaotin asi

bareir miotporving

cusotmerxperince.
CEO
 OceanofPDF.com

Divisional structure

Somecompaniesarrangetheirstaffintodivisionsdevotedtoa

specificproductormarket.Eachdivisionisaself-sufficientteam

employingthepersonnelforthevariousfunctionswithinit.

Howitworks

Division by
UndehtreovceolarnoratflCEO

opredsiesne,tvedaorvslinswokr

geography

oanlgdsieoneanohteotrdegsin,

Fobrusinesseswith

erseacrhp,orducea,ndasel

productsthatneedto

pacuitralprorducotrsevrice

beadaptedtolocal

aspcem
ifciakrEe.tachdvosinurns

markets,anorganization

stoiwnspzeiacdlufnocintsu,ch

canbestructured

asopeoarintsosreahtslo,ugh

accordingtoeachofthe

somseu,chanisafncm
e,ayermani

regionalmarketsitserves.

cezneiartdlotsaveoncoAst.
Thesemaybedomestic

orni ternatoi nalFood

. and
om
cnspiansymtgvieraydi

drnikcorporaoitnPepsiCo
acodrnigotheytpesopfordutcit

broadlyfolowsthis

makehtse,rgoinsiwhcit

structure,withseven

opearetohsr,ecusotmesortwhom

divisionsservingfive

tsLi.leagrecompaneismayadopt

regions( seecase

hybdirsurtcuters—byporduct

,rightstudy ).

oe,frxam
andpeg.leogarphy

DIVISIONAL:PROS

Divisionbyproduct

ANDCONS

Businessessellingdiferent

typesofproductsmaypick

Pros

astructurebywhicheach

noshiter,slaoifnisovndiefI
divisionhandlesonecat.egory

nbhseutioftesrhetotheart
SamsungElectronics,partof
 OceanofPDF.com

HOW COMPA NIES WO R K

CEO

Europe Africa,MiddleEast, AsaiPacific,

andSouthAsia Austraila/

GenevaHQ

NewZealand,

DubaiHQ

andChina

ShanghaiHQ

Divisionbycustomertype

Businesseswithdistinct

customermarketsmay

beorganizedbycustomer

divsion.Forexample,the

nfiancioBaniutlkist
 OceanofPDF.com

Matrix structure

Unlikeaconventionalcompanyhierarchyorganizedeitherby

functionordivision,amatrixcombinesthetwoapproachessothat

staffworkinfunctionalanddivisionalunitsandreporttotwobosses.

Howitworks

Abunsieshtautsesamxaisretupeotnfbegnis Matrix structure

whtiemoeraotdinuiafnlocintasurtlcuteAr.s

Inthisexample,anoilexplorationand

htebunsiesdevoetplm
is,aymakesenseotvaeylr

productoincompanyhasseveraoil -l

adovsinasurtlcuterotmecthangensibunsies

refiningprojectstomanage.Thematrix

conodintis—oferxamfpaiec,lompanysm
i anagnig

guardianoverseesthematrixandensures

sevaegrlaepeorcjstfarincolterxpandsgoblyal

thatitworksef.ficiently

andsigtlepiorduncstieveragloinAs.mxairt

gdirmaysatoruatsetmpoary—perhapsofrmedot

manageshoet-rmpeorjcst—andbecomepem
r anen.t

Thew
tochanisocfmmandniamxaicretaethe

gdSirea.tfpoatrlnganvicealotraufnocintal

,suchm
a,shntedam
nolagakernigtdercoitr

ahzonirneolathepeorcjm
tanageorafspciefci

bunsiensiebl,arndp,eorcj,tgoin.

Project

FOURBIGMATRIXORGANIZATIONS manager

Arcticdrilng

Eachofthefolowingcompanieshasbeencitedasa

modelformakingthematrixstructurework:

Procter&Gamble(P&G) ohelpitinTnovateand

respondfastertothemarket ,theconsumer-product

companyissegmentedintobabyandfemininecare,

,fbeaut
amilyycareandP&Gventures,healthcare,
 OceanofPDF.com

HOW COMPA NIES WO R K

CEO

Operations Marketing Financial

director director director

Undersea Marketing Finance

productionteam team team

 OceanofPDF.com

Network structure

Alsocalledavirtualorganizationorvirtualcorporation,anetwork

structureiscenteredonastreamlinedcompany
,withdigital

connectionslinkingittoexternal,independentbusinesses.

Howitworks Thevoaiurspeaistroefnwokremoeytlaorundhte

Thecompanyahtecenetohrfesurtcutesrpitped ogbleandaerconnec,tdbryhetneitTre.otgthey

backotbaucsfinocintshtaterseotnahilteypeof porvdiehtalesevcreisnededohftrenew
t okrot

bunsiesbenigopearetd—erseacrhanddevoeplmen,t .Thsytipeobufnoscniteasrotneuytncuiter

oefrxamnhpiet,lcaseoaeft.Achlnoglycompany sbiasedonhtedieahotfesom
aciledainew
tokrand

ohteufrnocintsaeroustoucredotexetnrasplsetai.cl shtieorefknownasanew
tokrenetpsrei.

NEEDTOKNOW

Network structure in practice

bAenulgies r e T m

Asmalflm
i productioncompanybasedinLosAngelesisoperatingom
fr a

nwbeatdoiecrtskd

studiospacewithtwoemployees—aproducerandanassistant .Foerach

ohpetoniosg;aztrni

proejct ,theproducerconnectswithoutsourcedtalentaroundtheworld,

baeurconalitadirtaocyf

andeveryonecollaboratestocreatethefinishedfilmThe
. producer

ezdiDalercnt Oogwranhizti

contractsandpaystheseexternalsuppliers.

orcntopfanswdneodaitnlf

deasiouwapnolfdar

VARIATON:MODULARSTRUCTURE

nIabusniesswithamodulasrtucturepar, tsofasnigleproductareoutsourced

(functionsorprocesses,notproducts,areoutsourcedinanetworkstructure).A

modularstructureisespecialysuitablefororganizationsproducingappliances,

computers,cars,andmechanicalconsumeroyogoods.
taisanTexampleofa

companywithamodularstructure,managinghundredsofexternalsuppliersto

produceitsfinishedvehicles.
 OceanofPDF.com

HOW COMPA NIES WO R K

Post-porduction

efectsin

Cophenhagen,

Denmark

Cinematographerin

London,UK

n
c
o
o
i

m
t

u
d

Film
o

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r

production

company
,Los
P

+
-

AngelesUSA
,

X =

Accounting

andfinance

inBoston,

UAS
 OceanofPDF.com

Team-bas ed

structure

Asitsnameimplies,ateam-basedorganization(TBO)ismadeup

entirelyofteams.Managersandstafffromdiferentdepartmentsjoin

toformteamshandlingspecificprojectsintheshortorlongterm.

Howitworks otsu,lchasaSclakn,dvdieo

nIaTBOeta,mserachdeoscins conefrncigsw
otfnaiuerc,ldnig

htorughbarnisotm
rnigandmuutal ZomandM
Totsecrfaims.

agermenatmongetammembesr Onesetpbeyondhtetamb-ased

arhtehtranorfmasenoir surtcutesraiHoalcarcy( seebox,

managemenm
t embseirunig girht ,a)nunconvenointyatpleof

odreorsm
f hteotphotfechnai ogranzoaintiwhcihteraer

ocfmmandans,iaortdinial nomanagesrandevenhteCEO

ogranziaotnasurtlcuter. onw
l,aieqrlunshigespower

Communcaoitneslisofm
rnail empolyesotgs-efolvenrhtorugh

TBOoset,fncaeirdouutnsig erguaclrommetimenitgs,

mesagnigappsandsom
acil edai whcihteyogranzeihtemsvels.

aswasleoniealcboloarint

Team-based hierarchy

WhileTBOsstilhaveaCEO,litleotherhiearceam
hyexilestader
sT. sare

partoftheteamratherthanaboveitnachainofcommand.Atisbest ,a

team-basedmodelfostersacultureoftrust ,soindividualstakeprideintheir

workandresponsibiltyforcarryingouttaskswell,ontime,andonbudget .
 OceanofPDF.com

HOW COMPA NIES WO R K

HOLACRACY
—BREAKINGBOUNDARIES

InaHol,stacracy
f aregroupedintoteamsthatsettheirownolres

andgoalsandchoosetheirownleaders.Theideaisthatifpowerand

responsibilityareshared,employeeswilgivetheirverybest .In2014,theLas

g eV as–basedonlineshoeandclothingshopZapposadoptedthemodelfor

its1,500staf.Theterm“Holacrac y ” isatrademarkofHolacracyOne,the

companyspearheadingtheadoptionofthemanagementsystem.Itfolows

thesameprincipleasaflatlatticebuttakestheideaonestepfurtherby

presentingacomprehensivemanagementstructurewithclearprocessesfor

internaloperationsandgovernance.

TRADITIONAL —ASTRUHCOTALUCRACOEYF

HEIRARCHY SELF-MANAGEDTEAMS

Decsoins

handed

down

ormfotp

Decsoin

maknigby

commeti
 OceanofPDF.com

Human

resources

Thehumanresources(HR)departmentisresponsibleforallpoliciesand

processesrelatingtothepeopleemployedbyabusiness.Tohelpthe

businessachieveitsgoals,HRhastomakesureitemploysadiversityof

peoplewiththerightskils,irrespectiveoftheirgender
,race,orfaith.It

musttreatthemconsistentlyand,provi
fairlydingaframeworktolook

aftertheirwell-being,supplytraining,andfostertheirprogress.

HR framework

Thestartingpoinftoranydecision

inanorganizationisitsbusiness

goals.HRsupportsthedeliveryof

thesegoalsbyensuringthatthere

isastafingstrategytosupport

thebusines,anypisplHR
caaln.lyT

frameworksetsoutapeople

,inscltrautedigyngthe

competenciesofthepeoplewho

bestsuitheorganization.Thisis

thenimplementedinarangeof

SELECTION SUCCESSION

areas,fromrecruitmentand

AND ATNDALENT
 OceanofPDF.com

HOW COMPA NIES WO R K

36 %

mopaertboyifl asicheivedby

themost ethnciayl and cutlrayl

dvierse companeis.

DIVERSITYAND

REWARDASND OYM
LEPEE

NICLUSOIN

BENEFTIS ENGAGEMENT
 OceanofPDF.com

The human

resources cycle

Fromthemomentacompanystartstorecruitanemployeetothe

timethatpersonleavesthecompany
,theindividualisinacycle

thatismanagedbythehumanresources(HR)department.

Howitworks peopaeln,d’bIduhltiebunsiegsirhbtackagan”i.

Peopelaeragscianfictostanyogr anization and TheHRdepam

trenshtierotensuerhtahtgeirht

ogfreavtaule—both those who work on the premises peopealenrihtgeirheotslohtahtecompanycan

and those who work remotely

.ManyCEOsaktlbout dviehtrlebunsiesaretgyandmanisti

satfshtem
ri om
sitpoatrnbtusiness assea,tnd comvpietitdgTe.hecompeyxtlhoifebunsies

nidsHutiaslrtenyrFodraofm
ucaonuatyslkadei“:Y unliefnceshtesatgensihteHRcybec,luhtebacsi

myafceotbisr,unrupmybdunligbs,ugtviememy em
l enstaerhtesame.

NATIONAL

CV

EMPLOYMENTLAWS

Employmentpracticeisregulated

bylegislationcoveringeverything

fromgenderandracial

Recruit

discriminationtotime-off

entitlementanddismissal.

Lawsthatonceonlyapplied

toful-timestaffarebeing

increasinglyextendedtopart-time

workersandthoseoncontacts.
r
 OceanofPDF.com

HOW COMPA NIES WO R K

Anoeniratnporgarm

expanlhitseneworealnd

Reward

niortducehtsetamH.R

,tax,vgnbaeiogsfrnpay

andbesunsc,tehiaflsve,

nisuarnacne,dpenosins.

stegrat stesomcnypaheT

andhelpsindividuals

m
i proveperformance

sotheycontributeto

businessresultsandget

themostoutoftheirjob.

Thebusinesshasprocesses

tohelppeopleimprovetheir

Develop

skils,competencies,and

knowledgethroughformal

orinformallearning,bothon

andoffthejob.
 OceanofPDF.com

Recruitment and

selection

Placingtherightpersonintherightjobisvitalforthesuccessof

theorganization—thisistheprocessofrecruitmentandselection.

Technologyischangingtraditionalhiringpathways.

Howitworks
stnoihtfeogsnrazi’tuicture.

Humanersoucresandiel Thsniofm
r aoitnofm
r shtebasi

managesrusuyw
laokrotgehteotr oafbjdespocinrtandpesron

ogranzeihteporcesoerfcurm
tient spcoaeinftTci.heseacrhcanhten

andseolcitnR.ecurm
tienstar bTnegh.iecompasnoy’wnwebetsi,

whtiecompanydieynfigta ercurm
tienatgeneciso,acm
il edai,

vacancy—htenedofsromeoneot new
t oknrigetcsoi,mmoebjacril

doajbandnpigulotgehter boadras,ndadvseitrmenstihe

niofm
r aoitnabouhtexacntauter persaeraotdiniawl aysof

hotfeoralndhtesi,tlasikbli arntcighteaetnoitopfeopel

andexpeinrcerquerdiotd.oti , oudstiehtoedoagryanzoaniTt.

Aspecsotcondsineiurcldehte apcpaoiltnofm
r saerytpycail

s’bojpuprosaets,kserquerdia,nd gnyildr,etgncteitrm
rbluintosd

hteouptustodrviealrbeslhotfe auotmaceritsponsesandsnoitrg

objhdolearswaslehowhteorl ocafndiaetds.elati

Jobdescriptionand
 OceanofPDF.com

HOW COMPA NIES WO R K

Personal

Internalsearch

recommendation

Lookingatinternal

Somecompanies

resourcesfirstcreates
Externalsearch

encourageexisting

opportunitiesforcareer

Incr,ecompani
asingly esand

employeestoni troduce

developmentand

candidatesuseprofesional

friendsascandidates.

progresoi n,m
i proving

networkingsites,suchas

employeeengagement

LinkedIn,andsocialmedia,

andretention.

suchacebook
asF. witorerT

Externalcandidatesdiversify

theworkforcebutcostmore

toattract .

Applications

Therésuméisthemostimportant

document,oftenpairedwitha

cover
.Compani
elter esmay

useanapplicationform

instead.
 OceanofPDF.com

Evaluating staff

Forabusinesstoachieveitsgoals,itneedsto

haveaprocessthatmeasuresthecontributionand

performanceofeachindividualagainstthosegoals.

Howitworks

Thewayniwhciatsksaerdonesbiecomnigas

mi poatrnatswhatsksaerdonea,sogranzoaints

ercognzeihtemi poatrnceocefrnaitghtgeirht

cutlerotenabelwokrepsr’eofrmanceF.oarny

,efvcitevaucloam
itnohtfpeapneoyfrmance

oefmpoyleshoudlbeasrtegcaindami edat

ensunirghtemaxmiumporduynvtocidtfviusa,l

etamasn,dhteogranzoaintasawheo.l

Traditional performance-

management cycle

fPerormancemanagementisanongoing,

contniuousproceMany
s. companiesuse

3“60-degreefedbackot”coelnciotfrmaoitn

abouatnempseropflrmye’anceanonymousyl

orfmarngeofpeoplniec,uldinghteibos
r s,

coelaguceus,sotmearns,dm
satf embers.

AWIN-WINSITU
IATON

Evaluatingperformanceisgoodforboth
 OceanofPDF.com

HOW COMPA NIES WO R K

UNCONSCIOUSBIAS

Companieshouldbeawareofhteroelunconscoiusbiascan

playniperofrmanceappraisAn
a.lsappr’resaisubconscoius

preujdiceabout
s empl, o,age,yeresclac’segender
,xualtyi

ordisabityilcancausetaelntednidivdiualstorepeatedlybedenied

promoitnohravetheirattuidequesotined.Conduct

unconscoiubsaritsninigotmakesatmor
f eawareofthesiue

andrequireapprasierstouseobjectviecrteiraitodientyfiojb

competenceiand
s otujyfshtieiappr
r asiaclorewisthevdience.

Discussion

Ongoingcommunicationon

standardsofworkandbehavior

tom
i proveworkingrelationships

Coaching

Discussionofperformanceissues

andwaystotacklechallenges

3
 OceanofPDF.com

Motivation

and rewards

Peopleworkformoney
,buttheyarealsomotivatedbyotherfactors,

suchasdoingagoodjobandbeingvalued.Nonfinancialrewards

driveday-to-daymotivationmorestronglythanpayandbenefits.

Howitworks exetnroathleacutawl okar,ndohtesrconhotrle

nIhtepatns,tgbeiplayandbenstw
eiferhtekey amoubdnisruot,inan,dmitnigE.mpoylesrnow

mvoiatnotasfelrmpoyleTs.henseiafnacil ercognzeihtaw
tehlnxicrstenvietsaercyalr

erwadrsaertm
r ed“enxircts”ibecausehteyaer mi poantricpts(,isycholgecra)iwl adrsaercur.acli

Understanding motivation in the workplace

Happystafworkwell,andjobsatisfactioncomesom
fr subtlefeel-goodfactors

asmuchasapaycheck.Employeeswhoenjoytheirworktendtosyta—job

satisfactionmakesforlowerstaftu.rnover

Extrinsic

iciPolesimplemented

bythecompany:
 OceanofPDF.com

HOW COMPA NIES WO R K

WHYPEOPLEDOTASKS

15

of empolyes

andgetabonus.

aroundthewordl

are ufyclommetid

CSINRITXE
orgetintrouble.

totheojribs.

g.nhietmosdodoteltra Y o u

wercinsirntingiredastoFs

Businessesthataresuccessfulengendertrustand

thereforehaveemployeeswhoarepassionate

aboutwhattheydo.Allthesefactorscontribute:

Purposeorf organizationandindividual

Intrinsic

oniogaztrnoirfnisvieCarl

Fenilgsthatanindividualhas:

aeochvtistUifnwdauvtnoidseahlrgfier

puhratoes
❯

Puproes Asenseof

dnuvidalorfanexpdigsaoetcCalr
beingabletoaccomplish

somethingofvalue

Recognition

Cehcoi Clearownership
❯

Cneoudfinbtuacks

andfeelingresponsible

Onegoiagement
 OceanofPDF.com

Leadership strategy

and styles

Topd-ownleadership,inwhichmanagersgiveorders,isnotalways

thebestwaytogetresults.Anumberofdiferentleadershipstyles

havebeenidentifiedbybusinessexperts.

Howitworks nI20of7er,xampbe,lunsies

Eveyrladesairnidviuawlhti auhtcaosFEm
rilzahtnodlYvonne

htorew
i nappo,ravcehHr.owever Randeldeveolpedaeldesrhpi

hteyeam
sr, anagemengtuurshave mxbiarsedtonLewshtn’ieoeirs,

diednfkiteyaldesrhpiseytlhat whcishowshtebeseytoluse

canbeusedotacheive nianygvienutsoiantr,gnigorfm

efdrniertsdut,elpendnigonhte auotcar(intp-eolaweualfrde)r

enovrnimeM
n.tanyarfmewokrsaer otconsensuds(eoscinserached

basedonhtedieasopfsychoglsti bygenearlgermeTn.)utryl

KuLtrewnw
i, hodeveolpedhsi nisoparintealdesrencouarge

hteonisrhte1930swhtier peopeotlbeivlenihtemsvelso

moaseyrjtla:uotdcar,ietmocar,it htahteyacheiversutbleyond

andasliearzfni-(onietfrence.) evenhtorew
i nexpeocantis.

TRANSFORMATIONALLEADERSHIP

Whilediferentstylescansuitdiferentsituations,transformationalleadership,

inwhichleadersandtheirfolowersraiseoneanothertohigherlevelsofintegrity

andmotivation,wasidentifiedbyguruJamesMacGregorBurnsasthemost

effective.Thishasbeendevelopedbyothers,including

industrialpsychologistBernardBass,wholisted

thequalitiesofatransformational.leader

Strthsie
 OceanofPDF.com

HOW COMPA NIES WO R K

When to use which leadership style

Athree-yearstudyof3,000managersledpsychologist peoplefeelabouttheirwork.Themosteffectiveleaders

DanielGolemantoidentifysixdistinctivestylesof masteranumberofstylesandusethemappro,priately

leadership.Eachstylehasasignificantimpactonhow accordingtothesituation.

Style Whentouse

P“eopelcome”beforetask. Useintimesofstress,when
Affilative

onlam
eingotsietaesruconF teammatesneedtorecover

bondswithniateamanda fromtrauma,orwhenthe

senseofbelongingwithni teamneedstorebuildtrust .

anorganizatoin.

Usetohelpteammatesbuild

” “rythTis.
Coaching

lastingpersonalstrengths

Helpspeoplefindtheir

thatmakethemmore

strengthsandweaknesses,

successful.

linkingthesetocareer

aspirationsandaction.

“Dowhat
” Itelyou.

Onlyuseintimesof
Commanding/

Demandsimmediate

crisortocontolr

coercvie

compliance,without

problememployee

discussionornegotiation.

whenallelsefails.

Usewhenitsnecessaryfor
Democratic
“Whatdoyouthink?”

theteamtobuyintoorhave
Aimstobuildconsensus

ownershipofadecision,
throughparticipation.
 OceanofPDF.com

Leadership for

team building

Justasgeneralshavetogetthebestfromtheirtroops,sobusiness

leadersmustmakethemostoftheirteams.Thekeyisensuring

thatindividualsworktogethertoachieveacommongoal.

Howitworks

Formsatesmensu,chasofm
r esBrhitpirmiremnseitr ohftepreopTe.lheyhaveapasoinhtastweps

WnisotnCohtF,ualcrheibokexecuvietSheyrl peopelaongwhtiemht;eylanrofmmsatikes

Sandbegr,eraltdesrcognzeihtaotcheive andaerperpaerdotchangecousreoatfcevnoilg

aolngetm
-r ghota,elymusntotnylusehtoerw
in cruimsatnceM
s.uchacademcw
i okrhasbendone

caepistbaiublsatoilmaxmizeihtecombniedesrtnght otsudyhtseatrindasretgeisoufchealdesr.

How leaders

inspire their teams

Focusingongoal

❯
AcademicCarlLarsonandorganizational

anedarclniDgnoeiaslf

effectivenessexpertFrankLaFsto
way
onaliatrpnis

conductedathree-yearstudyofmore
❯

Heaptm
cheslmemesber

than75diverseteams.Theyidentifedsix

gohtablhecwuoitrnyt

characteristicsofleadershipthatsteera

scitipoaylpDlnotes

teamtowardoptimumresults.

Encouraging

collaboration

ownlAicupsdelni

“ Leadershpi si
 OceanofPDF.com

HOW COMPA NIES WO R K

BUILDINGANEFFECTIVETEAM

Intheirbook TheWieams
sdomofT (1993), Selectmembersofsrand
kli potentai,l

JonKatzenbachandDouglasSmithmake not. personaltyi

adistinctionbetweenteamsandordinary
❯

Fooncusaefwmi mediatetasksandgoals

groupsofpeoplewhoworkto.gether

.dnobotmaet ehtplehot gninigebeht ta

Theydefineateamas“asmallnumber

Seboundar
t eiand
s behavoiranor
l ms.

ofpeoplewithcomplementaryskilswho

Stmi ulatetheteamregulayrlwith

arecommitedtoacommonpurpose,

newniofrmaoitnen,couragingopen

setofperformancegoals,andapproach

discusoinsandacvtieproblemsovlnig.

forwhichtheyholdthemselvesmutually

account
”They
ablef.oundthatleaderswho
Ensurethattheteamspendsoltsofm
ti e

managetobuildsuccessfulteamstendto:
bot, hniand
togetouthersdiework.

Providingknow-how

Steingpriorities

❯
 OceanofPDF.com

Employee relations

and communications

Thrivingorganizationsrecognizetheimportanceofusingpeople’s

ideasandenergytoprovideacompetitiveedge,whilemanagersare

eagertogain,retain,andbuildemployeecommitment.

Howitworks evitcaresw
ye,agtdn-aeltsnuim
bosde

secruorsdeH)Rhgm
nsruyao(hbm
W
ntaeh .gnicner,seonedhfeirnhucvsoiatphIcvs

snonoi,itreahtgyiconleuhidnm
wlareotifpn evi t.cgnesfritmokrefknearyW
fsucoa
w

.deytlagnscoisiatestarecihnpmotim
rnaRsicu noitasrtoebn,ae,nskrlciahtonlcduolsnSatcoi

ecaf-ogntsiky-etncs,lauhedfntm
arjuo
ow l,elgdeyirenw
ohatlpnuim
tosbkeya

nlouifm
stsarelcgonim
aecouim
fnsutcoar ,sgnesignum
ltarhitom
cdouem
nst.fam
cies

dnassrtesnpilreiphdaolsnuetagbph

nosriedg.tnausboertoiln,arlustnocerapIrtci t

Commitment

The art of communication

Inthisexamplea,companyisestablishingweekly

employeeforumstofaciiltatecommunicationand

buildtrusthroughoutthebus
ostrineesngts.Then

employeeawarenessengagement,
, andcommitment

totheidea,variousmediaareused,fromemailto

webinarsanddiscussion.Managersincreasinglyfocus

oncolalborationratherthanjustimpartinformation.

Engagementand

involvement
 OceanofPDF.com

HOW COMPA NIES WO R K

CASESTUDY

JohnLewis

ntraPcopuhlesnric
TheJohnLewischainofdepartment Madueopf

storesintheUKisfamousforits ormfacrnsepohrtadesctel58

uniqueemployee-ownedstructure,in evm
srscoehlutncial,nsbeuis

whicheveryworkerisapartner aeon.Trcsdhteia yem

arites

inthebusiness.Ithasanumberof wcanhciho,etuolntceiprotr

employee-communicationpolicies: . ermhcaietove

❯ ❯

etGteza umorFs
Em
serteosncaplydes embdyectopEyels

motyanleagctrdmihortuegnht ourfm,sbheiayrts-oan

Mweg.atzynhepskalugisebrl hetectlefrotvesrvespriesant

lalorfeghatzenpsroinhresti cipsfeacniihpntesarwvoifs

oertad. ,obrunaisera. ocmoneg,im

rytuni

RENI FORCEAND

NI TERNALZIE

Regaufcerlo-t-

afceupdaets

showempolyes

AT S E BLSIHPRACTCIE

howofurmhasve

Acompanyw-die

madeadfreince.

deto-saifhyows

empolyehsow

ofurmhsave

changedworknig

parceits.

TEPOSI
SM
TIUTLAIVE

PERCEPTOIN

Anispoaritnseaml niar

ularhstebiensteif

ohtefnewofurms.
 OceanofPDF.com

Project management

Besidesday-to-dayactivities,abusinessmayhaveprojects—one-of,

specificpiecesofwork.Projectsneedtobewellmanagedsotheydeliver

thebenefitsthattheyweredesignedtoachieve,ontimeandonbudget.

Howitworks nivolesnotnylovesrenig

Theporcesopfeorcjm
t anagement htepeopelwoknrigotwadrhte

atkesacompelxporejcftmsatr pacuitralorbevjcitebuatsol

nsotiherIfq.uersiaefdrnit managnightsekirsc,heduel,

seoktfnowedlgex,peinrcaen,d oearinltshpnisd,viualnd

sorlfsm
kiamaniesrtamopeoarint etamniparun,tgeosatfkehdolesr

becausehtegosaleutphaveotbe whtiavesetdnietrnstihe

acheivedwhtnidneifm
diolatins. peoarcjn,tndiafneracsiloucres.

Theseconasnrtiucldescope, Eevfcietpeorcjm
t anagemensit

,andbudgAe.tm
pieotrcjqey,utial niceransigyvleiwedasasrtegci

sep85.
etammgihniutcldepeopeorflm competnce( o)frany

efdrniotgranzoaintdsv,iesre bunsiesbecausetinabeslhte

dnspciealsn,dmpoeiutcloaints. noirtduocintonfewporduncst,ew

Sucesupfloerjcm
t anagement mehtoda.sn,dnewetchnogly

Steps in project management

Therearemanyworkableprojectmanagementsystems,usingvariousdefinitons

forthekeystagesal,lofwhichareencompassedinfivemainelements.
 OceanofPDF.com

HOW COMPA NIES WO R K

HURDLESANDHOWTOOVERCOMETHEM

Everyprojectocmesupagainstchallenges.Thesearesomeofthecommonones

andthewaysthateffectivemanagementcankeeptheprojectontrack.

Obstacle Projectmanagment

❯
Projectisnot

phatscaliM
wtmnoaicefrkdtoapelut

onschedule

eacnhtqdousitne.gluis

orisrunning

,ksirRewym
rviwfndgaeniodktr

shortoftime

e.sgaitrsngianm
tdit,seirbira

onisvitisanevrcidhtaerocpjwerRive

Unclear

ve.ianoectdbj

visionorlack

ofclarity
yevram
ostevonulIendantesrds

nwavog.idkolrfnalitsecdrsi

Scopecreep M
chanotgsrafienqrasugets

—project ve.ioectbjectaopnrdjecasnsbeuis

changesonce

underway
 OceanofPDF.com

Negotiating strategy

Skilfulnegotiationisvitalinbusinesswhentwoormoresideshave

diferentviewpoints,andeachonewantstopressfortheirownadvantage.

Theidealoutcomeisacompromisethatdeliversthebestresultsforboth.

Howitworks katslcanendniseatm
l abet,adnefiglasn,doslof

Lkiemanyaspecstobfunsiesn,egoaintsaiporces bunsiesB.enigabeotlnegaoesitvblidnulig

noitdfamuytalcepatbesluoinlBt.eofrany osrtngwoknrigoaerintlshpisd;vnierlgsusantiabe,l

dsciusoine,achpaytrmusw
t okrotundesratndhte wc-oelndsierdsoulintasrh(tehtranashetom
-r

s’rhetonietrstanddedcieonasrtegyo;htew
rsei, x;)iafndavdoniguftercsto.inlf

Reaching agreement

Any,frostrmategyawagenegotiationbetweenatradeunionandemployertoa

salesnegotiationbetweenacustomerands,depends
upplier ontherelationship

betweenthetwopartiesGood
. negotiationshouldleaveeachpartyfeeling

satisfiedwiththeoutcomeofthediscussionandreadytodobusinessagain.

Prepareandplan Defineground Propose,cl,arify

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 OceanofPDF.com

HOW COMPA NIES WO R K

65

afce-ot-afce

of

communciaotn nonverba.l

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Agree,close,

andimplement

Conucdlwahenti

agermsihteant
 OceanofPDF.com

Flexible working

Businessesaretakingamoreflexibleapproachtohowandwheretheir

staffwork.FasterInternetconnections,cloudcomputing,andbetterapps

havemadeitpossibleforworkerstocollaborateeffectivelyatadistance,

andmanycompaniesarerecognizingthebenefitsofallowingthemto

doso.Aresharedworkspacesbecomingathingofthepast?

Howitworks scarmbedlotadapothenewyterodiaflonigwhat

Advancensicommuncoaintsetchnoglyhavemade hteyusedotdonipesronovehtrenIetnrevativdieo

teiaeosfbirunsieseostw
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 OceanofPDF.com

HOW COMPA NIES WO R K

Gonigremotew
: hatyouneed

Maximizingthebenefitsandminimizingtheproblemsofflexibleworkingrequiresthe

rightsetup.Thismeansnotonlymakingsurethattheappropriatetoolsandtechnology

areinplaceforallstafmembers,butalsoadjustingworkpracticesanddevelopingskils.

Tools Skills

Wkorspace Communicationskils

Wherevertheychoosetodotheirjob,stafneed Worknigremotelypreventspeoplefrompickingup

asuitablespacetowork:somewherewithgood on—ordisplaying—manyofthenonverbalcuesthat

lighting,freefromexcessivedistractions,and weusewhencommunicating,soextraeffortis

furnishedwithacomfortabledeskand. chair requiredtocommunicate. clearly

Hardware People-managementskils

Minimumrequirementsarealaptopandareliable Fohtresamereason,interpersonalskilsarealso

Internetconnection.Anergonomicwirelesmouse, important .Reapingthebenefitsofflexibleworking

goodheadphones,awebcam,amicrophone,a meanstakingtimetounderstandpeopl
sindiev’ idual

footrest,andadocumentholdercanbehandyextras. circumstanceskeep
: inregularcontact ,listen,carefuly

showempat
,andofhyfersupportifneeded.

Communicationtools

ceT hnologyskils

Alongsideemail,video-callplatforms,suchas

ZoomandSkype,areindispensableforproviding Peoplemustknowhowtousethetechnologythat

face-to-facecontact ,whileinstant-messagingapps, theyneedtoworkremotelytodotheirjobs

suchasSlack,helppeopleaskquestionsandshare pr.Under
operyl standinghowtoprotectdata

documentsOt. hercolalborationtools,including topreventsecurityleaksisal.sokey

onlinewhiteboardsandprojectmanagement

apps,arealsouseful.
Time-managementskils
OceanofPDF.com

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 OceanofPDF.com

WOH

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 OceanofPDF.com

Financial

reporting

Financialreportsareeverywhere:abilatarestaurantisafinancialreport,as

aresalesreceiptsandbankstatements.Inbusiness,however
,financialreporting

referstothefinancialstatementsthatmakeupacompany’sannualreportand

accounts.Compiledbyaccountants,theyprovideinvestorsandlenderswith

niofrmatointoasesacompanys’proftiabtilyandenabelcompanymanagers,

thegovernment,taxauthorities,andotherstakeholderstoevaluatethebusiness.

pyTes of financial reports

Financialreportstakemanyformsandcan

Theannualreport
contaniavastamountofinformationabouta

companysfinances,
’ work,corebusni essvalues,

Financialstatementsusuallyappearinacompanys ’

performance,employeesand
, compliancewith

annualreportandsumupitsfinancialactivitesina

local,logistical,domestic,andinternational

standardziedwayfordiferentaudiencestointerpret

laws.Themostimportantfinancialreport ,

quicklyand.Thes
clearelystatementstakediverseforms,

orstatement ,isusuallytheannualreport—

andbeingabletodeconstructthemisavitalskilfor

essentialyacollectionofmany,smal
otherler

accountantsandbusinesspeople,makingitsimple

reports—whichsumsuphowthebusinesshas

toseehowwellabusinessisperformingand. why

performedinthel.aTher
styeareisamultiude

oflawsr,egulationsand
, guidelinesgoverning

whatshouldbeputintothisreport .
 OceanofPDF.com

HOW FINAN

TYPESOFACCOUNTING

Therearesevenwidelyrecognizedtypesofaccounting:

nFianalci caDbwayouprn;ast

and,osterdcin,osveturibsdy

management. 1pS0e.–129.
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 OceanofPDF.com

The accounting cycle

Theaccountingcycleisastep-by-stepprocessbookkeepersuseto

record,organize,andclassifyacompany’sfinancialtransactions.

Ithelpskeepallaccountinguniformandeliminatemistakes.

Howitworks aneynlghm
tiotfe—hstkinownasanacounitg

Thecyecw
l okrsasamehtodofgranzigwokw
rlf poedir—an.dusauysltalm,oaryoenahrtq,uaretr

niotacyaihclaniosetfpshtaterdegsinedeotcrlf Acounshtadteawlhtiervenuesandexpenseserutnr

ht,aenwddaeybasthm
east,vem
oneoyvedniand otzeorahte,wnedhaloecifaocnuhianfstyaceliar

ouoatfbunsietspI.orgerseshtorughegihefdrtnit shownigeaist,isbelasit,ndcapactliyroveorfm

setpnihst,esameodrerachmitea,ndersatrson . yeaotryear

atshinashifedT.hecyeclanbebasedon

The eight-step cycle

Theprocessesshownhereare

repeatedinthesamewayforevery

accountingperiod.Allbusinesses

gothroughdiferentphases,andthe

accountni gcycleworksbyreflecting

that.Thefinancialstatement ,which

ispreparedtowardtheendofeach

cycle,ishelpfulinshowinghow

stronglythebusinesshasperformed

duringeachperiodoftime.

BOOKKEEPINGAND
newceyl

ACCOUNTING

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Aheotd
 OceanofPDF.com

HOW FINAN

Positng

Journalentries

Journalentriesarethen

Accountantsthenanalyzethe

transferedtothegeneral

transactionandcreatearecord

ledger—adigitalrecordlogging

ofit—ajournalentry—inthe

altlhecompanysaccount
’ s.

company’
saccountingsystem.

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 OceanofPDF.com

Financial statements

Theformalrecordsofabusiness’sfinancialactivitiesarepresentedas

financialstatements.Mostjurisdictionsrequireaccurateinformation

byalw,andfinancialdirectorsandauditorsareliableforitscontents.

Howitworks sohteynedotbededaltibusatolcomperhenbesil

nFaeistm
nlciensutmmzeaicrompansy’ othegeneparluTc.bihlesatemenstaerusuyla

,w
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shtodlefbaitnusepis’erofrmanceandchangesot whtndi-ephtacounstandofntoetsogvied.ealti

nstiafnapcilontsTi.heyaerami edasteveaprleaistr, Le,bgeuraqltcuerom

iunsetmnstvaursbteyxac.t

What’s in an annual report

Thecontentspageshowswheretofindthebigthreestatements—thebalancesheet ,cash-flow

statement ,andprofit-and-losstatement—andsofterinformation,suchasstoriesaboutstafand

opinionsofotherstakeholders.Theannualreportprovidesanopportunitytoimpressshareholders

andlendersaswellasfulfiegalreportingobligations.Itwilcontainall,ormost ,ofthefolowing.

t r o
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focusingonthepositivesand

explaininganynegativeparts

ofanannualreportforthe

benefitofshareholders.

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 OceanofPDF.com

HOW FINAN

CONSOLITED
DA FINANCIALEATST
MENTS

Inaneraofglobalization,largecorporationsarenowcommonlymadeupof

multiplecompanies.Companiesownedbyaparentcompanyareknownas

subsidiariesandcontinuetomaintaintheirownaccountingrecords,butthe

parentcompanyproducesaconsolidatedfinancialstatementthatshowsthe

financialoperationsofbothcompanies.Dependinsgonhtuejsdrioctn’

reporntigrequirement
if,ashowev
,company
er ownsaminoritystakenia

not

es,tchonen
dcompany
thelaterwil beincludedintheformer’
s

consolidatedfinancialstatement .

n
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m
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commonacrossallindustries.
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u

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 OceanofPDF.com

F I N A N C I A L STATE M E N T S

Deconstructinga

ATXES

f inancialstatement

Thepatonrifdoslacounsthows

Thepercentageofbusinesstaxestakenbygovernmentsvariesom
fr country

ervenuecosa,ntdexpenses—

to,but
ocuntry
thegenerictypesremainsimilar :

howmuchmoneyhtebunsies

axestetcDri nciorstiopnrfylectrdeivloeam
r aend

makes—ovearnacounitgpoeidr.

puchoerasesalsotngiatnoceaxm
lriutdaexnstlcdis

Thebalnceshesthowswhat

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i ohtrahtemite

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cotevanetlroractfagohmard,usomlfhpwtenasiokgr

equyt—
i ualseoufgrlaugnig

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bunsieshehatTl.hecaoshlw
f-

satemensthowshtemovement

axesGtenr comynegcltnirasdmientaorfaenrd .

ocfashwhtniabunsies—sti

ngeiacsroprwyavelayoifausetdbyhilgenalTrhey

o,anlg.Hwohtwieever qiuydtli

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perofrmancneoi,ftersoti

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Case study: the details

Sustainableinvestment

Financialstatementsarepresentedaspartofthe
Theutiltycompanysinvest’ mentin

annualreport ,whichalsopublishescasestudies,
sustainabilityincludesmandatoryexpenditure

quotations,statistics,andprofilesofcustomers,
andextradiscretionaryexpenditure.

suppliers,employees,anddirectors.Thenotes,

oftenrunningto20pagesorso,containtablesand
 OceanofPDF.com

HOW FINAN

BOARDOFDIRECTORS

NEEDTOKNOW

Muchofwhatmightbeconsideredpersonalinformationaboutdirectorsofpublic

Monopoyl wnouintcahSi
companiesisinthepublicdomain.Itisusuallyalegalobligationtodisclose:

aofuensrptisjlshiter

oserctdivNeeixcuam
tofes

ce;vierspordaurctliptar

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Noseacntrmdovinefx-iceust

com
amaphwntoyniopyol

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conu,asmwsoedrulowlytqiual

Shaerhodnilg

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om
Reaintrune Monpdeyai

opvreciversaowrkodrfied—hte

mpay;omerftnuicyldaneicf

obhnspeio.artnrues

Charitabledonations

Companiesboastoftheirphilanthropy

intheannualreport ,detailnghow

muchtheyhavegivenawayandhow

ithashelped.Theymaysupport

charitesrelevanttothenatureof
 OceanofPDF.com

F I N A N C I A L STATE M E N T S

Financialstatementsforusers
opeoarintsandepcFiso.hltsreiasnoinaf,acil

Themanyiafnsacteilmenstuicldednihteannual satemenstaeruseoutfalwdiearngeosatfkehdolesr,

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niafnadcilat,ndnoifm
roaintabouctompaneis’ bankasn,dhtegeneparluc.bil

Who reads what

Diferentstakeholdersareinterestedindiferentpartsofthe

annualreview.Customersofaservicepr,forviindsterance,

maylookatthesectiononcustomersandocmmuni
,whilety

potentialendersgotothefinancialstatements.

Stakeholder Importantparts

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 OceanofPDF.com

HOW FINAN

UNDERST
ANDINGREVIEWJARGON

Anannualreviewincludesessentialinformationaboutthefinancialhealthofthebusiness,suchas:

nam
hvetibyaxotnfucoitenmrdgiavfdbeitysaguemrtispAfceangrt sit.I
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returnoncapital

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grertelomrfohetninAghswiAtaeibnAsrdge,visgicom
ahatnpgainctdy,i

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saeranDCdgm
rest.iesnt .

Stakeholder Importantparts Whyimportant?

A ❯
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 OceanofPDF.com

Financial

accounting

Acompany’
sfinancialaccountscl,quanti
assi,and
fyfrecord
y itstransactions.

Theyareextremelyusefulforpeopleoutsidethebusiness,suchascreditorsand

potentialinvestors,aswellasthosecurrentlyinvolvedwithmakinginvestment

decisions.Forthisreason,theaccountsshouldbeconciseandclearlypresentthe

timingandcertaintyoffuturecashflows,sothatpeoplelookingatthecompany

candecidewhetherornottoinvestin,lendmoneyto,ordobusinesswithit.

Key elements

Theprofti-and-ol saccount,

balancesheet ,andcash-

flowstatementsarethe

mostimportantfinancial

statementsinanannual
Accounting Profit-and-loss

ervwi ,supplemented
standards statement

bytherespor
notte’s.

Generallyaccepted Showshowmuch

o T understandthese

antsdenpzsarcli moneyacompany

statements,aknowledge

practiceworldwideto ismakingandis

ofaccountingprinciples,
ensureaccuracyand especialyusefulfor

depreciation,amortization,
preventfraud. potentialinvestors

anddepletionisvital. Seepp.112–113 . andstakeholders.

Accountantsalsoneed Seepp.114–115
❯

neoIrtinatl
 OceanofPDF.com

HOW FINAN

AUDITING

Theaccountsofpubliccompaniesare

givenunbiasedscrutinybyexternal

74

accountantstoverifythattheyare

accurateand
.Thiclseiarsalegal

requirementinmostcountries,

designedtoensuremarket

billion
confidenceinthebusiness

worldandtransparency

the by
otvatuloelst

incorporatefinance.A

companymayalsohave

sharehodlernisthe
2001

aninternalauditprocess,

whichmeansthatits

Enorancounntigscandal

accountsarechecked

beforebeingsubmited

toanexternalaudi
. tor

Cash-flow Environmental Depreciation

statement accounting
Accountsforthe

decreaseinvalue

Revealsaocmpanys ’ Accountsformyriad

overtimeelbofignta

liquiditybytracking environmentalrules

ni sfixteedsasodrer

theflowofcash— andregulationsthat

choptesardt

moneyorshort-term ot oblsegieincomap

rhetoiverstasof

investments—inand ht etagi tmieimpactof

e.feconiolmci

outofthecompany
. businessactivities.

Seepp.124–127.

Seepp.120–121 . Seepp.122–123.
 OceanofPDF.com

Profit-and-loss

statement

Aprofit-and-lossstatementisafinancialstatementthatshowsall

revenues,costs,andexpensesduringanaccountingperiod.Itisalso

knownasanincomestatementoranincomeandexpensestatement.

Howitworks patboerihftlecompanys.Tihesatemenutsuyla

Thepuprosehotfeap-ntoridfsl-atemensotishow wokrsbyshownigervenuesandganm
is,niusexpenses

htyetopaifbrliunsiesdunirgagvienpoeidr. andosleorsfmbunsiesiavt,sciw
taslhete

Aonlgwhtiecaosw
hlf-satemenatndhtebanlce sealndpucrhaseoafseBst.unsieseshtaterseol

shstehi,etmom
sitpoatrniaftnasctielmenhtat porpeoitrshpisoprantresrhpisaergenyealnrot

abunsiesporduceast,ihownsivesotrhow erquerdiotsubmap-tnoirdfsl-atemenst.

How to read a profit-and-loss statement

Por-atinfdo-lastemencsotmmounlysritalehtneifancpaileorfrmanceoabfunsies

ov.Teaphraeckirtueam
lryp,oyeircoaernosiqhtof,urmaertaoitnarehtgeifureofsr

utrnoveo(rvenuean)dopnaietpgrof i tpfIraostei.gfonigotboelwehtranexpected,

htceompanmyaypuotuaptwrotifarnigaheadoreflansightesatement .

Casestudy:profit-and-lossstatement

Thisexampleofaprofit-and-losstatementforafictional

utiltycompanyshowsthatitsmakingaprofit .

Amounom
tfoney atkenbhyte

bunsieosveacrm
antinhctisae;,

hterwa5sp.ercenictreansei
no
ruTver

. uonrtm
ofvehrtepervoiuysear

Operatingcosts
 OceanofPDF.com

HOW FINAN

TYPICALEXPENSES

Payroll
ITand

Salariesandwagespaidtostaf,temporary
ITequipme

contractors,andindirectlabor
stati,prionnery
tersu

Utilities Legalfe

,el,and
ectri
ater
Wcgas;
ity postageand
Accounting

shipping;transportation
accountant

Insurance Interesto

Insuranceonfixedassetsandpersonalliability
Interestpaid

insuranceforemployees
asabusines

Phone/internetbills xaT

Costoftelephone,broadbandInternet ,
r aV yingamo

andmobiledevicesusedbyemployees
includepayrolt

Advertising Enterta

Salesandmarketingofthecompanyand
Legitimatec

itsproducts

Casestudy:operatingcosts

Thistableshowstheutiltycompanysoper’atnigcostsinmoredetail.Itisimportantto

readanynotesaboutdepreciationandordinaryandextraordinaryocstsandgains.

Emopyc,eslt , nuicldnibgpcasiy

penosiSnos,Saceilcuyctoirnbirtuoitns,

andericotmsr’ uneoaritn

Employeeocsts

r e T m nanineildcedlaurghetotnevig Utiltycosts
 OceanofPDF.com

Balance sheet

Abalancesheetisafinancialstatementthatshowswhatabusiness

isworthataspecificpointintime.Itsprimarypurposeistoshow

assets,liabilities,andequity(capital)ratherthanfinancialresults.

Howitworks es,itialbialsne,tdhtebunseis’

Thebanlcesheetseynslahitows capa—
tli whahtecompanyowns

whahtecompanyownw
s,htait a(sepist)ucrhasedhetihtrough

oweasn,dhowmuchnsivesetdni dyta)ieblino(trvesm
t ent

.stbiIasedonhteacounitg caT(.p)thliequoaintw
alays

ofm
r uaslo,memitescealdhte balnceas,eveyrhtnigacompany

banlcesh-eetquoaintw, hcishte ownshasothavebenbought

basoidfoubel-nyrtbokepnig. w
htebsnufies’ndsor

Tshiowonhisatpehrlbietween htroughborownig.

The balance-sheet equation

Asthenamesuggestst,hebalancesheetmustalwaysbalance.Thisis

becauseeverythingthebusinessowns(itsassets)mustbeoffsetagainst

theequivalentcapital(orequity)andliabilites(debt).

Companyhasnoliabilities

Forexamplea,youngbusinessmay

$1,000
haveassetsof .Itcurrentlyhas

noliabilites,soitscapitalisequalto
ASETS

itsassets—thatis,itstheamountof

$01,0

equitytheownersorshareholders

haveni vestednithebusiness.Using

theaccountingformula,theequation

wouldlooklikethis:
 OceanofPDF.com

HOW FINAN

Casestudy:balancesheet

Thisexamplefromafictionalatrnsportationinfrastructure

companyshowshowabalancesheetworksinpractice.

ASSELSAIT,BLITEIAS,NLDCAPTI

xFeidaset
o(nroncurenatsest)

anercyolantsiventrdoicash

an.duosualynstalghetranoneyar

Fixedassets

Theyarehtieatrngbsiuel,chas

og.lasauhcs ,eblnaigti ornad,l

a T ngibleassets

Intangibleassets

Investments

Curenatsets
areasehtsalt

oneyeaoerlasndcanbeyalsi

convetrndiotcaCsha.cshash,

Currentassets

equviaelns,tndivenotyare

htemocstmmoncuernaset. Inventories

a r T deandotherreceivables

Cashandcashequivalents
Curenailbteils
arehteamounhtsat

htecompanyownoetisdviuasl

organzaoitnHs.ehtrem
, oneymust

.berpandhtiecuernifatnyaceilar

Currentliabilities —amountsfalingduewithinoneyear

Necutrenatsest
equaculrent

Netcurrentassets

aseactfurehiartsbnlvite

bendeducetd.

o T talassetslesscurrentliabilities

o T talseltscurenailbteils
is

Noncurrentliabilities —amountsfalingdueaftermorethanoneyear

htesumxoiefdfandnecutrent

Otherinterest-bearingloansandborrowings
asemstnieauditsbluiewhtinhte

. cunerifantyaecilr

Contractliabilities

Employeebenefits

Deferedgrantsandcontributions

Laibetidlsue
nimorehtanone

Provisions
 OceanofPDF.com

BALANCE SHEET

Understandingthenotes h,taethfdreadltsiueom
cinthotfembanlayrce

Thebanlceshesaitusneuifdcolainthotfehehtal sheetxpanilshtenspicafencw
ailoknrigshotfe

oafbunsiesa,ndm
sti poatrnhtnaitvesotrknow bunsiesnianumbeornfotesIh.owsexaycw
lther

howotanyazl.etcIianberadniw
toways—“at moneyhasbenganiedonsil,rntumbeasrn,dteoitnf

aganlc”ea,sonhtepervoiuspagw
e,hergenearl niucldesawetnircommenatyrabouptoetnailt

noifm
roaintsiummzaeirdnoi,rdephtw,htimoer devoeplmenshtam
t,sucahyeahfctsecompany

dedalntiofm
roaintabouetachem
l ePn.ortvdied couctarnseiagfosty,roeavifsbloiucres.

Balance-sheet notes

Investorsmaywanttoknowmoreaboutthefiguresinthesummarysection,

soadditionalnotesandtablesgivedetailedbreakdownsofthe numbers.

Casestudy:tangiblefixedas sets

Thistablepresentsdetailsofthetransportationcompanystangi’blefixedassets(long-term

assetsthatcannoteasilybeconvertedintocash).

n a T xgbiefdlaset

niculda.elndandmachniery

LANDAND

BULIDNI GS

Addoitns arenewatngibel

xiefdasehtsebunsiehsas

. acqueridyhtseiar

$m

Cost

AtApril1,2020 901.1

Dspiosaslreanyatngbiel

xiefdasehtsebunsiehsas

Additions 57.1

. dspiosedosofrdhytlseiar

Disposals –1.5

t o T vuale htocefmpanys ’

AtMarch31,2021 956.7
xeistfdalbseiycstaetgoyr
 OceanofPDF.com

HOW FINAN

Casestudy:debtors

Debtorsareindividualsorentitesthatowethebusinessmoney
.

Thetransportatoi ncompanyhasvariouscategoriesofdebt
. or

Amountsreceivablefromcustomers

Owedbyimmediateholdingcompany

Owedbyfelowsubsidiarycompanies

Owedbyothergroupcompanies

Owedbyassociatecompanies

Perpaymenst
ofservcies
Prepayments

htbawtlericeviednhite

Contractassets

ufutrehtahtebunsieshas

Otherdebtors
areladybenpadoifr

L A TOT

Casestudy:creditors

Creditorsareindividualsorentitesthatthebusinessowes

$m
moneytoThey
. areincreditothetransportatoi ncompany
.

5,154.1 nIdviduaoslernetis
htatre

warngiyuplsorm
owfdeony

243.3

moacsetrilmponenst

a r T decreditors

–39.1

Amountsowedtosubsidiary

5,358.3
 OceanofPDF.com

Cash-flow statement

Thecash-flowstatementshowsthemovementofcashduringthelast

accountingperiod.Itisimportantbecauseitrevealsacompany’s

liquidity—whetherithasmoremoneycominginthangoingout.

How to read a cash-flow statement

Thestatementofcashflows,tostateitsofficialtile,answersthekeyquestionofwhethera

businessismakingenoughmoneytosustainitselfandprovidesurpluscapitaltogrowinthe

futurepay
, anydebtsand
, giveoutdividends.

Casestudy:cash-flowstatement

Byanalyzingthisfictionalmanufacturingcompanysstate’ment ,whichincludesacomparisontothe

previo,deci
usyear
sionmakerscanbasefutureplansonpastcash

Unsipgbroetifretax asatnritg

point,noncasnhicomeandexpenses

arededucetdotreachnecatshnoilfw

ormfopaneritgacevits.

Netcashinflowfromoperatingactivities

Reutonsrm
invsent nhitcsaise

areontiaetlrestceviedmniuotsatl

nietrpstadwsina,estlrpstadi

Netcashfrominvestingactivities

onifancelasernast.l

x a T aoihtsnieumatoxlefs paid

x a T ationpaid

andatcxerdsctevid.

Netcashflowbeforefinancingactivities

Thtsiesum ghtouifearbsove.

Netcashflowfromfinancingactivities

nIculdecshanges nbioorwnigs,

olans,dvdiendpsadi.
 OceanofPDF.com

HOW FINAN

Howitworks areperofrmnigT.heap-ntoridfsl-atemeofnr,t

Thecaosw
hlf-satemenseoitnfmoerusoeufrl exampoeb,lscuershtbiyaddnigninoncashafcotsr,

nvieosartsnesgiabunseih’ehathltanohtekrey h,tebanlsuceshaesditepoerancim
Sty.alri

satemenstbecausetsihowshowhtecoerisavtcit moerconce.nredwhtiaseshtaqniudlyti

Three types of cash flow

Cashreferstoactualmoneyaswellascashequivalents,includingcashinthebank;banklines

ofcredit;andshort-term,highlyliquidinvestmentsforwhichthereislitleriskofachangein

avlue.Cashdoesnotincludeinterest ,depreciation,orbaddebts(debtswritenoff ).

Cashflowfromoperatingactivities

Thebulkofcashflowusuallycomesom
fr operationsandisworkedoutwitha

formula.Thechangeinworkingcapital(currentassetsminuscurrentliabilites)

canbeanegativefigure.

ACNHYANGE

REVENU–E APERIR

– + +
EXATS NIWORKNIG

ASOFCOTLSE COST

Cashflowfromoperatingactivitiesinpractice

Inthisexample,ajuicecompanysells$100worthoforange of$20overtheperiodwhichisanothercash.There
outlay

juiceafterspending$20onoranges.Itpays25percentofits isnochangeinworkingcapital(short-termassetstocover

$80 earnings in tax.Itsjuicingmachineincursarepairexpense short-termdebt).

AUJCIE

APMOCNYSELS
%52

$100
T AX

WORTHOF

TIUJSCINIG
N

ORANGEUJCIE
I

MACHNINIECURS
PTI
AY S

SGNNIRAESFT
OI

ARI AREP
 OceanofPDF.com

Environmental

accounting

Environmentalregulationsforcecompaniestoconsidertheimpactof

theiractivitiesandtoadoptcorporatesocialresponsibility(CSR)as

theygrapplewithlegislation,climatechange,andpublicopinion.

Howitworks

h,teraeramesfordnietnGorvnibylmalent

Environmental credentials

acstperadacorsmpuesodijctlnrishtaeftc

Mostcompaniesincludeasectiononenvionment
r al
htecompaneisopenaritgwhtnihtberiodrensri

accountingintheirfinancialstatement .Somedetailsare

efdrniw
tayAs.erasporetcdbyenovrnimenatcs

requ,butreidhbtayelwsatementalsogiveansopporutniyt

nuicldehteam
th,toesm
phernasfeihr,waetr

toshowcaseenvironmentalcredentialstostakeholders.

enovrnimen,and
atuerconsevroaint,uecalsraeyft

noseipuolnitIe.nroaintalcstaeruseuyidfalrit

byeachcounyrtidviuyblaeofratknigefhcter.

Anexampeolafcommongoblm
aleansoerfduncig

gernhousegasemsoinseimsoinasrtdnig“(cap

andartdeb”,y)whchicompaneismusbtuyapem
rti

oefrachotnoCfO htahteyemotviearceantreilve.l

Thosemnitgiundehtreagerdevlcealnhtsleri

pem
rsotihtecrompaneis.

CASESTUDY

atThe
aGroup
T

TheIndianmultinationalconglomeratepridesitself
 OceanofPDF.com

HOW FINAN

GREENHOUSEGASEMISSIONS

Insomecountries,companiesare

Appointed Direcfutel

requiredbylawtoprovidedetails

busnies use elctriy

oftheirgreenhousegasemissions.

Gasdie,se,l 7

Thisisusuallypresentedasatable

ohtuefresl

intheenvironmentalaccounting

sectionoftheannualreport .

Gdrielyctri 0

Itincludesdirectandindirect

a r T nsporatoitn 11
emissions—bythecompanyitselfand

bythirdparties—ofgas,diesel,and

Mehtane 20

otherfuels;sulfuroxidesandnitrous

oxides;methane;andotherozone-

Nortuoidsxie 12

depletingsubstances.Inthistable,

fromafictionalutiltycompany
,
Exported 0

ernewabel

emissionsareshownasktCO

equivalents.

L A TOT (net 50

emisoins)

Economic

m
niFaocnaiptlcs ks,ir,

hteoanfrdpesiuotnri

Humanrights

esitvisacton’itazniagor

nIvm
etsaegnrm
t enst

micheaclnodtgeu

undchlieutamghsitarn

antscaeinsFainlci evrcdi

huanvhedatgeornauescl

ngomervhmrtenf

hencrusgm
ishtiran

aocnrdtseSoructpsil

huanvedgeonrcsgie
 OceanofPDF.com

Depreciation

Whenacompanybuysanstacisoe,sctanbededucetdorm
fnicome

oafrcounitgandatxpuprosDe.epeoracintoalwshtecompanyot

speradhtebco,sytncuaigthlesadse’nticenlivauleovm
eitre.

Howitworks h,tey .Secondylytpcaliyear

faIbunsiesbuysoanlviegld- macthtoaslntivualeothe

asseu,tchasabdunligafc,otyr amounotifcomeanrednihtat

equpim
o,thpetlioncr,tmpuetr poeidrso,deperoacintbecomes

eanricomhets,eixpendutiercan adeduocintorfmatxabenilcome.

besoefatsacosatganistcome Theraersevefadrlnit

eanre,ndHo.htalsoiwever waysotcauletdeperoacint.

nicomew
blegienearetdnihte Themehtodacompanyusesmay

yeaorpfucrhaseandov,m
eitre, depn,hdseontbkfius

hteasew
tagleiandbecomesl ,lasneosluryeportaextosf,et

benotahceilfbunsiesu,nlit .ecnerefnerIphteUnetdiSates,

tbiecomesoudtaetdournusabe.l peRIrSgudnielcso,mpaneis

Acounatnstdow
t ohtnigsotunr musutseMACRSM
( oeidfi

htedneiclgvauleniota AcelaretdCosRtecoveyrSysetm,)

h,teywokartxadvanatgyFslert.i acombnioantonasgrtfiehla-tnd

ouhtowmuchsteavs’etaule doubedlneicglbanlcemehtods

seboew
l andp12.6
decerasesovearpoeidrmiotfe— ( .)

Calculating depreciation

LAV UE$()

$250,00

nil-hgtiaortwsyahTetemet
semlpioutsnhgwikod
ehortfsi

nacnadonitaicedprbeappliedtomostassets.Depreciationis

calculatedalongatimeline,withvaluelosspreadevenlyover
$20,00

thesasset
economi
’ cfileScr. apvaluesideductedfrompurchase

value,andtheremainderissplitntoequalportionsovertime.

$150,00
 OceanofPDF.com

HOW FINAN

TYPICALLIFEOFFIXEDASSETS

a T xauthoritiesoftenspecifythetypicaluseful(economic)lifeofaparticularasset .

Thishelpsstandardizedepreciationandeliminateuncertaintyaboutvalueandthe

numberofyearsoverwhichanassetcanbedepreciated.

OFFICE

RACEHORSES FURNTIURE FENCES

y3easr y7easr 15yeasr

10

5 15

-TIURF

BEARNI GTREES

10yeasr

COMPUTERS

y5easr

$17,00

13,000

$
 OceanofPDF.com

DEPRECIAT I O N

Applyingdepreciation caetgeoisroafseFst.oerxampe,l

Whencaunlitgdeperoacint, hte“acearletd”mehtodshtat

hteraeranumbeofrdnit chartpdideperaocitnahte

.Fnoirsatncaefo,tsrcondsier bengieaofnsials’etrmoer

abunsiesnedsotbeabeotl , sautbeoitflrchnogly

perdhctienumbeoryfeasran wehtlie“ayvtc”itmehtodshtat

a,tx asaesw
.Hltylpeuilf nikldeperoacintoacuthalousr

auehtnisom
irosctouensirtue oufseonrumbeorufnstpiorduced

gudnielsotacounatnstand aerbestueidotarnspoatrin

bunsieseswhtiem
sitaetsof andporduocnitels.

hteuseufclonom
eficolim
f any Agantix,auehtnisom
irost

commonbunsiesasest. couenisretofgudnielsonwhci

Fniancesatferantiedot mehtodotuseA.htloughsti

chosebew
t enhtemanymehtods etchyncplaiosbeoiflarcompany

ocafunlitgdeperoacintouse otusew
t oefdrnim
t ehtodosfr

ofargvienasEe.tachmehtod htoerw
i nacounitgandoaftrx

erlcfstaedfrinptaetnrof puproshetbis,esatvdoied.

deperoacintw,htisomebenig

moersuatibeolfpracuitralr

Other depreciation methods

Therearemanydiferentmethodsofcalculatingdepreciation.Somearefavoredby

particulartaxcodes,whileothersarespecificallyapplicabletocertainindustriesand

typesofassets,andtheirpatternsofvaluelos.

Doubledecliningbalancemethod

nionitaiceprdemeioralcotdeusm
hodAte

AVPARCAVS E–SAHCRUEPULE

orf ulfeussihcwhi,eshacpurretfasraeytsrifhet

USEFUCOLNOMCI

assetsthatlosemostoftheirvalueearlyon.Itreducesa

(
 OceanofPDF.com

HOW FINAN

DEPRECIATIONONTHEBALANCESHEET

Acompanysacounhstavetosi’alltassetsheldbythe

APMOCNYNAME

n,iculdincoxgifm
aleldaspsaensuty,chaspropertyand

equipment .Theaccumulateddepreciaotinofthesexifed

Asets

assetovsethreyearsdeduc
i otedmrfhtevraiuleatthe

Curenatsets:

staroftheyeartogivetheyear-endtoWi
ta.l thouta

Cash

deprecaiotngifureth,eaccountswouldgiveafasle

nIvemstenst

nIvenoetsir
relfctoinofthenifancesofthebusniesThe
s. assetswould

Acveoaruibneslt

appearashteiorrginalcovstaulwe,hcihcoudlexceed

Perpadeixpenses

hteicrurentvaule.

Ohter

t o T aculrenatsets

xFeidaset
aersparetd

orfmcueranset.

xFiedase:t

Porpeaytrndequpiment

mBidnetuligs/porvemenst

Deprecaiotn
xoiefdf

Equyatnidohtneivrem
st enst

asdeisteducetd.

Leascumuaeltdeperoacitn

t o T xiefdaslet

o T talsets
arecaclualetdaetfr

Othearsets:

deprecaoitnhabseen

Goodwli

deducetd.

t o T aolthearsets

sPrevoiuysear’
total

o T talsets

acseatnbecompaerd.

Unitsofproductionmethod

ALAUP(SUCEL)R–CEAHVPAVSE

orpot tessanasesuomcynapaW
dunceh

dentiprsegpasahucs ,stunieblaifintqua

UNPTRSIODUCEPDYERAR

ohdmtesihthtwionitaiceprdemialcnac t,ireipocayb
 OceanofPDF.com

Amortization

and depletion

Similarinconcepttodepreciation,amortizationanddepletionare

usedbyaccountantstoshowhowintangibleassetsandnatural

resources,respecti,arevelused.
y

Howitworks aseotnhtebanlcesheatndanexpenseonhte

Amzoaitrnshiowhtecosotpfucrhansigan nicomesatemenIln.tdniga,mzoaitrncanasol

niatngbeilaseu,tchascopgyirhotafnaw
trsokir, meanhtepaynigodfebstovmeitrDe.eopeintl

speradovearpoeidrmiotfue,suytm
eilaftsieulf. showshtexhauosintonfauterasloucresu,chas

stiIhownasaerduocintihtevualehotfeniatngbeil com
alnioefrso,ntrautgarlas.

Amortization in practice

Therearetwotypesofamortization:oneforspreadingthecostofan

intangibleassetandtheotherforloanrepayment .Botharecalculated

nism
i alirwaysbut
, loanrepaymentsareworkedoutasapercentage.

Intangibleassets

LAV UE$()
Inthisexample,a

companybuysan

$20,00

intangibleasset—

apatentfora,new

$16,000
revolutionarytype

oftennisracket—for

$20,000.Thepatent

$12,000

wil beusefulfor10

years,soitscostis

$80,00

recordedasa$2,000
 OceanofPDF.com

HOW FINAN

GOODWILL

Inbusiness,goodwil describesan totalsumofitsassetsandliabilitiesis

com
baednsetspaneybansltgi ’ $9milion,thegoodwilisworth$1

reputation,includingloyalcustomers milion.AccordingtoInternational

banrdamn,cpsaeudrpibe,l FinancialReportingStandardssince

profile.Goodwilariseswhenone 2001,goodwildoesnotamortize,

companybuysanotherformorethan soitdoesnotappearasamortization

thefairmarketvalueofitsnetassets infinancialstatements.However
,if

(totalassetsminustotalliabilities). thevalueofgoodwilfals(though
r

Forexample,ifCompanyAbuys negativepubl
,forexampl
icity e),it

CompanyBfor$10milion,butthe canberecordedasanimpairment .

How to calculate depletion

Likeamortization,depletioniscalculatedbyusingthestraight-line

method( seepp.124–125 ),unlessthereisaparticulareasontouse

anothermethod.

Inthisexample ,aloggingcompanybuys

VASA–VOCTSLAEG LUE

aforestwithanestimated60,000treesfor

$10milion.Theoriginalsalvagevalueis
LATOTUNTSI

$1.5milion,butthecompanyspends$500,000

onbuildingroadsintheforest ,bringingitdown

10,0-,0

to$1milion.Thecompanycutsdown6,000trees

60,0

duringeachaccountingperiod.

NUMBER
01$

OFTREES
 OceanofPDF.com

Management

accounting

Foracompany’
smanagementtoanticipateprofitandloss,plancash,fand
lowset

effectivegoalsforthebusiness,thecomingyear’sincomingsandoutgoingsneed

tobedocumentednidetaU.linkilefniancaialccountnigw
, hcihisprimarilyfor

externalusers,suchasinvestors,lenders,orregulators,managementorcost

accountingtakesplacewithinabusinesstoprojectexpectedsalesrevenueand

expensessothatthebusinesscandecidehowtobestuseitsavailableresources.

Man

Departmentbudgets

acco

Managersestimatewhatfundswilbeneeded

forexpectedexpenses. Seepp.136–137 .

Purchaseorders(POs)

POstelthefinancedepartmentexactlyhow

muchmoneytoreserveforpayments.

Timesheets

Staf employedonanhourlyordailybasisfilintimesheets;

thesehelpmanagerscalculateoverallstafcosts. Seepp.140–141
 OceanofPDF.com

HOW FINAN

COSTACCOUNTINGPRINCIPLES

TheCharteredInstituteofManagementAccounting(CIMA)

$
intheUKandtheAmericanInstituteofCertifiedPublic

157

AccountantsA(AIPC ),withmembersin177countries,have

establishedGlobalManagementAccountingPrinciples.

uCnlo.eaifnmtsihm
tgnpoahdrivsnteaucstni

c aom
nghoicu.sretdnagehFictkili

billion

evalrsonm
rfIiont.
niat

combnied ervnue of
❯

Setwardshpbirudtl.si

nonfinancialassets,reputation,andvalueoforganization.

the FogBuir acounitg

am
nyIazseldoivup.anelct

demonstrateoutcomesindiferentscenarios.

rfims* ni2020

D*eoPletiw,unCg an,EdKrn,&sPtYMG

Costofproductioneport
r (CPR)

CPRshowsallthecoststhatcanbecharged

toaparticulardepartment .

Reportshelpmanagementdeterminetheaccuracyof

budgetsandanalyzebusinessperformance.

Thisshowshowwellthebusinesswilbeabletomeetitsfinancial

obligationsandgeneratecashinthefuture.
 OceanofPDF.com

Cash fl ow

Themoneycominginandgoingoutofabusinessisitscashflow;the

balanceofinflowandoutflowiskeytosurvival.Inflowsarisefrom

financing,operations,andinvestment,whileoutflowsareexpenses.

Salesrevenue

Cashforgoodsand

servicessold

cobedraytgenRrvue

onsioatper

Capital

h—avtndotieospfrofseotBias

altcapioarnlskeuinledpr,baie

Investmentandlumpsums

Compunatrm
oybaeults

owlnrfM
icahsonucefari

otpd)agiet(cvrahnostiue

u-ptasr

owlfm
hcasnanitai

ertoafniectnjihcasoAniadlti

orm
wklfnosAhcawslasn

agetskeyatuo-prtatsalitni

esitviiactngoipater

ocmahownprtsgayi ’

vaiprofniatorm
elfnReuv

dna )cipulnbgoic(mespani

“Thethreemost

seinampoc ci lbup yb deuss i serahs

mor f wol f hsac sa wnonk os lA

dreadedwords

sei t ivi tca gni t sevni

intheEnglish

languageare
CASHOUT

n‘egatvie

’ owlfcahs. ”

,2011ang,entreperneurDTdavi
 OceanofPDF.com

HOW FINAN

Howitworks
andohtesroucreCs.asohw
lfsouotpayempoyles,

Casohw
lfshtiemovemenoctafshniandouoatf ernaetnist,disulitpeapsirn,ldnietrsotnoalns.

bunsiesovearseptoeidrmiotfCe.asohw
lfnsorifm Tminigskiey—hanvigenoughcashcomnignoit

saelsogfodsandsevcroeilas,ncsa,npaitvliesm
t en,t psaylobm
nitekepshtecompanysvoeln.t

Loans

Bankloansandoverdrafts

CASH

ng
m
otalniseW
kacltprio

NI

owlnpfeiacdstwhniti,slahlsfotr

aretalocl sal

novi esalcesoAnidanvesc

ocngiortcaomrffmpanesi
CASH

NI

$
stmafedrovt-Shtor

orm
wklfnosAhcawslasn

esitvinacntigf

CASHOUT

o
t

o
 OceanofPDF.com

CASH FLOW

Cash-flowmanagement mstei,asnoefarnglitecasohw
lf

Thehandiglocfasohlw
f companeisotfercasctashonw
lifs

detrmnieshtesurviaolfny andouw
lftSsea.slperodcintsand

bunsiesE.quym
ali poatrnsit cashconveosrinaretsaermi poatrn.t

om
acsapyntb’ioliconvert Aschedueolw
f henpaymenstaer

steianrignsiotcashw, hchisi dueorfmcusotmeasr,ndwhena

.Nomkanethrownqaiuysdtli bunsieshasotpasytoiwnseaisrl,

patobriefalbunsiest,m
i ay s,lsbuipedpsir,elbastn,dohter

becomenisvoelntfcitannoptay cocsat,nhpelperdcsthi.laoftr

stlobinm
itNe.ewbunsieses fcIasohlw
fsm
i sm
i anageda,

maybecomem
vcitsohtferi bnuesimayhavuytoep

ownsucesandalhtfiorugh gniveir,deoacetm
nyfealprbnigto

“nisovlencybyoveartdnig,”foir cashshoatrgeSs.omebunsieses,

examhpte,lyspendotmuchon suchasupem
r akrerst,ceviesotck

expanosinbeoferpaymenstatr oncerdbtiuaterpadnicash,

comnigniandurnouotcfashot genenarigtacashsupurls.

paydebstaenist.aidbnlIiodreotr

Positive and negative cash flow

CASH

NI

$
 OceanofPDF.com

HOW FINAN

NEEDTOKNOW

t c ganiFro a hcihwni noi tcasna r T

Cashconversion

dr iht a ot seciovni st i sessap sseni sub

Successfulbusinessesconverttheir

ap s tcel loc hcihw , ) rotcaf ( ytmyrtneap

productorserviceintocashinflows

oc a rof rmeot suc ehntomiosrsfmi

beforetheirbilsare
omake
due.tThe

ebyal paAoscunt aP ymeanst

conversionprocessmoreefficient ,a

motohbnstaerukis

businessmayspeedup:

cer esltbnauvociecA emy a Psnt ❯

Coutmspnuochdegrias

eviecer ot eud s i sseni sub a

mlpanhslegidtfuOlfdre

Angcshieduel nchagiebAtrl

ngicnCovm
utiser

ypaocnudesabntlounctas

avieocnriectlcosAelcbuntl

ocaedsatbvlrhetioctndrgi

opdier

Coawlhsgf-ap bwetveanlrtI

meyaPandeptois

paymvedsncairtde

CASH NOCASH

NI NI /OUT

CASHNIHANDDECREASES
 OceanofPDF.com

Budgets

Settingthebudgetforabusinessinvolvesplanningtheincomeand

expendituresfortheaccounting.year
Thisisusuallybrokendownby

monthsotheplannedbudgetandactualfigurescanbecompared.

Howitworks managnehirtebunsieoasnl,gwhteixpectdcash-

Eveyrbunsiesnedsotbudgeofatrpnciated ow
lfpeorcjintoshftrebunsieostce,raetamasetr

ervenueandopenarigt.costwhnthitneiafnyaceliar budgTe.themasetbrudgectansaonluicldgeiuferosfr

Uknieclabptluidgneitgw, hcisenom
iranagement anyiafncightahtecompanyseixpectdotned

oclaetswhaw
btlespienotnspcieforcijstor ov.Aehtreshctoemyenapirgoygerasrhetse,

asersvt,enuebudgneitgofcusesonhteovelar peorcjtdbudgeatndhteacutm
aloneycomnigniand

peorcjintosfm
roneycomnigniandmoneygonigout ,om
ronhytglnoig,wouatermyklonteridonadylai

oferachmonhthotfecomnigafonar,cilounitg, basiohtatnydeovaintorsfmhtegonirbaludget

. raeyAcounatnstcomepolpienaritgbudgeorstfmeach ca,renmbediedanf,ietfdni,.ecesayr

Setting and

controlling budgets

Budgetsetingisaprocessthat

takesplacebetweenthedepartment

managers,seniormanagement ,and

financedepartmentinacompanyto

establsihandcontrolthecostofeach

departmentorproject .

46

firms
 OceanofPDF.com

HOW FINAN

INCREMENTALANDZERO-BASED

Therearetwomainapproachestosettingbudgets:

nIecrmbeunadtlget The Zeobr-uaesdget Tchoemngi

ashyeiatdrbourfdget s ’ rwahtehrsia,fybstaurdsget

s yoe’aprhbuvoiestadn y.oespaurvientsfcero

budget akebstudsg.Tehti meTm

sthaicehtns

aconhtuaynigt,es hbtnseouidrtget

codhulatoni,atlnfiuasch zeoandthiucrastylucealfr

mnhiaoetwvnpact hdebtpm
yitafriuetnsbje

Tdhoewn.disaetncuisla mmsTheotm
idan.gsearks

neacsioupervihsatsi lalofcotslulfhetsoteriasti

worfaediracmrdbeay. apnlecdhange.s

$ $
 OceanofPDF.com

Assets and inventory

Acompany’spossessions,orassets,aredividedintotwocategories:

fixed(orlong-term)assetsandcurrent(orshort-term)assets.Current

assetsconsistofcashinthebankandinventory
.

Howitworks Cuernatsestaerhedolfhtreshotr

Fxeidasestaerm
i shtaetnabel etm
r andusedmanyiolfartdnig.

abunsiesotpearTet.heyetnd Themom
sitpoatrnctaetgoyrin

otbeolnget-m
r hodnligsand etm
r sogfeneanritgervenuesi

cannobteaylscionvetrd cuernatseTst.hekeycomponent

niotcashFx.iedasestcanbe n.Ivenohtferysenciavenotyr

caetgzoeirdashetiatrngbeiolr bnseihfedgodseradyofsrea,l

niatngbeait:lngbeialsestaer butcitansaolbehtearwmasetilr

maoetiblrw
cjst,enhilatngbeil htaw
tbleuisedofproduncig

asesthavenophycosafim
rl . htegods.

Assets and inventory in practice

Thepartiabal
l ancesheetsbelowshowthecurrentassetsofabranchofSuperSportsInc.,

afictionalsportswearandsportsaccessoriescompany
. Theseassetsincludecashinthe

bankandinventoryheldbythecompany
.Theinventoryinthiscaseconsistsofallthe

itemsintheshopthatarereadyforsale.

Super Sports Inc. Super Sports Inc.

May31 June15

Assets $ Assets
 OceanofPDF.com

HOW FINAN

TYPESOFINVENTORY

Inventorycanincludethreetypesofstock,dependingonthekindofbusinessbeing

carried out:rawmaterials,unfinishedgoods,andfinishedgoods. Seepp.316–317

Rawmaterials Wokrinprogress

Materialsandcomponentsscheduled Materialsandcomponentsthathave

foruseinmakingaproduct .For beguntheirtransformationinto

example,achocolatefactorywilhave: finishedgoods;thesemaybereferred

toas“unfinished”goods.
Foinr stance,
❯

nIgerdnist , uosm
garfhoetfni

agraphicdesignerwilhave:

v,aedsiti boacmsoace,rtu

nsuotanprkm
hderaplns,agvoirlf aLyoutsanddesigns thatare

beingdevelopedandareawaiting
❯

c,iaptsla,nFplodaiper htoefr

clientapproavl

wapndgckaripser

Types of fixed assets

SuperSportsInc.ownsarangeoftangibleandintangiblefixed

assetsCompar
. edtotangiblefixedassetst,heworthofintangible

fixedassetscansometimesbehardertoevaluate.

naTgiblefixedassets

P I T I P
D M
R N U U

N R
O R
Q E

A U N
P E E

E
T
T
D

I
R

N
T
A

Y
L
 OceanofPDF.com

Costs

Costsarethedirectorindirectexpensesthatabusinessincurs

inordertocarryoutactivitiesthatearnrevenue,suchas

manufacturinggoodsorprovidingaservice.

Howitworks

Theraerw
t omaniwaysaocynslfigcost:

vaibreclow
st,hcinceraseasouptunitcerases,

anxdiefdcow
st,hciermaniconsatnde;rtcaind

nidercitow
st,hcicobnirutedyrncolitrdeyclit

otheovurealnnigohtfebunsiesca,nhetievrayr

Theheadcheforders

whtievloepflorduocintosarxtyiefdT.heraer

theingredientsthatwil

htermnaicoshtabtunsies.esnedotacounofrt

berequiredeach
. day

Thsrtaeiblfo—
r wagespadiotpeopelmpoyledot

Fopreakevenings,the

caryoutapcuaitrslLk.abocranbergadredasa
costofthefoodorder

el.tbdacexhitrisreoasveihTfocd ishigher;forquieter

nights,thefoodorder
secondshtiearwmaseutilrsedniporduocintand

.islower

eseh—stesielrcatsirsvuetdhrnseotscium
ota

aervaibTre.lhehdtrsiexpensew
s,hciaerohter

.esdietr’sevuinrchteiusrofbtcas

Fixed and

variable costs

Onewayofol okingatcostsistosplithem

intotwocategoriesf:ixedcosts,whichdonot

changewiththelevelofbusines,and
sactivity

varaiblecosts,whichdochangewiththelevel

RENTAND

INSURANCE

ofbusiness.Thiactsivhelitypsaccountants

SOTCS

determinehowchangesinbusinessactivity
 OceanofPDF.com

HOW FINAN

QUIETER

PEAKEVENNI GS

EVENNI GS

SMALL

FOODORDER

Steppedxfiedcosts

HIGHER

RENTAND

INSURANCE
 OceanofPDF.com

Product costing

and pricing

Knowingthefulcostofcreatingeachproductthatabusiness

sellsisvitalbecauseithelpsacompanypriceitsproducts

appropriatelyandassesstheperformanceofthebusiness.

Howitworks htecosatfpordsteruiaect,d

Bohtderciatndnidercitost asoneuonptfoirduocniTt.he

cobniruteotheporduocnit dercaitndnidercitonstivoeld

cosoatfporduwc,thehtseair nicernaitghtanstigeulnaterihten

manuafcuterdgodoarsevrcei asesedandaddedotgehteotr

benigporvdiendIo.dreotrcaulet ceraetheulcfos.t

25 %

aergvhet neptm
rotifargni

nithe banknig nI. sector food

,eralti esarvgihet %.

Full cost pricing

Directcosts

Directcostscanbemeasuredinterms M
salierat

ofhowmaterialsandlaborareused
❯

abolreDctri

toproduceeachunit .Indirectcosts

epxensDctri
 OceanofPDF.com

HOW FINAN

OTHERCOSTINGMETHODS

Thereareseveraldiferentapproachestocostingandpricing,dependingonthe

i,nthedustry
typeandsizeofthebusiness,andthemethodofproduction.

OJBCOSTNIG

Usedofar

cusotmizedorder

smadeotacinl’t
HCTABCOSTNIG

speciafoitns—ofr
Usedwhenabacthodifencital

exampaeln,ritg
pordmusicstade—oferxampel,

companhtyat
anegclairotlodcsompany

pnbirstochuers
manuafcutnrigetlovsinset

eoifacnlrt
$

PROCECSOSTNIG SERVCIEOSTNIG

Usedofarnongoniogjbhtaotefn Usedwhenhtepordubctenigsodl

eavsrnvma
eosil nufacutnrig astindardservcieoefredot

porcem
ses,cosatuidknfeltig cusotmers—oferxampanseol,ani

nidviuacnoltis—toferxampel, oenfriganexprem
s anciureand

aneriofelhyritpatorceses pedciurewhtinasepteoridm
oitfe

crudnieotdlieoseli axneiodfapceri

Profitmargin
Sellingprice

❯ ❯

opregnatoerteabM
flitetus mteknraigot dreonioLw:

ocmhetpanyorf mocthmoastrhesarpiet

❯ ❯

hnwoetiwhM
tlenbieuts oecvr edb:sa-Crtos
 OceanofPDF.com

Measuring

performance

Therearetwomainwaysofmeasuringacompany’sperformance:financial

andnonfinancialTo
. assessfinancialperformance,acompanycalculates

financialratios.Toassessotherareasofthebusiness,acompanyexaminesits

keyperformanceindicators(KPIs),whichhelpmanagementandstaffevaluate

performanceandhowitcanimprove.KPIsalsohelpinterestedoutsiders,such

asinvestors,lenders,oranalysts,decidewhethertoinvestinthebusiness.

Financial and non-

financial categories

Anycompanythatpublishesafinancialreport

wilberequiredtosetoutkeyfiguresonthe

revenuegeneratedandtheexpensesincurred

duringthecourseofitsactivites.Thesefigures

canbecomparedbyusingmathematical

calculationscalledfinancialratios.

However
,financiarlatiosalonemay

notgiveanaccuratevisionofthe

companysfutur’eprospects.

Nonfinancialratios,orkey

performanceindicators,
 OceanofPDF.com

HOW FINAN

TRENDANAL
YSISUSINGPERFORMANCEMEASUREMENTS

Acomparisonof

CUARERNASTIOICNOM
VERPTM
IE

eitherfinancial
s a F o-ftodchanshAiownotbeaconestinyblteptreofrmveom
ritre

CURRENT

andhteroferhahtsemonsdiftalnastcnildnigohtheftercompaneis.

ratiosorKPIs

ITARO

betweencompanies

09.

inthesameindustry

andacrosstime
08.

isoftenusedto

07.

trackacompa ns y ’

06.

performance.Current

05.

ratiosarecalculated
T-FOSOADCFHANIB

bydividingcurrent

04.

T-FOSOADCFHANIC
assetsbycurrent

03.

liabilities:the

02.

highertheratio,

themoreliquidity 01.

acompanyhas.

1 2 3
iF
nan
laic
em
usa
ser

Non-

ncial
ina
f
$

res
asu
me

Financialratios Keyperformance

indicators

anUdosvetibrdy
 OceanofPDF.com

K e y p e r f o r mance

indicato r s ( K P I) s

Keyperofmancenidtociras(KPI,orske)yscucessindiatcors(KSI,)s

arebasedonacompsay’ngoaslandvarydependnignothecompany

andni.dKPIs
ustryareusuaytlestadinacompsany’annualreport.

Howitworks determ inehtedepa rtme

s’tneffici
.This
encyisan

K P I s arethenon-financialmeasuresoafcompas ny’ exampleoaflggi ngindicator—tisanouctomeand

perfromance — t heydonohteavmonetar yvaeul eorehfrteasytomeasureb,untostragihtforwardto

buhteydocnotri buetothecompan
s’yprofitab
.iylti i n f lenuceC.ompaniesalsoerklfadi ngi ndci ators,

Anycompan
ydepar tmetncanadoptKP Istosgatugei whcihaerof cusednoiputsandeaseirotchange.

perfromance.AKP oraIf nac ountsdepar tmetmngiht Aeladi ngK PIohftreac ountsdepar tmetmngihtbe

behtepercenagtduervfnoices,
voiasthis wi l hepl thepercenatgeopfucrhaseordersraisedinadvance.

Corporate K PIs

KPIscanbesetupasdashboardsoncomputer s

sothattheycanbecheckedfrequenyl.tThese

o u n
c
c t
s
A

dashboardsshowexample sofKPIssp ecific

to departments ni acompany
.Having

set theirKPIs,the departmentsare

subject tomanagerialreview,

whichcouldresultin

actionifKPIsare

sub-standar.

Numberofretrospectivelyraised

purchaseorders;finance report

m
d a
n r
k
a
e
s
t
 OceanofPDF.com

HOW FINAN

BALANCEDSCORECARDSYSTEM

This strategic s y s t e m o f fers a d i f ferent

way of monitoring a comp a n ys’

3 9

p e r f ormance, prese ntingamore

ofcompaneis

balanced view rather than one solely

focused on financial resu l t s .It wa s

sahtryei
proposed by Rober tK aplan and

David Norton at the Har vard Business

Balnced
School in the
99 10s, andover 50

percent of large companies in the

Scoercadr is US, Europe, and Asia use the

approach. The Balanced S corecard

consists of four ways to view an

extremelyor

organization’s per for mance:

very hpeulf

r a t i o
e
n
p
s
O

Cost variancd(ei f ference bet ween

budgeted costandac tualcostofwork);

r e s
n o
a u
 OceanofPDF.com

Financial ratios

Lenders,investors,analysts,internalmanagement,andother

interestedpartiescalculatefinancialratiostodecipherwhat

financialstatementsarereallysayingaboutthestateofabusiness.

Howitworks puprose—oferxampw
e,lhehtehtrepuproseoti

Fnianoarisctlerusedotaseshtneiafnacil meashuetrcompaysntoi’bploirvdieagod

satndnigoafbunsiesandieynfaintyporbem
l aeras erutnrotshaerhodsltecisra,paytcoihandeldeb,t

htam
tgihsetaufciterporspeTcst.heporces ohtercinefcywhtiwhcitopearetTs.heoarist

nivoelscompnairgw
toaertldem
i nsihtneiafnacil cansaolbeusedotcompaerabunsieswhsti

satemensu,tchasnestaelsotnew
t ohtronrneitcome compotsernoitrcompsaoirnotspcbiefcinchmakrs

otnestasln,dunsightoseoaristmeasuerhte whtnihtecompanyotdetm
rniehowconsetisnit

reavlitepeorfm.Tanhcehoterfaceormpany niafnerascluitaerl.

efdrnoiarstchoseorfmd,ependnigonhte

Profitabilityratios

Topfinancial ratios

Theseareusedtoseehow

Thesearesomeoftheratiosmost

effectvieacompanyisat

commonlyusedbypeopleinvolved

generatnigprof i t Pr. oftiabitilyratios

withassessingbusinesses.Theyare

maymirorinvestmentvaluation

bestconsdi eredcomparativelyand

ratiosOne
. exampleistheoperating

inthecontextoftheeconomicclimate.

ogd,siaoritanrighmrhaiAtio.foirpt

Theratiosareforanalyzingestablished

niastidicateahisghproportionof

companies,usuallypubliconeswith

revenue(grosinocme)convertedinto

sharestradedonthestockexchange—

operatnignicome(proftiminuscosts).

start-upsandsmall-to-medium

enterprisesgeneralydonothaveaful

enoughrangeoffigurestoprovideany

kindofreliableguide.

ARTEOPING

ARTEOPING

NICOME

=
PROFTI

MARGNI

REVENUE
 OceanofPDF.com

HOW FINAN

WARNING

Investorsbeware

Ratioanalysismustbeusedover

time—atleastfouryears—to

understandhowacompany

10–14

hasreacheditscurrentposition,not

the mnim
i umreutrnon

justwhatthepositonisFor
.

instance,ifdebthassuddenly

nivesm
t enR(tOn)eIeded
goneup,itcouldbebecausethe

companysibranchingoutintonew

areasofpotentialprofitortolimit
tofundacosfmpany’
uture

thedamageofapoorpastdecision.

Liquidityratios Solvencyartios

Thisgroupofratiosreveals Whileliquidityratioslookata

whetheracompanyhas companysshor’t-termability

enoughcashorequivalentassetsto tomeetloanrepayments,olvency

meetitsdebtrepayments.Anexample ratiosindicatethelikelihoodofa

istheworkingcapitalratio(alsoa companybeingabletocontinue

measureofefficiency),whichindicates indefinitelywithenoughcashor

whetheracompanyhasenough currentassetstopayitsdebtsinthe

short-termassetstocover longrun.Anexampleisthedebtto

itsshort-termdebt . equityratio.

LATOT

CURRENT

SHAREHODLERS’

DETBOT

ASETS

WORKNIG

EQUTYI
= =
EQUTIY

ATIPACL

CURRENT

ITARO

LATOT
 OceanofPDF.com

r oF ecasting

Predictingfuturebusinessperformanceisnecessarytoestimate

probablesales,income,costs,andprofitabilityandthusgain

investmentandmaintainconfidenceinthecompany
.

Howitworks andcanbeartckedovm
eitrTe.heartckedand

Foercansitgsucesueoalrisfolnhcsoatirl monoteriddatcanporvdieaneyalw
r anrigsysetmofr

dat—niafnsacteilmneinafsot,arisct,nldKey poetnapiltorbelmFs.osrmbalunsiesesandsuat-rps,

PeorfrmancenIdcaiotsr—htearclbtfunsiesopeoarint acuaretofercastporvdieabasonfarigexetnral

roF ecasting with Z-score models

Realizingthatatrditionalfinancialratios,suchastheratioof

coststorevenue,createdonlyapartialpictureofabussiness’

financialperformance,Altmandevisedasetformulathat

moreworkingcapitalinacompany
,

combinedfourorfivekeyratiostogiveaZscore.Themodel

themoreitsabletopayitsbils.

hasproventobe90percentaccurateinpredictingbusiness

failureoveroneyearand80percentaccurateovertwoyears.

Marketvalueofequity/

bookvalueoftotaliabilities

Ameasureofthemarketconfidence

nithecompany:aratiooflessthan

onemeansthefirmisworthless

thanitowes—itsinsolvent .

Earningsbeforeinterest

Corporatesuccess

andtaxes/totalassets

Efficientlyruncompanieswitha

Ameasureofreturnonassets:

healthybalancebetweenassets

itgaugesoperatingincome

andliabilitesandprofitanddebt
 OceanofPDF.com

HOW FINAN

niafnncigw,eaohlfgriecrompanehntiso,fm
roaint

podrviesanoidcensratifoagclihntoifrvesotr

NEEDTOKNOW

andmakreTst.heraermanyefdrnipterodcint

OcoOserhnl

mehtodsandmodse—
l hteonesyouchosew
dlepiend

ofeocsrZotveineatrArl

onexaycw
lthaytouwanotfercaOs.tnehotfemost

uerlaifngipcetdri

erfqueynultsedotperdhctiechancesoafbunsies

ngadirOtver

gonigbankurpshtieZs-coermode,lvseidby

ogrwoem
csalspnya ’

EdwadrAm
tlokraUnN,nvyietasfrinwceY

naicefsthiatnertasf

n,i1968. poerfsor

Signsofcorporatefailure

Therearemanysignsthatacompanyisdoingbadly

andperhapsslidingintoinso.These
lvencysignsmake

investorsnervouswhi
, chislikelytolowershareprices

59

iftheystartselingtheirstock.However
,most

of onsiatzgonri

companiesthatfaaril eprofitablebutrunoutofcash.

nogwuieasr

and itynlaevitcde.ipscr

ailure SSF
 OceanofPDF.com

Tracking fraud

Forkeenobserversoffinancialstatements,warningsignsthat

indicatefraudulentbusinessactivitiesmaybedetectedinoverly

optimisticstatementsandevasiveattitudesofseniormanagement.

Howitworks uncostvheiIsrdoaj.u’brtdiot

Pucbiolmpaneisaerquerdi ensuerhtabtunsiesercodrsand

othavehtaerninnuiafnlacil satemenstaeracuaretandhave

satemenstaudetdic(hecked) benhoneyslertpoetrdA.udotsir

byantid.Iependenatuodtri caryoutasysetmcaeitxamnioaint

sytipcdlaiunirghtspiorces hetocfmpsaernyc’odrsandmay

htatnyiafnsachilenangians— dieynfaitneyrgieuiasthlram
t ay

cervaietacounitcgkirtsusedot nidcaiertfufdeIv.diencearofud

manpiuaetlhgeiufersandmi porve sofiunhdte,nexsetpsontivoel

htepeorfrmanceoafcompanyni oferncsaicounatnstandm
cirnial

nstiafnasctielmenst—and nivegsitaow
sr, homayporsecuet

oguirhtafutduenlayvtciter htepeprearots.

Red flags

Suspiciousfiguresonfinancialstatements

indicating fraud
nveagirohtwlaCfahs

ahnqtednrsuotarf

Auditorsmaybealertedtofraudbya

usdayndem
lrncaliat

numberofrecognizedwarningsignsor

eviboectmpiose

“redflags”t;hesemayhavedirectly

ogsrnSuidneacrsien

todowiththebehavioroftheCEOor

omdawhtsnagi,r

othertopexecutivesorbeintheformof

arevayrntdusigeand

iregulariteswithinthefinancialstatements.

cospermpany’
ovius

omprfenraptnce

com
tesaplgLeasnri

eocrkacrtdouhbsiwtrdis
 OceanofPDF.com

HOW FINAN

LINE-UP:TOPFIVENOTORIOUSFRAUDS

Someoftheworstfraudsstemfromthemostprestigiouscompanies.

EnronwasoneofthetopsevenU.S.companies,whileJPMorganChase

&Co.wasthelargestAmericanbankwhenmeasuredbyassets.

SECURITIES ENRON WORLDCOM

EXCHANGCEO.
Enegrcyompany UcoS.mmuncoaitns

1CPn9oeI1hs9lanzi,r
Enorndeacelrd om
cWpnayordlCom

beganapyarmdi
bankrupctnyi2001, decalredbankrupcty

schemeniBosotn,
ahtloughtaid ni2002aetfir

nsielgporseatplyl
neveshrowonals mipaocrypleuntr ed

coupoHns.epldged
nifstancail of$r3o8ib.lni

nivesot5rs0percent
satemenEsxt.ernal expenAses.udotir

erutnrwhtn4i5days,
audotiwrsereacused AhrtuArndersen

whchiepadorfim
niaogltfpiforpeylr wahsibedl

newniuvfenostd’rs.
ervwiacouns.t ofnrontoncitg.

CEObehavior ce

bhevaevsexbicuytosavrEi

sldaietnalm
icfioapnveort

oeasm
AutrdeCbritysEoOpt

morfdnoacyuiwtm
earesnt
 OceanofPDF.com

Raising

financing

Whenacompanyneedsadditionalfunds,itcanuseinternalorexternalsources,

orboth,dependingonwhetheritseekslargeamountsoffundingforlong-term

growth,suchasanexpansion,orsmalleramountsforshort-termexpenses,such

asoperatingcosts.Inaddition,thenumberofexternalsourcesavailabledepends

onwhetherthebusinessiswellestablishedorwhetheritisrelativelynewand

withoutmuchofatrackrecord.

Sources of financing and capital

Whenconsdi erni gtheprospectofraisingfinancing,thefinancialdirectorswil

firstevaluatethefinancialhealthofthecompany
.Theywilthendecidewhat

proportoi nofthecompanywilbefundedbyequity(thecompanysown’

reservesofcashandmoneyraisedom
fr isuingshares)andwhatproportion

wilbefundedbyborrowingmoneyom
fr anoutsidesource,suchasabank,

sothatthecompanytakesondebt .

Debtandloans
 OceanofPDF.com

HOW FINAN

AVETING
ULA CAPITALSTRUCTURE

Wheninvestorsconsiderbuyingsharesina

company
,theylookatitscapitalstructureto

assessthefutureprospectsofthebusiness.

Thecapitalstructurereferstothepercentage

ofacompanysfinances
’ madeupoffundsfrom

sharesandearnings,called,and
equithe
ty

percentagemadeupfromborrowedfunds,

ordebt .Whenevaluatingcapitalstructure,

investorsconsiderthefolowing:

oce,ulr gaelnraAmsm
pwhatensieoyqtrui

nveiotkysirseldecorniesanrhdiaentsb

So,e.sitialbilowuhrstegahibhrectauies

hmatnyecaqlntouirm
afgnisphwantyi

anodoiatwrldoyeat-qbhdutaesbit

nveiksowilr-aboetesnylgenalrsmtisent .

Equity

FUNDSFROM

SHARESISUES

ATREANDINED

PROFTI

Profitfrombusiness

activities

Proceedsofthecorebusiness.
 OceanofPDF.com

Internal financing

Mostcompaniesprefertosecurefundingfromtheirowninternal

resourcesratherthantakeondebtthroughborrowingorgiveupa

stakeinthecompanybyissuingshares,bothofwhichcostmore.

Howitworks

Whenabunsiesnedusfndoscrt,aptaliyofr

expanosinoirvesm
tenitodreotrmanistciuernt

opeoarstinfcse,dwhtw
i ochoceihsetn:idfrhte

moneyorfmoudstiesoucrensoidfrhtemoneyorfm

whtnihteogranzoa.instfeBilecausehteraercost

atchedotbnirgnignuifndosrfmexetnrasolucres,

suchansietrhstahtasotbepadionabanokalhnte,

bunsiesmanagesrmusw
t egihteoppoutrnytciosotf

nughsitecompasnoyw
’ nufnds—htetpcitoriufdl

eanrbynivensitghtoseufnds—aganihstecosotf

nifancnig.

THERECENCYBIAS

lmevinti setviecerorfsyihnastmpotcnme,ysaepcinoeW
yh

ylgni tseretnI . sdnuf fo s levedleussti i sneciiaovtn,imaspleh

naht renos diap teg ot dnet krwo fo noi telmpoc ret fa thgi r

retal satinbesycnecrear dteahl tlacseycroieohvtni.A esoht

eve tnecer sez i t i roi rp niarb eht :nonmeonehp s iht snialpxsent

.oga regnol derrucco taht esoht revo

 OceanofPDF.com

HOW FINAN

Company

Long-termfinancing

Forabusinessneedinglong-term

financialhelp,itsownresources

shouldactastheprimarysupport .

Reduceinventory $

Itisexpensiveforabusiness

toretainalargeinventory

ofunsoldgoods.Cutting

Retainedprofits

secuder kcab yrotnehtneiv

Aportionofprofitsmaybe

fo tsoc ehegtar,ostts

pumhetonptbeidack bunise.
a ,noi tcudorpndreplacement

Acompanymayalsodecideto
ofgoodsthatgooutofdate

sellassetstoraisecash.
orbecomeobsolete.
 OceanofPDF.com

External financing

Whenbusinessgrowthorunforeseenexpensescannotbemetby

usinginternalsourcesoffinancing,suchasretainedprofit,

organizationsmustrelyonfindingfundsfromlendersorinvestors.

Howitworks noregisrnasom
peuxnsm
ieaflro

Exetnriaflncasiulppoctromesni .gnignel lahAccompanyhtasit

vaoirusofm
rnisuc,ldniggneitg hetieraldsetiydlonasotck

banokalns andsiunigshaerTs.he exchangesopirepnairgotesntil

avbleai soucresofudstie w
bleaibeotlasreihtecaptli

niafncigdependonhteamounat htorughteseaols,hfaerHs.owever

companyerquersiandwhehtehtre anusnetidlcompanymaysurtggel

moneysniededotersovlea otasreiacomparbealmouAn.t

shorte-rmsiu,seu,chascasohw
lf companywhtiagrleamounotf

ofrhteolnget-m
r gorwhtohtfe debw
tsnaoildfthiadrotasrei

bm
nueW
rsti.-eshlotri ufndsbecausenldesrnoirvesotr

gngnic,rniedanruiscoeafstei .w
selhtiebunsiesaksiry

Raising external

Short-termfinancing

f inancing
Arangeoffinancialagreementsthathelpprovidea

companywithimmediatefundscanbemadewithoutside

Generatni gfundsfromexternal

parteisasawayofraisingcashintheshorterm.

sourcescanbeachallenge,especialy

whensecuringinvestorsHowever
.,

thefundsdonotnecessarilyneed
Banklineofcredit

totaketheformofaloan.Thereare

Borrowrfombusinesschecking

anumberofstrategiesthatcanbe

accountuptoanagreedlimit ,with

implementedthroughworkingwith

interestypicallyatahighrate.

externalpartiesinordertoprovidea

companywithgoodworkingcapital.
 OceanofPDF.com

HOW FINAN

DEBTFACTORING

Debtafctonrigsanot
i hermeansbywhichbusniessescanrasieshort-ermcashAompany
.c sesl

unpadnivociea”(scountsrece,known
viabl.eto)athrdiaspara“fcttyorTheafctoadvanc
r esthe

companyamajopor
r otinofthetoholta,ldstheresunttthlieacount
cspaii dand
, thenchargesaefe.

Companynegoaeits seconvii Cnedosmpnay c a Focpaysortmpany

anagreemeniwthcih nadomtucserotout anagerdpecrenatge

ustnipadericeviabels .ortcafom
thet seopic ohtnefivocytei(pscyail

ni(vocaeirs)odalt onmwCtuser 80–90pecrewn)thni

” . dscoiuafoc“tnart . ortcafotmypante ewfaedrcpoaiyfs t .

Company Long-term

Puttingeffectivemeasuresinplacetoprovideongoing

fundsisessentialforacompanysol ng-’termgrowth.
 OceanofPDF.com

Going public

Whenacompanychangesfromprivatetopublic,itofferssharesfor

saletomembersofthepublic.Thisprocessisknownasgoingpublic

andenablesthecompanytoraisemoneyforgrowth.

Howitworks

Theporcesbywhchian

Waysto list on a stock exchange

ogranzoaintgoespusacob(il

Therearethreeprimarywaystotakeacompanypublic,

knownoatlsinfm
) akrshtend

eachofwhichhasdiferentassociatedcosts.Thetypeofpublic

ef,astirfoalfsapvairetcompany

offeringthatacompanychooseswilbedeterminedby

whcistnonlgeorwnedbya

itssizeandhowmuchcapitalitneedstoraise.

smnlaumbeorshfaerhdolesror

companymembeAsr.company

maychoseotgopucbw
ilhenti n

o
i

t Acompanyjoinsanewstockexchange

nedscanopitaflincegorwht.
u
d
o

Gonigpucbuilsuyhlaappensover
r
t
n

seveam
rl onhtsht;ecompany
I

makeslgalnndiafnacil

perpaorintsbeofrhtneiasftlge,

whenterialsescompanyshaers

ofsreaotlsecletdniveshotre,

geneparluocarb,icolmbnioantof

bohtE.achshaerpersensta

“,astnkdehn”tiecompany

Selectgroupsofinstiutionalinvestors
moneyhtahtecompanyercevis

orfmhteseaolshfaersbecomes
n
i
c

caow
pr,tliehta,lnitowowns.
a
l
P
 OceanofPDF.com

HOW FINAN

thenumbeorf

aroundhtewodrl

palce

1,415

10LARGESTIPOSINHISTORY

Whenaw-eklnownpvriaetcompanyundertakesanPIO,thereisfrcecompettoinbetween

nivestortsobuytsihareand
s, record-breakingactvitycanensue.Thisgraphshowsthealrgest

PIOsunt2014,
li basedonproceedsomrf sharesodlontherisfydattheywentpublic.

SaAudarm
i co 201S9au,SdoticEkxchange

Sa(uAdcaorbinom
li pany)

AbilabGaroup 2014,

oSrkotcEkxchangNeewY

C(hniesc-ommecgroup)

AgcriutlrBalankoCfhnia 2010,

ShanghSoaticEkxchange

C(hniesebank)

Stockexchange
O)PG(INRIEFOCLIBUPLATINII

nIdustrailndCommercail

Anifanm
cail arket

BankoCfhnia 20H6,ongKongSotck

niwhcihcompany

ExchangCe(hniesbank)

secuetirs(ockand
s

SoBtfankCorp. 2018,

shareas)rebought

o T kyoStcEkxchange

andsodlacordnigot

( apJanetcshonoglmearet)

cuernmtakraets.

Sepp1.70–171.

AAIGroup 2010,

HonKgonSogctEhkxange

H(onKgaoncuoeisg)pr.
 OceanofPDF.com

GOING PUBLIC

AcloserlookatIPOs

WORLD’STOP10STOCKEXCHANGES

AaniltPIiucbOinelfirgPI(O)

shtirm
eitfehtasthaernsi

excham
gnetrsTlheanhseagr

htecompanyaeroferdofprucbil

smostbosem
hnwtlgdio’lefr

sthiIea.lmosctommonwayofr tueslraasandne,sbuivesiautcrl ,

usmuosalbfnoitswlnfey

apviaretcompanyotgopufcbil

owholnrtugeTlim
fhe.

tniedsagrlenoicjntocafptli

outfndmoaerjxpanosinT.heraer

1.ork
New
StockYExchange

ohterasonosfgronigpucb—
ilofr

2.NASDAQOMX,ork
NewY

examfpeail,govenrmenw
t ansto

3.HongKongStockExchange

pvzaeirtsateo-w
, nedcompany

4.ShanghaiStockExchange

suchasanoainrtalrdifolhtr,e

5.JapanExchangeGroup

membesroafgrleafmyo-lw
i ned

enetpsreiwanothsleartkie.

The IPO process

Beforeacompanycanisueshares,ithasto

belistedonastockexchangewheretrading

(thebuyingandselingofshares)cantake

place.Thecompanymusthenfulfithe

criterianecessarytosecureinvestors.This

process,subj
ielngtehctytostrictfinancial

regulations,andextremelyexpensiveto

undertake.Onlyonceallstagesoftheprocess

arecompletecantheshareofferingbe

officialydeclaredonastockexchange.
 OceanofPDF.com

HOW FINAN

7.63

trillion

the otm
atl arkecatpaztiloitn

of companeis siltedonthe

M
oasf*a2y021

ShanghSaotickExchange*

4 6

Promotetheshareofefring

Companyrepresentativesaswellas

theunderwritersvisitnationaland

internationaldestinationstopitch

topotentialinvestors.
 OceanofPDF.com

Shares and dividends

Whenacompanygoespublic,itsellssharestoinvestors,whobecome

part-ownersinreturnforcapitalinvestment.Thenumberandtypeof

sharesboughtbyeachinvestordeterminethesizeoftheirownership.

Howitworks derefhebnfoacxUtg.epno

ngitaoeklcorhtnofBacxesg, ,cngiom
apcuiseblpanyi

onom
iacuatpnyugavloesdr syronatsevhodirasto

laitsectnsihoectfiopsr c,pytm
hiosm
fcilnaoubren
w

sevns.lovhecratipTsh derrekafenhotstiar

,s,evsrorotcietnsevrpconaipdr .ssenosyinm
saouplAbam
cya

mntvesantw
bihk,chi yletraesuvhstrsiahrpsi

desntehom
sipocta’nyp syrolctsienvaohlbuitp

hcayear,t hregtoe u.elaTv kegncaohectxiestv

ylonalniascheiodnm
tcftos nreiatateorgt

ecbarolhsetiraw
sfpvli . lortnmoegcm
ana

A share of the pie

Ordinaryshares,isuedbyallcompanieswhentheygo

public,arethemostcommontypeofshares.Therearealso

othersharetypeswhi
, chgivethecompanymoreflexibiltyto

controrglihtsavaialbletodiferentshareholdergroups.Most

sharesaresoldonthestockexchange,butnonvotingand

managementsharesareissueddirectlytoholders.Diferent

typesofsharesentitletheholdertodiferentrights.

Managementshares

Issued(usuallygiven,notsold)to

ownersandmembersofcompany
 OceanofPDF.com

HOW FINAN

Commonstock

Shareholders:

cohmetdnevidpsaniSheyar

ocm
hetnpsaenitysSehar ’

AendGtaotghtirhHeM
tave

ovotghtirheHtoeavn

micopm
anoutscrhpm
an,syerta

apoesactrm
nodiofent

co
hetevmRiecpsanynual ’

em
atsensanlticefpdrotr
S

$
s

x
c
h
a

67,564
n
g
e

what

Preferredstock

App1se9l’8P0IO

Shareholders:

worht

exif eviedcRveipdnai,

depvnidahiyseoadf

hseanordysietrl

a T hsearngveicrniytoiprke

edarebsrtafteflsaentoyf

venotsliochmetspianfyidpai

sghtirngi,vot anyf,i werefHeva

 OceanofPDF.com

SHARES AND DIVIDENDS

Establishingsharevalue

Theofcresoufppyalnddemand

sehtepceiroshfaerCs.ompaneis

25 %
siueonymialetdinumbeorf

shaersothepuw
cb,ilhcican

htenbeboughatndsdolonhte
the dornpi

sotckexchangDe.emandohftrose

roev

hsvauerl
shaersdietm
rniedbywhehter

nivesothrnikhtecompanyhas

doasyufr durnig

godufterconomcpiorspecst.

nfiIvesotrbeivlehtahte

the lW
laSrteet

companyspimredofsrubsatnilt

gorwht,eywlianotbuy

Cahsr o1f929

yl tnesuqe,hsrtncaohcw
ish

dveirsuphteshaerpceir.

Rising value of

ULAVE

shares
(INDEX

POINT)

Financialmarketobserversbelieve

thattheemphasisonoptimizing

45,00

thevalueofsharesforshareholders

beganin1976,whentheideaof

maximizingprofitforshareholders

40,00

becamea.Siprnioceritythen,the

markethasexperiencedageneral

35,00

upwardtrendwithoccasionaldeep

dipsThe
. graphtrackstheaverage

valueofallsharesonLondon
s ’ FTSE

30,00

rfom 1964to2021.
 OceanofPDF.com

HOW FINAN

$3

2,000

3
$1.50

SHARPERCITEOOHGIH SHARESPLTI SHARCERCFITATESIUED

Acompaenstidylonhteostck Thecompanydedcieosnashaer ot setac i f i t rec erahs wen seus s i t I

exchangehaseshtniaerpceir sptil ht.Iavlehtsepcrieoafch : dl eh serahs gni lbuod , s redloha

nicreaseohtsaitrensow enisxtg$3shasoer,achsaer sharehodlewrhti10,00shareast

m
cotscohsteampet
rni oti.rs’ nsiowwohtr$15.0. 50$1.ta02,nohswacae$3

Thehgihpcriepunoistvfesotrs. . 000 , 3$ l l i t s s i ht row l a to T h.cae

1999

HEIGHT
OFTHE

-T
OD
COMBOOM

2010

F
2007

AURBE

EUROZONE

OBAL
AUGLUST:

DEBTCRISIS

: YR
CREDITCRUNCH

1997

: Y AS
AINUJL

FNI ANCIAL
CRISI
 OceanofPDF.com

SHARES AND DIVIDENDS

Whatisadividend?
payoudtviendnIsa.god

Shaerhodlensriacompanyaer econommiclhate,ywnw
itcei—

usuyeladntoitapaymenotf htedviendporvdiensicomaen,d

cashorfmstTpist.orihfecompany htecapavtluieohtfe

paysadviendsumoneveyrshaer shaerhdonlignicer,aseHs.owever

thiasiuedb,ustitpothe htesrw
ail aysakirhtahte

m
ocsbpna’yoadrotdedciehow vauleosfhaersw
glodiown,

muchoptenroivfesatndpayou.t andcompaneisonyplaydviends

nIveosm
rtoayklactompansy’ fhtieyhavemadeap.torif

aretodvfiendpayoaunl,tgwhti Paynigdviendsaigodway

stciapgtloirwohtg,augseti ofarcompanyotarntcivetsoIr.

niafnhacilehtalnddedciewhehter seiseynaleritwadrofprnuitg

ontiven.tsiIvesotrwhoyerl moneyniotacompanysohtacitan

onshaernosfircomekaiyerotl ufnsdtneisgxtiouptuatnddevoepl

nivensitcompaneishtaiebrytl andexpandhtebunsies.

How it works

Shareholdersusuallyreceiveadividendifthecompanyinwhichtheyhold

shareshasretainedenoughprofitnthatfinancialyeartomakethepayment .

Thedecisiontomakeapaymentismadebytheboardofdirectors.Thedividend

mightbepaideveryquarter(fourtimesayear)orintwoparts—aninterimdividend

maybemadepartwyathrought,wihetyear
hthefinaldividendpaidjustafterthe

endofthefinanci.alyear

Announcingretainedprofits Makingthedecisionfordividends

Attheendofthefinanci,thaelyear
company Theboardofdirectorsmakesadecisiononwhether

announcesitsretainedprofits:thesumitntends thereisenoughtowarrantadividendpaymentand,

tokeepforeinvestingorpayingoffdebtsarther ifso,howmuch.Itrecordsdetailsofeachpayment
 OceanofPDF.com

HOW FINAN

INTERESTRA
TESANDDIVIDENDS

dvgehiwn,steadroiwlearesatrWtesrnthien

nosvetrioatvrbectiocaemrsyetoxpuale

nhiatnuerterbteadpohvemrbitsyecausenst

paymtesrntiandelyihat ecomn.Tshoim
eclatci

devanidoecotaspry-omtsegaoncurespani HIGH

TSERENTI

mnvaisnywatcnritchepba,iolseorhtfse

ETARS

uevah.lsretneacrsiunrt

ngi,sirneaorvistea,wrnehtsrin yCoelnsver

ximfonrhteinpyneoudcti-m,sertapsferay

hwktoeuitofteusrlgahpaisyeastlwlhci

bahcosne.turagydiksirhet

1602

htyeeahtre

nIdaCiompany

Keepnigfundsforgrowth

Thecompanykeepssomeofitsprofitoputbackinto
the

thebusiness.Itneedstostrikeabalancebetween

pleasinginvestorsandexpandingitsoperation.
siue
 OceanofPDF.com

The capital market

Thecapitalmarketisaglobalmarketplacefortradinglong-term

securties—bondswtihamaturtiyofatelastayearandsharesIti.where

governmentsandbusinessesraisefundsandinvestorsmakemoney
.

Howitworks otusesrocfasupa,tlcihasbunsiesesandgovenrmen,t

Theraerw
toytpesopforducstdolonhtecaptli andcaspaw
itlihaetnabelsgodsandsevcreisotbe

makres:htaers(quyat)nidbondds(ebnitvesm
ten.st) porducedT.hegonsiraulesrhotfeshaersandbonds

Shaersandbondsaersrodtilofnhtepmirayrmakre,t donogtanorifmartdnigaynvtcihtesecondayr

wherhteyaergonysirluaedan,daertldedon makw
re,thcsipunyeor,siflvheasoHtr.owever

htesecondayrmakrTe.thecapam
tliakrseciturcail vualeandbondartdnigevlescrltofdniefncenia

otaufnocintigeconomybecausetcihannuseflnds ,nogniiltcuartoicinfanstysintm
easoprpfiocnt.i

The structure

Thecapitalmarketencompassesthedebtcapitalmarke t ,

wherebondsaresold,andthestockexchange,whereshares

aresoldBot
. hhaveaprimaryandaseocndarymarket .

Primarymarket

Themarketisuesnewbondsandshares,with

investmentbanksoverseeingtheatrding.Itis

alsoknownasthenewisuemarket(NIM).

APMOCNIES

SELLBONDS

GOVERNMENTSELBONDS

ANDSHARES
 OceanofPDF.com

HOW FINAN

Raising fin

WHATISABOND?

Abondisadebtsecuritythat interestispaidtotheinvestor

US$
acompanyissuestoinvestors. annual
.When
ly thebond

Bybuyingbonds,aninvestor matures,theissuerrepaysthe

iseffectivelyloaningmoneyto originalsumehtofothenalo

theissuers,whoinreturnagree ro ser.inomaopCt sevni

topayinteresttothei.nAvestor governmentsissuebondsto

trillion
bondhasasettermofmaturity raisemoneythatcanthenbe

(alimitednumberofyearsof putbackintothebusinessor

thesm
ti ated

validity),anduntilthattime,the usedtofundgovernment .

dnob labolg fo

Bondsorshares:prosandcons

Bonds(debtinvestments)

atesronctiepoarytgedsoiberylluaeSlct .

Secondarymarket

m
earskaeltrcdpeibtkys:irseBloeanrds

Investorsbuybondsandsharesfromotherinvestors,

ehcxokctshantelniusagtivhotlesefIlange.s

notfromsiuni gcompanies.Thecashproceedsgoto

ortbocmunhesba,dplnaheyrdioeslr

an,inot
nvestotothreunderlyingcompanyor. entity

eoxbphaetnrfboedsrf

cohm
es.daroetlpnieats

aktsnbhoavendoisfBusyer

. ocmhetpnay

pnacliphretBcanucesyort

bousm
ndlusinea.tr
 OceanofPDF.com

T H E C A P IATL M A R K E T

Howdobondswork? andstdoaIrtlnc.sivesotr

Bondhdolesrevfciytbluycaeisl becausebondsporvdiemoer

oafgrloealrnwhtieachbonodfr, poretcintorfmskirhtanshaers.

whcihteyercevinetoarsnl,tg Theraervoaiursytpesobfonds,

wht.iegnoirsaulmonmayutir somesaehftranohtesr—htsekir

sIunigb,uyniga,ndnisgel eisnlwhehtehtresiuew
rblei

bondsatkepaclenihtedebctaptli abeotlpayhtenitersatnderpay

makrTe.themakreptalcehas ht.Aepnircsaulmonmayutir

seveufarnlocintseoi:frbonds secuerdbondsbiackedbyanase,t

andohteytrpesolafnsot suchasporpeytra;nunsecuerd

nivetsoir;peartsaxsaeifd- bondsnioatndsoceaisrmoserki.

nicomemakrbe,tcausehtesiuer Bohtbondsandshaersmaybe

seriquerdiotpayergunaierlts;t erferdotaseceuiTts.rhetm
r

andteinabelscompaneisand desbcireshteshaerobrondstfeil

govenrmenstoarseiolnget-m
r andhtecaifetirofwnesrhpior

ufndOs.htve,dlarebctaptli cerdotsrihpihtagtvieshtehdoler

makrsem
it uchagrlehtranhte htgeirhoterceviadviend,

sotckexchange(quytciaptli nihtecaseoshfaernosier,tst

maw
kr,e)thershaersaerbought paymenihst,ecaseobfonds.

Investing in the debt capital market

Acompanywantstoarise$100miliontofinancegrowthbutdoesnotwish

toisuefurthershares.Instead,itraisesthemoneybyisuingbondsonthe

debtcapitalmarket .
 OceanofPDF.com

HOW FINAN

Raising fin

TYPESOFBONDS

Governmentbonds Corporatebonds

GOVERNMENT SECUREDBONDS UNSECUREDBONDS

BONDS

Secured Secur

Governmentbonds Securedbonds
arethesafest aresecuredbythe

typeofbondbecausegovernments assetsofacompany
,makingthem

indevelopedcapitalisteconomies alessriskyinvestmentthanshares.

areunlikelytodefaultoninterest Examplesincludeequipment ,trust

paymentsontheloanoronthe certificates,andmortgagebonds.

principalsum.
)D(AI
SEPRTETNI%

100

90

80

70

$70

60

ov1er0

yeasr

50

40

30

20
 OceanofPDF.com

Gearing ratio and

f inancial risk

Capitalgearingisthebalancebetweenthecapitala

companyownsanditsfundingbyshort-orlong-term

loans.Investorsandlendersuseittoassessrisk.

Howitworks

Equityfinance(shares)

Mosbtunsiesesopearetonsome

ofm
r ocfapagtlieanirgas(olecald

Pros

nifanealcvieargTe.)heypyaulftrnd

edprbDaoiehtnavoets

hteoripearoitnsbyborwnig

So.hsaeblordserl

oa,vlinsandbm
ondosn,htey

conodinthiahteymakerguarl wmchu-pi,tsaryGtsorfd

beocmteapbtrlweioafhiaket

erpaymenstxoaiefdamounothe

e.siepxthersaosnrtvesiAngel
fht.Ievloegflenairgshiegnilhder

nio(htew
r odrhtse,bunsieshas
maeasunrsLoinwgeiar

enrhgt.snanlicfof
aktenoganrelsdo,em
b)tenivesotr

wblecioncenredaboustyaibli
nmtvesiseoatcrtaksLooriwrs

ng.iatrtedcriabndosts
oterpayandsehtsaisan

Cons
nisvoelfnht,icesykiHr. owever

amounotfpenaritgspm
itorifoer

cSohesm
adrwpnh,seiarny

htanenoughoterpayniethrgs,ith

orcntedomntidseicolfhlsa

geanirgcanporvdiebeterutnrs

orfunertni tShpieoadrf

otshaerhodleTsr.heopmitum

unfdsrhetingkisironsrvtesi

evloegflenairgofarcompanysaol

hteniaoctngiaotiLbegla

dependsonhowskirsytbiunsies

hseardoserlfsetnsri

secsot,hirowheayvglieaerdsti

ve
ioatdlrtHadsmneyavi

compotesriaer,ndstciuerfnilt

uCpoetsmotexpl

cyecsaltge.
 OceanofPDF.com

HOW FINAN

Debtfinance(loans)

Pros

ocmhtem
pianyfoaeksIpr ,

opnri.gotearlaeprcanti

nde.baidxtluictysiaetPnsrig

oDuewtldoniepshtri

High

orcntnClsoaimetrpany

gearing
oni.dseciof

knaom
swyniapeRnmt ount

. anpobclrefhdat

Companyhas
❯

upetsomtiaQnsedrpcklui

moredebt

avorf atoanlsansebuiesSm
llal

Highproportionofdebt

mbalyalsue-piavt.srabeorte

to,alequi
sodescri
ty bed

Cons

asahighdegreeof

Lom
aendprb.aeiuts
financialeverage.

p y T icalexamplesof ❯

evnmdpb,aeitnsurtI

debtare:

oprngin.otkahsipertfif

Loans ❯

exifoneducm
Drsbeaty

. ocmofpansyetsa
Bonds

andUseatznecasldipneari

. boacenurkfypt

htenibpdoetaitsriLfenardser

. venocysliofevnt

codaenrisinHgehiar

wneakli.sm
ecfoefuasr

Companyhas

nvi fm
ofpksuatyieontsrHgdhi
lessequity

atrtedrci etcfafyngeal.disvr
OceanofPDF.com
 OceanofPDF.com

WOH

SEALASND

NGIM
TEKAR

SKROW

Mnam
kgrietxi Mnapgkiertoaches

Oubtounm
dnakreigt nIboundmaknreigt

Bnudiesvoelpment noIfmroainm
t anagement
 OceanofPDF.com

Marketing

mix

Thesuccessfulmarketingofaproductorservicedependsontheconsiderationof

fourkeyelements—theproductitself,itsprice,howitispromoted,andwhereit

issold.Thiscombinationiscalledthemarketingmix,anditisusedasatoolfor

planningproductlaunchesandcampaigns.Beforefocusingonthemarketingmix,

marketersneedtodefinethetargetmarketfortheirproductbydetermining

whichgroupsofcustomersaremostlikelytopurchaseit.

The 4Ps and 4Cs of

Commodity

the marketing mix

Hhpteoarsdbyuelcatpsinfeci

engieerd andgnem
iostdet

Firstproposedin1960,theclasic

oanecum
xt?disepxatcer

marketingmixtoolcontainsthe4Ps:

product ,price,promotion,andplace.

heIntthsae1990s
tsacerwetrhe,se

om-treuschetdezmeisphacwhi,C4s

.olthet ofonmidnesdenetior

The7Psofthemarketingmix

del iated ermoa esu sretekrmameoS

modelofthemarketingmix,which

hasthreeadditionalelements.
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

DEFININGTHEMARKET

“ Product,

Inordertoestablishamarketingstrategyfortheproducttheyareinoduci
tr ng

tothemarketplace,businesseshavetodefinethecustomerstheyaimtosellto

promoitn,
byresearchingandsegmentingthemarket .

and place

Marketresearch

Seepp.192–193.

ecrat vaule.

hetom
hretfnkieagrtpesifdeIint

But pceri

newopaudrsnfhclt

Mnocuetm
wasneriascter

harvest

ancm
dserfom
gpnaigse

” aulve.

Cost

Price

Howtsphm
otrecductwlhli
❯

phtreodouvhafetlW
ctsihat

hctuoesmer
betianlwdl,i

om
utcsve?sorpisetc

goabduy?asvedpcier

pcneophutiW
rsealsihat

opdr?utcoypfetshitorf
 OceanofPDF.com

Product

ThegoodsandservciesacompanyseslaretisproductA. productcan

bedenifednitermsoefc,eazgvinsyep,trugisdkaec

,esinc,usredtiaprlm
notdi’hw
etlnum
iarsc.detaer

Howitworks Makretdsrieynfhtiegodsandsevcreishteynisel

Consumesrcanbesadiotbuybensatrheifhtran htervoiefrporduecvlw
tse,lhtiebenahteifcoer.

porhd,teupFcsot.rhdesuftm
hciltatakretr Thsoem
bjs’oetiraknasetlandcommuncaiet

be,aonthspeiafcoknasguemdanedrpersenetd. eachporduevcltaeslan.eothfreconsumer

otal
T product concept:

Coreproduct

three product levels

Prosbasi
ductc’ functionandits

Fromamarskperetesrp’ ective,aproduct

corebeneftioconsumer

ismorethantheendcommoditybought

byacust.Ioisamer
totalproductocncept

withseverayalersofbenefit ,andthese

mustbeconveyedtothecons.umer

Actualproduct

gabrkcan,gPnam
ide,

nda ng, idse , levl ytiqlua

tes that serutaef lonaitdia

avirm
orf trapsotducprtil
e
c
o
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

40

of newproducst are

olnstiheshevles

. hteryaeltasr

raV iation: five product levels

Thisvariationonthetotalproductconceptismoredetailed.

Itintroducestwomorelevelsbybreakingdowntheactual

productlevelintoagenericandanexpectedproductandalso

includesanextralevelofbenefit—thepotentialproduct .
 OceanofPDF.com

Product positioning

Avitalstepintheprocessofdecidinghowtomarketaproductis

defininghowitisdistinctfromthecompetition—whatisunique

aboutitandwhatarethequalitiesthatmakeitbetterthanrivals.

Howitworks hotfeporducotbrandanydfahcirlowstefdirnit

Beofracompanayulnchesaporduhtce,tmakrneitg orfmm
siaytrlpiesopforducsetofrdbycompotser.it

depam
trenhtasotdedciehowotpointsihte Theysaolnedotieyhnftaiethrciactusotmesr

makrepctlompaerdotcmposrp’tdeTiutsc.o aermkoieysoltusewhenchonsigapcauitrl

detm
rniehtepointsigoafpordumc,takretsr porducotbrandW
.htnisofm
roahinte,makretsr

musdtneifhtemom
sitpoatrneftauersandvaules canhtenceraetaporducpotnitsigmxaoirm
t ap.

Product positioning maps

m“ lauptecrpeaetaercomcymosnlreteM
akpr”a

,sebutirtta’nm
tatcioudprpmwtosagnisu

naonseblairavsadentesepr x nda y ot ,siax

tionitiposotewrhem
nryeaistdebtuirt.At

ytefas ,serutae,ayfntdi,lsuqatat,seciprduelnci

ngitsixe d,ebleal sm
iy.phtaetiOenlcbiai ler

evrot ti ondecapleratbeshesttocdulapr

h.uncaldeopsrhet orfpagoronitipos

Compettoir

abnrd

FOURPOSITIONING

Compettoir

STRATEGIES Compettoir

abnrd

abnrd

l a V oupinetoigs pAorduct
W
ERCPIOL

hastim
hoetdanopstal

s Brand’

vi led el ihweci rp evi tcar t tagninrea

current

. sei t i lauq lanoi tcnuf dog

poostin

Qopiyntouigsal pAorduct
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

EXPENSVIE

b a c
o
d n

n Anexpensive

g breakfastfood
hsditsafkaebrA
E

idealforbusy
ehostmtaide

profesionalsin
m
aehptwli

mieteursiel

. mndaoye
W
SOL

s
e

c
m,ietokcwlsahW
ti

a
P

aupcyosekapnc

hetnipaghecni

makre.t

l
a
e
r

o
H

mekasudnetS

tegrat dlaeihet

Olderpeople
 OceanofPDF.com

Product life cycle

Everysuccessfulproductlaunchedonthemarketexperiencesgrowth

folowedbydecline.omaxi
T mizeprofit,busi
abilitnyessmanagers

mustrecognizeandmanageeachstageoftheproduct’slife-span.

Howitworks efdrnisatgensihtecyescliuroatcm
il aniantig

Theraerytpxdcslaiebnfslaitgensiaporduct bunsiesgorwhTt.ehfieoldfleproducstmaybe

efiew
cly,htepiordsauet’cogforwhtmeasuerd pornlgedbyexetnosinasretgebis,ufhtieyaerno

bm
yiteandervenuM
e.osbtunsieseshavemoerhtan onlgegrabbnignewmakresthahter,bunsiesmust

oneporducotnhtemakreatnm
yitaen,dasretgci condsiaeulrnchnignewporduncstiodreotrconitue

manpiuoainltohtfepoifptlroducstahteri genenaritgervenue.

Growth

Salesincrease,andthecostper

customerfalsasprofitsrise.

Therearemorecustomersand

morecompetitors.

Launch

Businessoutlayishighdueto

productdevelopmentocsts

andmarketingbudget .

onnurternosi ehTre

mtnesevni .
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K

Difusionofinnovatoi n

(consumeruptake)%

Marketersidentifyfivedistinct

customertypesaccordingto

howquicklytheypickupon

anewproduct .

shtnmo

YTIROJAM LATE
YLTRIAOEJ AMY
LRASRETPODAY
INOVAOTRS

the elngthom
tif e

a porduct canbe

albeeldas “new”

34% 34%

Wtihdrawal

Theproductisphasedout

assalestalorcontinueto

fal.Thebusinessintroduces

areplacementproductbefore

theoldoneiswithdrawn.
 OceanofPDF.com

Price

ealbcsteuivhncgatr,eiPm
ovfnx:kteiar

ngdi.c,sonm
dleacutpw
irdosm
Pcylotshieayblt

s’retekm
oltrnecbpw
vauotsm
fenorafeksiurns.

Howitworks h,tehytw
eplordiuosw
clit

ose
Thtepceiroafporduc,t olkohftrecheapespcteiramong

makretsradopatnpcigrasrtegy compneitgporducst.

basednotnyolnhteacutcaolst Abunsiesmusatolkeniot

opforduocintbuastolnhte acounhtepceirchagredbvyiarl

pecrevidarvtcieneshotfe ogranzaoitnps,cauitraynlri

porduoctonsumfecIsor.nsumesr compvietm
it akreSsnt.eigt

htnikaporduchtasahgihvuale, apceirabovehtacthagredby

hteyw
blepierpaerdotpaymoer compotesrictanonyw
l okfrhtie

,tofbirufhtieybeivlehtevualeof porduscitupoetrihtesr.

Pricing strategies

Lowquality

Anumberofdiferentstrategiescanbe

usedtodeterminethepriceofaproduct .

Economy

Cost-pluspricingisaretailmarkupused

bymanycompaniestoensureaprofitis peHngvrahcli

made.Forexample,addingamarkupof50 misiyversihatopardualtc
ecirpwoL

. am
shetgcnaoyeriohsetr
percenttoaproductthatocsts$2tomake

❯
meansthateveryunitwilselfor

Loecwpir Uncodm
cuer’tosrpiet

$3,generatni ga$1prof i t .
hseargerlangadcipir

mhetkarof .

Pricingmatrix:pricevs.quality
❯

Mm
ninaglkiret

Aprosduct
qual’ityaffectsitspricetag—the manpbsdgernikdeatr

e.bpoliwsaas
higherthe,thqual
emor
ity emoney

consumerswipay
l forit—butmarketers
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

PRICINGMARKUPCOMP
ARISON

Diferentindustriesadopt

600%

diferentapproachesto

markups.Amarkupof

WNI E DRAFTBEER

500%

twotofivetimesthecost
%0 0 3 – 0 5 2 250–300%

cotsf cotsf

istypicallyappliedto

400%

drinksservedinbarsand

restaurants.Thehighest

300%

markupisusuallyapplied

tothesecond-cheapest

200%

bottleofwineonthe

winelist ,aspeopletend

toavoidthecheapestitem.
OSTC

%
) 001(

Highquality

Market

penetration

Loecwpir oceCpwilhrtegars

ocutem
srlotndrseiepbolis

morf ywcaom.ostrpiet

aum
dcetPsjirent nheIctras

ohnteocavmlrtcepialr

ownlog.yilfalhasopdrutc

yt i l ibixel f gnicirP ;gnici rp ssessaeR

owluesghm
vo-alisealitconsier
 OceanofPDF.com

Place

Know
ngw
om
ihtduow
scpe,hdroelutasipncdhreow

ylneticidevrefihofgeancdbu”stm
ledp“—
lrealc

alm
nsei.rgos—
etm
iualcskteari

Howitworks
Aseasloseuhtilepaclewhera

Whehtearcompanysgelods porducotsrevrceisodslu,chas

osrevrceicsu,sotmesrmusbte phycsoaieulstoerco-mmecre

abenoitldfandbuyhtoseporducst webetSsiea.slchannsealerhte

aseyalsiposbBei.lunsieses mecrhanastg,enbdsirtu,oatsrn,d

haveotdedcieonhtebesteasl paofltm
r shtatkeaporduorcftm

oeuatlndseaslchannoteglet htesarlendbnirgtoihte

htperioducsotcusotmensria ,m
usnroecsuchasAmazonoTrV

wayhtabtenstebifohtpeaitsr. shoppnigchankneisQl VC.

Main distribution channels

Aproductreachesthemarketplacethroughoneoffourmaintypesof

distributionchannels.Themostsuitabledistributionchannelisusually

dictatedbywherecustomersprefertobuytheproduct .
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

PROSANDCONSOFUSINGINTERMEDIARIES

Pros Cons

❯ ❯

oc tekrma redoiws sewgoalrevlA moecyrftndagkuilfdieRsai

, srmeotsuc ermohcaer nac recudorp comocum

tshowtnsiercuatni

. saera tnats id ni esoht yl laicepse enrpc.efsrhabetniorluot

❯ ❯

orfocbtnsiutrM
tsdmniezsi wol s fo ks i r tnehict i fsefensa,iercnI

nemrtiaer,seaidri odrpeuc es,pecasyieflveradellviery

ce.viersshitorfpesrbolnis nietrmediaeriarsenivovled.

❯ ❯

przoedsipowauhvlePtrci k a Tov
cwayholeronwtse

knowoceudtm
solgefbnuerygi yapehsladneirpoldsuct

.csitosglivyerdiealswlaselhsatbi e.alsopfnotia

Example

E-commercesiteselling

vitamins;theyaresent

tocustomerbymail

ordeliveryservice.

Consumer

Example

Electronicscompany

distributesitstelevision

setstoachainof

retailstores.

eRrlaeit
 OceanofPDF.com

Promotion

Promotionisnecessaryforgeneratinginterestinandsalesofaproduct

orserviceA. compelxandexpensviepartotfhemarketnigmxitn,vovles

communicatingtocustomersandinfluencers,suchaspeergroups.

Howitworks

Thepmirayrpuproseopformoitn

sotibosteaslbyarntcignew

cusotmesrwehlnicgtenxsitg

onesotyroustom.ehtnignew

Mosctompaneisuseanumbeorf

communcaoitneavitsconiofm
r

andermnidhtaergieatudeinceof

s’odaputrcbenst(eif ).
o
1p96e.–s231

s
e
u
e
m b
e r

Oneohtfeolnget-m
r bensteoif

communcaitgwhticusotmesri

,buthtahitpelsbdulbiarndoyltal

seytealhoupw
rseutab

lano.astrfaedpo

NEEDTOKNOW

Customer

❯
service
MedatgnrkaeIntig

CommunoM
caIi(ntC)

Providescustomerswith

amsbhretoPnd
m
rofniot

informationaboutthe

mchanseldialmosacrgse

product;offersupdates

MaCromM
( ankrgiet
andspecialdeals.

Commuoncait) anrgelFul

uesditpovirmoafctonoialt

mhetoketarocrhuot
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

Advertising

Direct

Runadcampaigns

marketing

throughmediachannels

Sendproductoffersand

mostlikelytoreachtarget

informationdirectlyto

marketandstickto

thepotentialconsumer

budgetappropriate

viasocialmedia

fortheproduct .

oremail.

Sales

promotion

Enticecustomerwith

offers,freesamples,gifts,

competitons,packaging,

andpoint-of-sale

dispalys.

contenttomediaorgetting
 OceanofPDF.com

Market research

eom
cnalAtguksw
cvihyrseodutaipbvcroht

m
son-rgeiaksofrh.ectioRm
fpdarecsktear

sghtointshiw
odotucapr mghti lles ksow
anihdem
ortlfsg.eriktar

Howitworks
.eveivtaitasitnaqduiQtlm
-usnatbre

hcnosraeidueorM
sm
tghrekitdacer sevdxnouscgnltoivnafkdstqioue

eng,rem
oisnarehltcyngfpbeilurs eviyrotagetarsuo.psim
Qglrpnxaediulro

.nosgyitesutdaheoricleravuRsti nsgcnadipothsm
badiupoenrtnom
glsla

ngma
uladiroe,lnsoftceauoi,rfbsdta m
nypgehsou.tdM
gbfiserponatkear

hcm
,neana
rysw
,iecar(pnuodhslext) cih,cfraesnhgipnodrcebstui

hclamsryenikoracdbPm
sw
o.antdeni onsheyiw
tquesanwedt.er

Primarydata

collection

Newresearch

toanswer

specificquestion
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

CASESTUDY

HelpingHummel

e ot detnaw lmueHdnarb raews t rops hostniniaDdnapnxeWh

?
ret teb t i pleh ot sospI mr i f hcraeser tekrmaot denrut ratewe,irus iel

c sospI .noi t i sop tekrmadna srmeusnoc st i dnatdestrcuednodnu

Marketer Marketer

wseivretni evi toartgi tsnuaucqof005e,v6idnta tsei ilduautqs 6p1u

tekrmaeuqinu evi f yf i tnedi ot tynimargeGnidnlaban,ekrmaneDni

has a reaches a

detaerc os la t I . lai tnetop tnmepoleved ht wi saera dna , stnmeges

question decision
DENRUTER D A T A

ar dna , sc iehptargeotafncimnoucdnoat snsopohistkmarwoinan

“ . fnufoaft sgnolmrueHt os t asgnsuikmdanseirovfignoisthaiTd

,znaiHerenpeosnedntas,isrcnhCoiigenseLtiacdedriat”sslanohtiobt

m.aet ecnegi l letni’ m

luHsesenfoi sursbedael
DETSEUQER D A T A

Secondarydata

Publishedmateria

Agency

Carriesoutoriginalresearch

andorganizesresearchdata

intomeaningfulresults
 OceanofPDF.com

Market segmentation

Inordertomakedecisionsaboutwhotoselltheirproductto,

marketerstrytoidentifydistinctgroupsofconsumerswithsimilar

wantsandhabitswhotogetherforma“segment”ofthemarket.

Howitworks naorwsdownapoetynalhituge

Makrenitgdepam
tr enstuse makrneiotsegmeonw
last,nig

asrtegyom
f akrestegmenoatin makretsordieynhftieonesmoer

noitdfhtepoetncauiltsotmesrwho niceldotbuyagvienporduc.t

aermkoieysltobuyapcauitralr Foerxampeatrf,lppynilghtsi

porduhtce,trbyniceransighte hyncm
rangopuat,coiltygetarts

chancesoafsucesupflorduct permuimpc-eirograncbiabyofd

aulnchT.heydvieaboradgorup gniteodkfazestm
onirhestail

ocfnsumensriotsubgorupsbased lgneiuvhloaw
cyhm
nohedren,

onmanyanfcoiutsr,ldnigage, tgnscudtoikhsim
dtorauw
pilo

efsyitlperfncoelosa,int, nerdslxhreihtdnsucw
m
tio

afmylsuritcuterh,ousehodnlicome, egareva,m
so-,ecsnvhobtiam
no

andocupoaintT.hspiorces tsey.hgnretitlntadnehia

NEEDTOKNOW

Defining market groups

BabByomesr oSeinctf
o T establishdiferentconsumergroups,

opbnowiepartueln
marketerscreatefivesegmentsandfocus

19a4n16d964

oneachindiv.Besi
idualdlyesidentifying

groupsbygeographyanddemographics,
XGoenieart ponroebePl

marketersalsoexplorepsychologyto
0891 dna 6691 neweteb

ascertainhowconsumersbehave,sothat
❯

M
enlsnali Soeicnotf

theygainabetterideaofwhichproducts

opbnowiepartueln

mightappealtowhichconsumergroups.

19a8nm
0d1-9i0s

Seealsopp.258–261.

❯
 OceanofPDF.com

Sociographic Psychographic

no snoi tcenoc ’ s laudividni sei f i tnedI , seulav , s’trsmeursenotncsusincooFs

laci t i lop ni pihsrembe ro aidme laicos poleved sretekrmapleh ot snoinipo dna

sretekrmagnipleh , spuorg rehto dna thgi r eht dni f dna segassmetnaveler

dna snoi ssap ’ srmeusnoc tuoba nrael tnmeges a tegrat ot s lennahc aidme .

:edulcni saeorPa s.ucsotf selraei tneit :edulcni saera sucofe tlaoiPtn

❯ ❯

Gomurpempshbier akertksRi

❯ ❯

maNelondsciursmfobfer eabCtlhiar

evHachrgi

enotdAwencydar

estastvepxnis

orfencpeAfr

octanemlai
 OceanofPDF.com

Marketing

approaches

Everyproductlaunchrequiresstrategicplanningtomakesuremessagesabout

anewproductreachtherighttypesofconsumers,arecommunicatedthrough

themosteffectivecombinationofchannels,andhavethemostrelevantcontent

andstyle.Oncemarketershaveresearchedthemarketanddefinedtheirtarget

audience,theyfaceseveralkeydecisionsonhowtomaketheirapproach.

Types of approaches

Whomtotargetandhowtogoaboutitarecrucialto Ratherthansendingthesamemessageviadiferentmedia,

successMar
. ketersmayuseseveracompl
l ementary theyusuallyadjustthetoneandstyleofthemarketingpitch

approachestodiferentgroupsofpotentialconsumers. tosuithechannelaswellasthetargetcons.umer

Nichemarketing

“Ionlyhaveeyes”foryou.
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

89

of women wordlwide

hteasy cornlt or

sharethe shopping

ofdraylnieeds.

Sensorymarketing

“Wakeupandsmell

”theroses.

Itseducesthe

darTitional

customerwithsights,

channel alliedwith

sounds,andsmells.

adominatingstyle.

Seepp.206–207.

“Letme”tielyou,

blares.

Seepp.200–201.

Relationshipmarketing
 OceanofPDF.com

Niche vs. mass

marketing

Twofundamentalchoicestraditionallyfacemarketers:whetherto

trytosellaproductwithbroadappealtoasmanypeopleaspossible

ortofocusonsellingatailoredproducttoadefinedgroup.

Howitworks usenIetnrecthannesotlpormoet

gnitekem
hrahc-dtsniom
aBsa htesameporduoctefdrnit

sesigesrsteanrfeihtsfutbos gorupsocfusotmesrwhtnia

lanirtunhegtoeteiorahm
tpka masaudenice.

.tm
nehtcseahovcnrpniAoan

yl lsaw
riseo-hksnfaelobtw
gro

esm
ceumieloatorpasv

ci,fsem
ruipesconleopfrw
cogasih

hcasodynvoerapsehutam
sa

20 %

noecniem
troiednuraw
tpi

mueloe.vse-hm
gislhoacishat

osafels can

,bunsiesestndotmxinyIterial

upbohtapporachaeuls,nchniga

makuepot

nchieporducatndhtenexpandnig

toiamasmakrM
e.takretsraol

80%ofprofit.

NEEDTOKNOW

Long-tailmarketing

Wired

Coinedby magazineeditorChrisAnderson,theterm“long-tail
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

Massmarket

Whoandhow

ocogurfpearlasgetartnseBuismesr
 OceanofPDF.com

Traditional marketing

ydevalitaleusghtorielxm
adBngc,ierfodktiear

,otcendair,nadsm
pirl,aldeia ,shucnaTslVe
w

acle,vdns-toclling,toconveytheirmessagetotheconsumer
.

Howitworks

lanoginsetissm
itadoepkcnrem
Ta

detset-dna-deirm
fsueow
tanbya

gnidgndlniahdsinurpab

tsnlcudm
i.otlearaIm
stpo

.gnitetceaykfew
okradays,
Nm

,rw
eovhemosbtunsiesesuse Events

amxaiortdnfianlddgatil

Stagingsportsactivites,

makrneitgmehtodOs.neohtfe
themeddispalyspar
, ades,

advanatgesaortdinfim
alakrneitg orexhibitstopromotea

product ,cause,orbrand
shtiactompaneishaveafcaoeftc-e

conatcw
thticusotmeshrtorugh

pesronopt-esronigslep,eacil

evenastn,devenstponsosrhpi.

Traditional

marketing process

Smallandlargebusinessesuse

arangeofconventionalmarketing

channelsandoftenintegratethem

withdigitalmarketingstrategies.
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

Productsamples

Offeringfreesamplesofaproducttocustomers,givingthemthe

opportunitytotryitbeforemakingapurchase aneffectviewayto

launchnewproductsandbuildacustomerbase

Radio

Usingcommerciaslotsonradio

topromoteproductseither

locallyornat,dependi
ionally ng

onthesrtaetoiach
n’

Newspapersand

magazines

Buyingspaceinprintmediato

runadvertisementsorcreating

advertoriasltomarketproducts

orservices
 OceanofPDF.com

Digital marketing

UsingtheInternet,marketerscanconnectdirectlyandinstantly

withcurrentandpotentialcustomerstobuildbrandrecognition,

collectdata,andencourageword-of-mouthrecommendations.

Howitworks

Ukniearlotndieilaofl

e r
p
i
e
x

e
makrneitgdam
,til akrneitg

gviesabunsiesdw
etrci,tow
- ay
e

communcoaintwhticusotmesr.

m
Dgm
atil akrneitgempoylsome

u
s

convenointalpporachesu,ch
n

as“popu-p”o“rbanne”rads
o

onwebpagebs,utsaietolisrl

OM
TUCSERVSITTSHEGYM
C

heayvolinhtepoweorsfacil

medaonisfrgawaernesof

aporducotbrandT.hsm
i akes

thiadreotrmeasuerutnron

nivesm
t enD.tgam
il akrneitg

soietfnusedniconujnocint

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 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

i
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 OceanofPDF.com

Engagement marketing

Byinvolvingcustomersdirectlyinthedevelopmentofabrand,

marketershopetobuildastrongtwo-wayrelationshipwith

customersandwinlong-termlo.yalty

Howitworks

Engagemenm
t akrenitghanreses

Start with “wow”

a

seveoarnlielandieloasfrtegeis

odtaw
racuom
stniet’rsatnd

experience

gehtemkantilgabouptorducst

Provideinteresting,informative,or

s.stescairvstnrdoenihw
cTsahtihte

entertainingcontenttodrawpotential

moeraotdinisaeytlom
f akrneitg

customerstoawebpage.

niwhchiabarndconcepatnd

porducptorposaerlpersenetdot

htecusotmeaxrisefodtb,ehtier

acepetdoercjetdE.ngagement

makrneitgo,nhteohtehrand,

encouargescusotmneirpustohtat

hteyeofcsleotrhebarndT.he

gosutialerpoetncauiltsotmesr

othewebetsw
ihtianilti

expeinrceandhtenwokrhadr

Sale

otkephtemhter.

,eshacpurmosm
ekatreuscOenc

lulf , l lacelas-retfahtwiupowlolf

mecnteornfierodg-lef of .

NEEDTOKNOW
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

%
of peopel aremokrielyltobe

72

ota banrd oeftifirs apersonazieldexperince.

Enticetoysta

intouch

Offerincentivestovisitors

RTTAATC whentheysignupforemail

updatesandnewsleters.

Virtualengagement

Designeveryaspectofa

websitetomaintainvisitor

interestsopeoplereturnfor

newcontent .
 OceanofPDF.com

Sensory marketing

Sensorymarketingtargetsmultiplesensestoswaypurchasing

decisions.Basedonresearchshowinghowthebrainrespondsto

sensoryinput,thistypeofmarketingactscovertlyonthecustomer
.

Howitworks

ygnlysuiorostienvkbtom
iSsroa

Sight
usedbyhteofdanddnirknsidueisrt,

bsutitsexetndsotdviesreporducst
e T chnologyismaking

andsevrceisc:ompuetsrdegsined advanceswiththis,themost

stimulatedsenseinmarketing,
whetailm
cthaset,oilrsetlcenetd

byusingopticalilusions,

skweroarxoectluosm
tineavnfes,dr

digitaleffects,3-D
and

.gnisiytaerutelptbasfeniodcef

360-degreephotogr.aphy

sylalrceonrsnoiapehysfcT

,gdneuileltcenikuch
fira
sm

e-orot,t-nsoest-nm
elrapvsepia

t,ctsne,ocudsroldraniepam
dsa

eniilrnsuob.Fnesyerse,vi led

, regnvidew
noiehsutaw
fya

.egneslnm
ltieahacri

uoT ch Smell

Marketersuse2-Dand3-D Customersarewilingto

texturalprintechniquesfor paymoreforaproduct

promotionalmaterialsand soldinanenvironment

packagingaswellastosell thatisscentedappeal. ingly

productswithtactileappeal.
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

tude,
iAt memory
,

NEEDTOKNOW

,and
beha
vimood
or

gni tset yrosneS fo tnmessessA

Thesensoryinputresultsinashort-orlong-

ht wi srembe lenap yb stcudorp

termeffectonattiude,memor
,behavi
, oyr

noi tpecrep yrosnes lanoi tpecxe

andmood.Thiscanbeinfluencedbythe

yoghnolcet ciHpta onintevI

intensityofsensorydataandbyusingito

hguorhthcuot setamluis taht

ocno snoi tarbsirevmtup

gni tekrmaD-3

fomrof evi srmei nA

gni tekrmarmeusnoc

Perception

Thebrainreceives

stimulifromone

ormoresenses.

hetbydeseocprerahbot

Cognition

ngiseocprretAf

niabrhet ,m
iiultsyornses

, mmeydsbeor

nadon,m
eiotsetaugler

demciaeksions.
 OceanofPDF.com

Relationship

marketing

Thestrategyofrelationshipmarketingistodevelopand

manageatrusting,long-termassociationwithcusotmesr

.sdrekahlorentdw
sokihem
octw
lvapinay

Howitworks

Roaeintlshpimakrneitgami sot coproarintshavenowchanged

ercpaiethleytpenoietfarocint htofercuiosrfmmaknighte

hatglavteisotersoncehadwhti saeoltearinltshpisandorfm

lgnevhgeihrctueoilahrsm
tefose,r shotre-rmrewardotlnget-rm

dezi lanosrefspo vcie ganTi.hemakretcranexetnd

otwnihtemovm
eifotarle. htenew
t okrbeyondhtengaged

Wehlsm
iolcab,laulnsieses cusotmeontriucldempoyles,

agr,lenayutw
larokrhstw
i ay supeasprni,ldohtesr.

Six markets model

Relatoi nshpi marketinghasestablishedastrategyforocmmunicatingwiththe

m
krom
atresuc lonaitdiart tsuj —cusnotstem
ktr.Thioaxmer
istratsen—gysitefde

wherecompaneishoudlreichtemri arketingefforts.

CASESTUDY

Starbucks

Thestrategyofcoffee-shopchain Marketinginternally

Starbucksexemplifieseffective
❯

ngiartatsBiar
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

Reframarket
l s

Customerscanbeword-of-

wordomf ouht

mouthadvocatesforacompany
.

Relatedbusinessesmayalso

nithe

refertade.

Internalmarkets
Customermarkets

Acompanysempl’ oyeesareits
Themainmarketingfocusison

internalcustomers,workingtogether
customers,butactivitesarebased

torepresentitsgoals,mission,and
moreonbuildinglong-term

.strategy
customerrelationshipsthan

onacquiringnewcustomers.
 OceanofPDF.com

Outbound

marketing

Alsocalledinterruptionmarketing,outboundmarketinginvolvesamarketer

pushingamessagetoconsumers.Withthistypeofmarketing,businesses

typicallyreachouttoawideaudiencebypayingforadvertisementsonvaroius

.hm
ousnegtchaAsm
undleir,nethayvneotidr

outboundstrategyreliesondeliveringahigh-impactmessageandgenerating

aresponsebycreatingfamiliaritythroughrepetition.

Outbound marketing process

Outboundmarketingtakes

atraditoi nalapproachto

Broadcast

grabbingconsumersat’ tention

butmayusebothnondigital

Marketersselectamedia

anddigitalmediaplatforms.

channelwinetvohpr

Therearetwostagestothe

neht dna ecneidua tegrat eht ot hcaer

outboundprocessFi.rst ,the

communicatethemessageabout

companycommunicatesa

brandorproducttothataudience.

messagetoanaudienceand

triestoconvertheminto

Communicationchannels
customers;second,itanalyzes

theresultstoidentifythe
❯

Aom
pdnirm
sietT-Ve dni f ot
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

%
TYPESOFOUTBOUNDMARKETING

86

Offline
obfusnieses

niCglcoadl

use vdieo aas

dmaiotfegahrteirhtusoeitcyndateufci

anydm
aluepdcnalfrtihesac;grobduel

markneitg too.l
esurlaBwoegftnareu.ievdridel

ue.sstingoveir

TcoVmmsalecir

hwtarimfhelasm
rTtVyidvteforcwh,snti

am
ynoptdganeisfphtrdoeiatn,i

.m
osharcetgse

Radoi

mcomsaearchombgloachnwiuctaniel

obutrofudnem
iadlmsaniesgdeatd

Analyze

moentirakli .

manlGakgrileutier

Marketersmonitorthe

arcght-infoiahcpuanrodcnalivent

progresofoutbound

veiectfef-cotrsabcoentacespawlseicyapiubl

campaign,adjustthemixofmedia

omefrnaogfsemiTshwaensiardtb.s

nda ,snhalceorfd-piaohrte

nmg.iketar

hmetneasurecampaignresults.

Actions Online

❯ ❯

msaertsortstentocdnanuRl ot mSoalciedai
 OceanofPDF.com

Traditional offline

advertising

onalgnietsiadilrtsfe,m
uaOdvrhcam
snfl,edsiagz

,dsboar,.elcadilvonaredm
tbuiaOsoprc,ktenlar TV

ngisinasdtow
veraliitr asthedominantformofadvertisinggl.obally

Howitworks Makretsrchosefdernit

Thecommonaetocifrboht channsealcodrnigotheatgret

onielandnioelfadvensitrg makredtneifdohftreporduct

aerhtabtunsiesespayofards osrevrciebenigadvesitrdT.he

htatenrietndedotcactha choceimaysaolbebasedonhte

sonucmae’tneroitnwhti ROhtIatcompanyhaspervoiuysl

abarndoprorducm
t esage. expeinrcedohftracthanne.l

Bunsiesescaulethe ,rHw
eovartecknightersponse

sucesohtfaerdivseitrment arentioelfadvnseitrgsm
i oer

byolknigahterutnron cuitfadlnideslacuarethan

nivesm
t enR(tOof)erIveyrad artcknigonieladvensitrg

sepp21.4–215
dasolrpenA.tndotmaxmizei ( .)

hteROht,eIymusm
t akesuer

hteychosehtgeirhcthannel

ohftraegrieatudeince.

OFFLINEADVERTISINGANDRETURNONINVESTMENT(ROI)

59.5%

Oneofthemostimportantsetsoffigures foramarketing

departmentisreturnoninvestment(ROI)foradvertising

spend,whichindicatesthesuccessofitscampaigns.Data
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

Offline advertising channels

Pros Cons

l eT evision

Offerslocal,national,and onitipterda ;evipnesxE

globalreach;mixofsound ;uegitaf weriveusacmya

andvisioncreates piksotylekil erasweriv

high-impactmessage. .ohwsdeorceronsda

Radio

Inexpensive;quickand Competitonforprime

easyproductoi nprocess; moc“ mute”slotsr;adio

moststationsplayto onasbackgroundnoise

specificdemographic. rendersadineffective.

Newspapers

;seocpronsitacipFublt onintettaorfomcetpeAds

hm
enwtpareds onlaimretahreothtwi

NEWS

meororfowl laonsitces akcablyl lausu ;engapd

.ngisitredvadetegrat pihsredaer ylno-txet ;et wih

.deni lced sah

Magazines

onitaulcricninmeriM
aya seurgifonitaulcric laRe

dearthecni m
;hsontrf ngiurces ;ecoursotdrha

seltit tserenti-laipcesnda ngnaiplserqeuir otlsda

.ngisitredvadesuocfowl la .ecnavdani m
shotn

Directmail

Cost-effective;delivered Maybeperceivedasjunk

straighttopeopl
shomes
e’ mailandinstantlythrown
 OceanofPDF.com

Online advertising

Marketersareincreasinglyadvertisingonlinetopushmarketing

messagestoconsumers.Onlinechannelsincludediaypnsldm
elobi

,seoghicalen,orsm
aetnigdcslng.am
idekitar

Howitworks Searchadvensirtgpalcesadnsi

When marketers advertise on the ehW

tebpageshownigseacrh-

Internet, they have to choose both engniersW

ut.lehdlsipaylads

the form of the ad and a location kaiyerotlgem

t oerviwsov,elar

that has an audience matching seacrhadshaveabetcrhanceof

their target market. Thereare erachnighteatgreatudenice.

sevearldvnseitrgchannbes,lut latm
tngsirioeshvdfiaoOt

htew
t omoseotnfusedaerdspiayl ,gnisediuetlrhclnecvdiw
am
bho

advensitrgandseacrhadvesintrg. tneltnsodmiecabo

Display advertising includes sentoehpw

dletbadm
rniatsov

banners with text and images, ,;steslgxdanesm

rietoase

which appear on websites yslretvceihrypoclndieatcwih

known to be usdtbeyarget ;lsaseilacrdonm

isaede

consumers, such as news, social ,gnisitrhysnem

cavopdsuacwih

media, or video content sites. slatescuaidm

tocoirsvpt

gnitkengcam
risaoridltaOn .el ifoarApm
ideoajrdvanatgeof

gnirevi le,dylesicesdrpm
ao gniseintirevldnisaohtaertsponse

tnatvnedletnesonaobcrmo . aretscanbeartckedevfycitl

.yt ivi tcbae ’sWm

ruesnoac

MOSTEFFECTIVEONLINEMARKETINGCHANNELS

Whichdigitalmarketingmethodisbestforgeneratingsales?

Ina2021globalsurveyby,market
AW
eberersplacedemail

atthetop,thankstoitspotentialforpersonalizationand
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

Online advertising channels

Pros Cons

;gnibargd-noaiftneitAt Internet userssufferad

Dsipaly

nacsecus on,dekcilcsi fatigueandignore

advertising

aphtwidekca-rpe-tyeb advertisements

m
etsykcilc

ngitegrat orGfod ent

Pot ialyexpensive
Search

reushcraes sa ,umsoncre ifusingpremium

advertising

dhecmtaeradwsyeork keywordscan
; take

xx wydeskorresitredvaot timetoseeresults

( 132–0.pes )

Cheapertodevelop ndasezisnercs netreffDi

Mobile

contentformobile datortsdinacm
etsys

devicesthanfor lefmyareus;oyatl

computerseas
;y onipturrenti bydenoya

totrackadeffectiveness

Offersopportunity Recipeintmaydelete
Email

toreachmilionsof emailwithoutreadingit

potentialcustomers dootylekilmaensordi

( seepp.216–217 ) bomdne;gbrailef fios

denylmnorlanteonsc
 OceanofPDF.com

Direct mail

Bytargetingalargenumberofpotentialcustomersviamailoremail,

marketershopetoconvertsomeintoactualcustomers.Thisisachieved

throughthetiming,design,andwordingofthemessage.

Howitworks govenrigetxm
t esages,ma,naldimw,alhtiurels

Dercm
itwaliokrsonhtebasoiefndnigaporduct opfrom
satlakrneigt,eyhvslceitHr.stowever

eoftraglbe,uatgretdg,orupopfoetnailt youmaynostendpesronyalddersedetsolr

consumensrihteknowedlgehtaetlstomeof anyonewhosinhteMPalerifernceSesvcrteiolr

htemaw
tkleaidvanatgTe.hemoeratgretdhtsi whohasaskedyounotconathcemT.hemost

gorups(iehrapsbeoy,lbtjoicltainotpr,evoius upotd-aeturelscanbeofundonhtewebetsohife

pucrhahtse,b)ehtrersponskeayirstolbe. DeM
rctiw
sdoenakrgeitlAeotM
nsailreo.tckar

Dercm
iteisroltaniolnfamesandadderses, ,sestdsecenshgyuredoilnhvesdruiatbm
sa

wchciodublhetcompanseyn’xsitgeincplst,eopel ts.tpaihoetyupnfhTotalkepecrenatgeof

whohavepervoiuysm
l adeniqesotuiar,m
li anaged peopew
l hoersp,anonddotdercm
itak,ehlatieofr

sti.Ipboyraspzaetindoctliaogmenpcyw
m lhti becomecusotmesr—acaetgoyrknownashte

datporetcintalwsgovenrighteuseopfesronal conveosrinaret—seixertmeyolwbuntevehtrels

dnaIht.ehtUe,Sr.ageriyhsfeldrtniuretsl porvesotbeaptbeoir.fl

Direct mail and email—A/B testing

A/Btestingcomparestheeffectivenessoftwoversionsofamarketingemail

ordirectmai.The
lcopytwoversionsaresenttodiferentgroupsofpotential

customers,andtheresponsetoeachismeasured.

Y WKEDA

MALING

Seeresponse

orfmemhtilai

APROACH

oM
nonday
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

HOWTOSENDDIRECTMAIL

1 2 3 4

Acquire Preparedirect- Sendlettersor

names mailcopy emails

Useowncustomer esnopser/ref fo et iWr dereggats( l imadneS

contactsorbuya edulcni ; snoi tcurtsni dispatchcontrols

sitl Be. careufthlat nediaperpvelope. flowofresponse).

thosesitldhave

gvienconsent .

CampaignB

Sendemailstoremainder

ofthegrouponSaturday
 OceanofPDF.com

Telemar k e t i n g

eatngim
tecialsenktrioacnhew
dituBxaspoti

snregm
eifktelfora .T yom
st.calheum
onsCtlcareusrepnaydi

senseaw
biuestom
r.yantsqudcire

Howitworks measuesrivenuepe—
crlaafgienBtmakes60

meleTakrneitgwokrnsiw
t oderocintsi:boundand scpalehroubru$t450wohtrosfaehtls,econveosrin

oubtoundA.cusotmem
raknigaotclabunsiesw(hti aretpsehicrlgaihoeafrgenBthtanagenAt.

aqueosintocrompoanferli,xtamsperil)ferdotas ngim
etknCgleram
oitusem
ocypnatiuspl

aniboundt.gIcvlaieshtebunsiesachanceoteranti noitcew
anhtoreapdw
t.UIlos,Si

acusotmew
rhomaybedsiafw
thtiaporducotr nosduliarem
ivtaeklznderagilnactoriy

sevcreiotrwniovearnewcusotmecronatncitgofir detsencirehpTnoivefP)STtlro(

htsrm
eitfW
e.henabunsiesmakesanoubtound,cla sy—
rl’naotseldaCregdialNCTFm
-rDso-tmi

stoiasledodintipalorducstosrevcreisotanenxsitg sretngsnoyievgrevfw
oicdehfuprotsa

cusotmeortenceitanewcusotmeotrmakea .slnghresyoilntaw
cNmtekirhaoev

hTpceau.srm
l akrneitgseaslcanbemonteridni ngsidverltnice.holatm
obSpicrsjyete

odresrpehroufe;rxampaeg,lenAtmaymake140 ,enacsurendotuhcrsfbgaipevyo

spclaehrouarndgenearet$40A.moervfciet ngiem
sketluhare.btsyuFoTCulr

Outbound and inbound

telemarketing process

e T lemarketersusuallyrefertoalistoftelephonenumbers

retrievedfromadatabasetoocntactneworexistingcustomers.

Callcenteragentshaveaccesstoproductinformationtohelp

themdealwithquestionsandcomplaints.
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

MAJORCALLCENTERLOCA
TIONS

ThePhilippinesisoneofthetopcallcenterlocationsforUSfirms.

Thisbecaus
i eofthehighnumberofFipilnioswhohaveaUSeducatoin

andknowledgeofAmericanculture.

naloPd

reaIlnd

Chnia

nIdai

Pphilpines

Evaluateefefctiveness

e T lemarketers

effectivenessofcalls.

Customer

Thepersonwhodecides

whethertobuy

aproduct .
 OceanofPDF.com

Inbound

marketing

Inboundmarketinglurescustomersbyofferingthemappealingcontentand

engagingwiththem.Theapproachpullscustomersintoarelationshipwitha

brandratherthan“pushing”themintomakingapurchase,whichishow

advertisingworks.Inboundmarketingisalsoknownaspermissionmarketing,as

potentialcustomersaregivingabusinesspermissiontocommunicatewiththem.

Inotherwords,theyareactivelyinteractingwiththecompanyorbrand.

Inbound marketing process

poT typesofcontentmarketing

Contentformsthecoreofinboundmarketing.It
1. Blogs

includestext ,images,andvideothatconsumersseek
2. How-toguides

outonline,especialyonsocialmediasites,orinperson
3. Images

atevents,suchastradefairs,andsharewiththeir
4. Infographics

networkoffriends,and,famicollyeaguesoteP.ntial
5. Videos

customersrespondtoinboundmarketingbecausethe
6. e T stimonials/reviews

businessorbrandisofferinginterestingandreleavnt
7. Casestudies

information,entertainment ,orcontentwithemotional

value.Businessesexpectthisintearctiontoculminatein

Exploration

asaelorcreatebrandrecognitionthatleadstoasale.

Publishandactivelypromoteocntent;usesearchengine

optimization(SEO)toattractconsumersonline.
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

82 %

of marketrs usvreyed

INBOUNDMARKETING

2ni02sa1ythey acviteyl

STRATEGIES

use conetm
ntakrneitg ,

Offline

urpofm 70% the

yebaerofer.

Searchengines,socialmedianetworks,
Online

webpublishers,andthird-partyblogs
 OceanofPDF.com

Outbound vs.

inbound marketing

Outboundmarketinginterruptsconsumerstopromoteaproductor

brand,butinboundmarketingneedsconsumers’permission—they

havetoseekoutinformationthatleadstothemarketingmessage.

Howitworks gnitpurtnerethnotci

BeoferhtesirohtfenIetnret .sm
srueshcnoscatwi

andhtephenomenonosfacil , reveswm
sureosanHcoecb

medm
ai, osm
t akrneitgasrtegeis mdolrehlw
vsounw
tafro

weroubtoundIo.htew
r odrs, tem
nrhocenorfteonahietaifsI

makretsrpushedmesagesat , tm
neisarterteekvtdnahm
era

consumersbynietrupnitghtem seig,edaetdaneutorsbtnpotdisa

whtiadvseitrmenstodreicm
t.ali gnidtneitw
veaosnhortdcp

Thesamepnirpceilapepisotl tm
crudnesoanhorpobtc

oubtoundmakrneitghtatppeasr gnrgienhntiaehksum
ptra

onhtenIetnrw
e,thtipopu-pads smeghatsamse.

Pros and cons

Marketersinteruptconsumerswithhundredsofoutboundmarketing

messagesever
,butytday
heyalsousesubtleinboundmarketingtactics

toattractconsumersEach
. strategyhasitsadvantagesanddrawbacks.

d
n
Pros Cons
u

❯ ❯
u

Campgeasrnutil can
O

anomedbcfratseeausdr

❯ ❯

Mm
nakgrieltiart is
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

ROI:INBOUNDVS.OUTBOUND

AreportcompiledbyHubSpotin2018saidthatmorethanhalfofmarketers

findthatinboundmarketinggivesthemahigherreturnoninvestment(ROI).

3
3 1
%
5

%
?

16%ofmarketers 31%couldnotor

53%ofmarketerssaid saidoutbound donotcalculate

inboundmarketinggives marketinggives ROI/donotknow/

higherROI higherROI notapplicable

TRADSEHOWS TELEMARKETNI G I A P DSEARCH

$
 OceanofPDF.com

Blogging

Businessespostinformationarticlesonweblogs,orblogs,asaway

toattractconsumerstotheirwebsites.Theymayblogontheirown

websiteorrelyonindependentbloggerstoachievethisgoal.

Howitworks pushbim
l aonetilrTel.hsytipeowfebconetnhtas

Ukniealconvenoitw
alebaetsb,oiglsaiethsiat nsicebecomeonehotfemosctommonsoucres

constipueyrnloifm
roaintaplostoernisrhtat noifm
r oaintandopnoinonhtenIetnreA.thlough

ap,satprenaigrtchw
ornhotgilcoeadirm
lerost itwasonceonlyindividualswhopublishedblogs,

ercenBo.tlgsrtisfaterdappenairgnihtemd1i-90s, manyarenowcommissionedorprofessionalyledited

whennewwebotsm
l adetpiosbeoilfnronexpesotr sde’cgnuydnieoam
hdptoneyrpkectbadmraartment.

Blogging process

MarketersmayuseSEOtools( seepp.230–231 )togaininsightintowhat

sbein’ g

talkedaboutonline,whichhelpsthemdeterminethemostsuitabletopics

forblogsMany
. companieshavethein-housetalenttocreateblogocntent .

Selectkeyword

orquestion

Determinekeyword,phrase,

orquestionthatappeals

tothetargetaudience.

Createcontent

Basecontentonkeyword/

questionandensurethatit

KEYWORD

givesreadersvaluableinsight

intothechosentopic.
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

40

oafl webetsi are

powerd blbyogging

tool eW
sdPro

G
Syndicate/share

G
O

Submitblogtosyndication
L
B

sitesandsharewithsocial

medianetworks,suchas

caFebook,
wT,Instagriteam.r

o T pfivestatisticstotrack

Nuom
tsriviobfer etoPnailt

ranoidgbehnlgitisom
viutcsser

yr tne tcer id ro skni l aiv—ni etuor

eBaotrunec ostrisvSihoaefr

egap eno ret fa et i s evael ohw

segatPispvier Numboefr

ortiewsvpibaegdys

aTkcrandmeasure
snoi srevnoC fo noi troporP
 OceanofPDF.com

BLOGGING

Podcasting/vlogging s,tsgoehagcadgtlrnovpw
ei

Bunsiesesmayposatudoivdrieo sstelcuydinolm
raeoprpstc

tescnarelteniohdntaIof rehatiavedvesnirtgonhte

e;stegrlhaeignosgtuw
ebe daoegw
raoltpsdnioprdtasc

meit-tstorsetrvnsioesiufct gnitrogsanehcodplroyvptsb

.srebisrm
ucesnbeoucOsn entadneiaoerrbctofcremen.t

Podcasting/vlogging process

Inordertogetcommercialresultsfromapodcastorvidcast ,acompany

needstocreateandpublishinterestingandinformativecontent .

Capturecontent

Decideontopic,createanoutline,and

thenrecordaudioorvideomaterial.

Processcontent

Editvideofootageoraudiotrackfor

ekatsmi;ons,ietsionpetrdnourgk,cbas

testandedi,itfneces
urt.hersary

Selectcorrectformat

SaveaudioinMP3orAACformat;save

lmoM
i;rfntaP4iocm
dseivpresize

foroptimaldownloadspeed.
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

BUSINESSBLOGGINGANDPODCASTINGETHICS

Independentonlinereviewersoftencollaboratewi.htobhbusi
ot nlaesses,
ici fwhi
enebchs i

yapofesoegnlachscxiednoit weavliecyberdeyrehituqers tefriaggnsiroteaegrgscotlnBm

re

.derrulbmeoceb l l i ts nac sei radnuoboclacliahntoei tmuoborpe,nt

swe iver t sacdop/ golB niucldpeorducst

suchaspphaoer,lstnderastuarns,t

NO

. andetchnolgy

YES

Bunsiegsvierfseampel porfduct

Other

oservcoeitbolge/rpodcaoesftr

NO

conetnt

etnsigandreveiwnig.

Bpnuoiresvdies support oterviwhetrough Bunpiseorvdies

padcionetnantdadvseitm
r ens.t onefiurghtrefproduacsntdsecvreis.

NO YES YES

issoPbceolcntilf issoPbceolcntilf
Revwiwetris

onifterest onifterest
consumerreport.

$ $
 OceanofPDF.com

Soacm
il edai

mankrgiet

Bypostnigcontentonsocaim
l edaim
, arketerstrytoatractwebstie

cifafonr.iseatnw
rcdshotvieduapntcrdm
Ssoi,set

setyirdelsn.poethasirnotacm
psletul

Howitworks comnpiglenougtohw
iarlot,cfliew
sr,howli

Som
aciledaimakretsraersponbesoifglrenenaritg sheutanerw
itnhietariutedniocAehs.st

h,teconetneptgoravdngiecsonTetyn.tlcpali ,d,edkedsecr,itm
noatdhm
niepgucalsbt

enetanrimenoterfsusenuifolm
raoitnhtastoacil g,nhsecinrperhailgdentypohesaGbu

fhm
t.Iecoendatsnuitseravoyceitlkofr .tserteatrneneim
gro

Social media marketing in practice

Themakersofanewhealthsupplementforepairing

sun-damagedskingeneratevideocontentshowing

thedramaticresultsoftheproductandlaunchitacros

twosocialmediachannels.Videofootage,animage,or

astorythatisspreadquicklyandwidelyviatheInternet

isaidtohavegoneviarl.

ubeusoerusT 360Y

shhaterconetnt .

FROMSEARCHERSTO

SUBSCRIBERS

Onemaojbea
r uyt

Onekeyaimofcontentmarketersisto
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

90 %

Content

marketrs

of

created

a i dem l a i co s

ya s

atad

helps

standout

them

rfompers.

Conetsnit wteetd

ot46o0lfwesr

. htcoefmpany

#
 OceanofPDF.com

Search engine

optimization (SEO)

cisftom
SaEfehsucOrloesaqiftum
pcornektear

.nsegtihec-w
abrieslSEtOlphoearfuthsvile

n.gsinetsgih-cpoltearbpfsow
graeltriW
c

Howitworks comnigupwhtigeirhkteywodrs,

CompahenstiaveaWeb niknligothtew
r ebetasin,d

persencemusetnsuerhtahteri genenaritgconetnhtnaiutcldes

webetshiasahgiharnknigon erfqueynslteacrhedkeywodrsor

nsgeicaht.rn-igeTloacheive pharsesohtahtw
eriebetsi

hts,eiyerfquenylutseSEO ermaniservlanotawdieveayitr

otsotlmonotw
ri herhteri osefacrhquesir.

webetsaippeasrwhenkeywodrs Seacrhengniespofracykpi-,celr

aerseacrhedofarndatkesetps ascevhritaptcelsacompansy’

otkeptm
i ovniguphteseacrh nsitglahteotpoafseacrhersutl

ersutplageS.omeohtfemi poatrnt pageE.veycrkilgenearetsaef

measuersmakretsarkeniuclde payabeoltheseacrhengnie.

SEO process

Theseotolcsanbeusedregulaynrlia

conituouaestmpotmoveawebstei

hgiheurphtnsitelgs.

Optimizepages
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

SEOTIPS

NEEDTOKNOW

Robotxt. e T xtfilethatstops
Advoisingle

Webawl
cr ersoftware,suchas

words because

Googlebot ,fromcrawlingcertain

multiple-word

Webpages

phrasesrank.higher

hgtSm
eoalichr eSptb-eptys-

otueclsofrolkhostanictual

nagsrkichearsodneci

ogblAd erfofot

Maedtat nomIfrohtnai

that netonct

odeatr—sbdeisacrt

nseneighcraes

abdoatu

ukcpilwlip.

BaShcEklOat Frowned-upon

SEOpractices—suchasstufing

intoomanykeywords—thatgo

eprabuUtles

againstsearch-engineguidelines

setis ntavelerhtwi

Beaotrunec Tphorenpifotr

nkilot nteontc

ertafweatevboishlrtisvi

youtbakcrsite.

eowvnpiygael

Reportingand

tracking

Usetoolstotracktraficand

reportonwebsiteranking.

Focusonqualityofvisits
 OceanofPDF.com

Business

development

Theoverallgoalofsalesandmarketingteamsistogeneratecustomercontact

andconvertitintorevenue.Thisisthecoreofbusinessdevelopment,andit

involvesacontinualprocessofdrawinginpotentialcustomers,enticingthemto

purchase,andkeepingthemengaged.Duringthisprocess,marketersandsales

peopleusearangeofstrategiesandchannelstoattractcustomersandtoearn

theirlong-termcommitmenttoabrandandproduct.

evitabroslecopCrlo

Marketingdepartmentsgenerate

brand,whiidentlesalityesteamsdo

thesenilg.Workingto,tget
heyher

evnetLis

aimtotakepotentialcustomerson

Social

ajourneyfrombrandawareness
medai

torepeatsales,communicatingthe

messagethroughvariouschannels.

Buildbrand Generateleads

awareness

Useacombinationof

inboundandoutbound
r a T getcustomergroups
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

BUSINESSDEVELOPMENT

STRATEGIES

Businessdevelopmentisreliantongrowth.Salesand

63

marketingteamscanincreaselong-termprofitabilityby

of companeis do

buildingupacustomerbaseandthentryingtoretainit .

Thereareseveralwaystoensurethatthecustomerbase

ehanovt srtucutred

remainsbuoyant .

ocutm
Csuhjnrateyr

approach to optm
i zing

easlweordfcuatyseofsnkThi

onia.ctfoscutmsiater

thebriusnies.

poresalenagtreIsc

. ocutmsdaebnilheokritucm
nsaiet;rs

Maneuovdatrnli

Ccealnetr

Loytal

Analytcis

poargms

toosl

Retaincustomers
Review

effecteviness
Folwupsaleswith

efficient,delivery

a r T ckmarketing
 OceanofPDF.com

Branding and

rebranding

Abrandisdefinedbythecharacteristicsthatmarkaparticular

product.Brandingisusedtocommunicateaproduct’squalitiesto

aconsumerandcreatealastingbondbetweensupplierandcustomer
.

Howitworks reidhnrlseapohkdtuneorhtasbfw
To

resdepnoit,adinleatpfvrueadcibsW
neh etanm
ygintirm
kneiosclinuet,aidnratmoetsuc

,srolo,c de,stysecurdeom
nrgtplaexfripevos .setubilaersypem
tiavoncyldotenriphm
Sakcde

dnoh,a,lsaeno,nlygain,orgm
w teiom
galripjsl margota—
,nesftdcnsrm
alneprf0xseuIop9b

.sresstm
reiaoytlopesdunmlsactrep wol.dnlaorabf

The branding cycle

Therearetypicalstagestobranding

Choosebrandpersonality

aproduct .Inordertorebrand

(redevelop)aproduct ,thesupplier

startsoveratthebeginning.

Developthe

concept

Marketerfocuseson

positioning(where

Snicer Downot Ruged

brandsitsamong

eahtro,nest ,kind, , strong,oudtoosry

competitonintermsof
htoughuftl mascnuile

functionandlook)and
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

Applymarketingmix

Promoitn
Porduct
Pceir
aPcel

Applypromotionmix

Brandname
g a T nile

lohcysPogcianleeds

gn i ru l l a dna rb ekaM

Phyncsaields Buynipgower

s pAorsedtruc’t Ubeasrnuvdaels

useufnles otpmitzeisals

Theconsumer
 OceanofPDF.com

Lead generation

Forabusinesstogrow
,oneofitsbasicgoalsistoacquirenew

customers.Leadgenerationisthestrategyitusestolocate,target,

andnurtureleads(potentialcustomers).

Howitworks niceldotbecomeacutcaulsotmesr—knownas

Thepuproseogfenenaritgealdnsoitdfconsumesr eyadgtTlhqs.iuo-aglenearetaldm
s,akrneitgand

whomaynedow
ranotbuyhteporducatbunsiesi saelsdepam
trensytpycaliobloaretonacampagin,

nigsSlea.sletamsdonow
tanotwasetrsoucreson nieloforniedl,egsinedodtieynfaitndercurti

peopew
l hohavenonietnrsihteporduncihtsreif pormnsigcusotmeprospeAcst.cqnuirgiconatc

paclseo,hteporceseoalfdgeneoarinthpelsdneif niofm
r aoitnshtisretipfaohtrfeporcesC.onvenitrg

andcaputerhtepoetcnauiltsomesrwhosemmost ealdnsoitseashltienexsetp(

Lead-generation process

poerts-mie,astlunsveoilheadtslnGcesgienatr

meam
tnocuaewdtkm
rsvigehnts,okrie

tespordugnced,isanp,olt canm,einrfdpgnai.

RESEARCH

Asceratniwhich

medaindcusotmer

Plantheapproach

otuchponiastre

Setgoalsandparameters,including

mevofcits.

expectedreturnoninvestment(ROI)

andnumberandqualityofleads.

BGIDIEA

REVIEW

Devseaciompniegl

OBEJCTVIES

PLANNNI G

messageotengage

Checkthatthey

, se l as taht erusnE

andenceiltads.
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

TOPFIVETSRATEGIESFORLEADGENERATION

ocneCtar devoi alrviauasch pbdaueconrhtfaedigr,s.

neawohrtwaespbnhotueysri o T amryasornum
htcpfogienl

gnup-iasge.aoteadslakest ng.illboeiwtvrs

❯ ❯

Ubesohtnaienlodf i a Toaincthlctaoelr hote

channsel mocuatsmots,er hasdorewtngitnviuaschan,el

ocnheauntpsr.joenltdlwli coamneio.rtpieostrisvi

❯ ❯

ca r Thctuoesmotuerchpon—it viftcbwefnfie-tnpm
gosroieseD

owcutmsachotpihm
neotries octapnuasktgdicehrsat,

oprhethwtioctantidu—ct . setadpu rof pu ngi s ot srmeotsuc

YZE ANAL

QUEDAFILEADS PERFORMANCE

Detrmniepercenatge dIenyfaitdujsm
t enst

caoniltnfatwcsthi nededotkepcampagin

. purchasecapaytbili oarcktn.

RESPONRASETES

l a T yhlowmany

ONLINE
eladhsaveben

CONVEROSINRATES

. geneartdsofr

CcpaueltcrenaW
tgoefeb

octsrivnvetrodal s.

B2BLEADGENERATION

Measure

Mostbusinessessellingtootherbusinesses(B2B)identifylead

a r T ckandmeasuretheresponsefrom generationasoneoftheirmostimportantdigitalmarketingpriorities.

Butwhichtacticsdotheyfindmosteffective?
 OceanofPDF.com

Lead conversion

ntgsdenm
oriselad’ucotTaslfrhcpie

on.sehicrskonqtyeaTcvrum
lhiaontpserot

deorecolvsiodrehaubsptnlcrsotme.r

Howitworks

sgntm
neistetrealkpdnaedm
Sra

eglnbistnaeoprseolnaresgfa

Rawlead

tsriehf.T moeyrcnom
aopacfi

ent
Pot ialcustomers,

ylafeitatnpceodstropilts

perhapsawebsite

.dnaoe—
islm
troaetresnuehTgc

visitor oraperson

tcdanpoetsncotecm
tiska

encounteredata

lasim
roteneshtohstuocptwi

ivleevent

edcaum
iseohrtdnetpoa

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oyucbl

thsceretvdsnloeasiActup

.,sm
roesdaternseuw
vHciloe

lacipytoel,erseyhiaw
ptdoastn

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detacidetcaslipheoysm
bro

Prospect

,scievsthctiachunsoclat

Onestepawayfrombecoming
,msgnreotiphfncoihsiw
bhe

acus,prtomer
ospectsneedafinal

estm
roeim
vtenohsduntiac

enticementtoconvincethemto

etapieucgoreihltanariardp

buytheproduct .

gniyrem
nltpea.hsietps
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

Online lead conversion

Astrategyisrequiredforsteeringwebsitevisitorsthough
r everystepofthe

Pitch
Involverawlead

elad-convertni gprocess.Itisoftenpresentedasafunnel.Oncevisitorshave

inwebsiteexperienceor

arrivedatawebsite,theyareenticedtoclickoncalltao“action”A(CT)button,

neydfdeintonci;atsver

whichtakesthemfartherintothefunnel.

forproductsh;owbeneftsi.

Viotsirots

30,00

webetsi

Suspect

Rawleadsshowtheirinterest

byremainingonwebsiteorby
Leadcsiklon

600

otcaolcitn

notendingconversationwith

companyrepresentative.

Leandietsarct

150

wchotm
i pany

Leadqua
seifdl

50
bcoympany

10
Saecolsed

Inactive

Prospectt’resinadytobuy
 OceanofPDF.com

Customer retention

Existingcustomershelpbusinessesgeneratethemajorityofprofit

andgrowththroughmakingadditionalsalesandreferrals,andso

retainingthesecustomersisahighpriorityformarketers.

Identifysatisfied Introduceretention

+ customers m
i provementstrategy

Customerreferral

Earlywarning

Measurethenumber

systems
ofreefrasanl nidivdiual

customergenerates.

Anticipateany

problemsand
Loyalty

alertcustomers

Pinpointcustomers

inadvance.

whoareactivein

thebrand’
sloyalty

program.

Recovery

programs

Apologizefor

anymistakesand

makeamendsto

woodissatisfied

customersback.

-defm
otreCus

backusrveys

Listento

customersand
Identifythe

identifypeopleat

dissatisfied

riskofdefecting.

Defection
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

Howitworks
Practices include identifying the most valuable

There are two stages to the process of customer customers and nurturing relationships with them.

retention: measuring the current rate of retention The least valuable or most costly customers may be

and applying strategies to manage and improve it. dropped if they show little development potential.

TOVRFIPEASONFOSR

LOSINGACUSTOMER

Senses

indiference

fromprovider

Dissatisfied

Upsellandcross-sellleads

withproduct

Identifycustomerswhomaybuy

orservice

largerproductsorrelateditems.

1-2 3-4 5-6

Unhappy

withprice

1-2 3-4 5-6

9-10
7-8

Netpromoterscore®

Usemanagementtooltogauge
 OceanofPDF.com

Return on marketing

investment (RO M I )

Manyorganizationsgaugetheeffectivenessoftheamountthey

spendonmarketingcampaignsbymeasuringthereturntheymake

onmarketinginvestment,whichiscommonlyknownasROMI.

Howitworks onsocialmedawi, hchism

i oer

A subset of ROI (return on cuitofdlqiuaynhftianhtemoer

investment), ROMI is one of the ecalu-ertsponsercveidorm

f

key calculations businesses use to advnseigtrodrecim

t.ali

determine the effectiveness of the Asaerm

su,tlanydgatil

money they spend on marketing. makretsrnowafcotglm

riteor

ROMI is measured by comparing barndawaernesniothReriOMI

the revenue gained against the cauolintsiodreotrquaeynfslit

investment made in marketing and atngbeiblenstaeinfdatgruefter

is used to assess online campaigns, .campgainsmoervfyceitl

in par ticular
. This calculation,

however
, only reflects the direct

impact of marketing investment on

a business’s revenue and fails

to take into account other gains,

such as the word-of-mouth effect

ROMIin practice

Thediagramshowshowacommercialair-conditioning

companymightuseROMItomeasuretheperformance

ofamarketingcampaign.Thecompanyspends$2,100
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

LONGT-ERMBENEFITSOFMARKETINGINVESTMENT

$
36

yletaidmei erusameot t luci f f id era tnmetsevni gni teksrtmai foenebstehc.Tepsa meoS

ofprovidingexcellentcustomerservice,forexample,orinvestinginresearchtohelp

si generaetd

ymarpawmsaremott-hgsnouiclrnpaeitanretdeilrvlewiserbetubtetoknyofirmats.

oefvrery

MARKETNIGNIVESTMENTS

$1 spent

on email

markneitg

Runmankrceigatmpganis

TMICPRAOTVSLIEM
CDFUAESTNEROIDSVAN
ntemsetvknarm
iostfC

nIceraesdcuotsmoaricnter nIcerasedcuostmertnoitn

NICREASEOMER
DCUST LIFETIME

TY ULALVANESCDUOSTYLMRE

RETURNONMARKETNIGNIVESTMENT
 OceanofPDF.com

Intellectual capital

Theknowledgewithinacompanythatis

usedtoimprovebusinessperformance

isknownasitsintellectualcapital.

Howitworks

Eveyrbunsieshascapat,il N T
I E

N L

E
A

M T

U
whchierfsrothephycsa,il

H
atngbeilaseshtatppear

onhtebalnceshestoif

la.sim
tcneantaitsf

Abunsiesasolhas

neilctuaclpa—
tli hte

knowedlgeansdnlisdkeihte

V
.Thevscilotknocwm-pany

L
howshiadrotquaynfaitnd

measuber,usteitseotnailt
E

P
sy’tyeniatm
plorenibacegt

C
T I C

,ecn.aeuntestvm
nergoam
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dforefviarodw
rnoteasnfph

lattiasphteam
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deh

gnrirekhaspxet,i t ynm
aopc

L
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m
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twniaemcis I
N N

R
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E
havediednfhtiermaniknids

enoiclutfcalhp:atluiman,

surtcu.at,nrldcusotmer
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

L
A L
I
N N

R
K

A
N
L
O
R
I

T O

A U

T
I

I
N

N
A

S
G
R
O

8am

9am

10am

Dciufytli

Structural

capital

Thesupportstructuresdeveloped

andheldbythecompany
,including

own
sti sowtf ardate,abaseand
s N

O
O I

V T
A

otherniofrmatoinsysetmspat,ents,

copgyairhns,tdardemarks.

Structuralcapitalisnonphysical,

soitcanbehardtoasses.
 OceanofPDF.com

Information

management

Monitoringthemarketplaceandmakingsenseofthevastquantitiesofdata

availablehavebecomeprioritiesforbusinesses;thedataarecrucialfordigital

marketing,whichistakingonincreasinglysophisticatedforms.Mostbusinesses

haveasysteminplaceformanaginginformation—andthemostsuccessfulones

usedatanotonlytomonitorday-to-dayperformanceateverylevelbuttopredict

futureoutcomesandplanaccordi. ngly

External Internal

Outsidethebusiness,dataflowsin Withinthebusiness

od
om
presalufscpohnyuai,ctl
itself,datafeedintothe

outlets,partners,andcustomers. marketingandITteams

fromoperations,

Executeivs

finance,andhuman

resources.
n
o
i
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c
u
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P
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

50

of organziaotins

TRANSFORMINGATDA

INTODECISIONS

emopylead chief

( elbissecayl isaeatad tnaveler htWi

dgioatclifer in

ni sessenkwaedna shtgnerts sti yfitnedi nac ssenisuba

arepodna sevosmsrpeicorplowltesatroensdiirot

2019—uprfom

( spihsnoitaler m
oretsuc sti sa

7% ni2014.

LEGACLOMPLAINCE

g
a

Operations
s
t
e
m

Thelegalsystem

ensurestheuseof

dataadheresto

privacyandother

alws. Seepp.266–267 .

Finance

$
 OceanofPDF.com

Bungsienslietce

Businessintelligence(BI)isanumbrellatermreferringtothevariety

ofsoftwareapplicationscompaniesusetoaccessandanalyzethe

massiveamountsofrawdatatheyhaveattheirfingertips.

Howitworks htecompanydatbase.

sem
w
rasitrglofedonrIapsoB Themakrethrenveiwshte

deziresmyotupscetmsofecrnolitg noim
tanreorefrntmucopnsacoi

andnietgnaritgdatsohtat noitazi lagunlasoitasytvdub

bunsiescanerpotrnsteaivstc,i ,draobhw
ncsoancw
adkih

bohtpasatndperseTn.theotsl meginti-rolsratdoelseim
rfubano

ow
laotsafperuvlalndtaortfm .snosisetnairespfuob

Business intelligence process

veler cificpes ofmrestlavehtirngteiyrofwilcpeslabysatdoaltntatBIhe

nigetlncehteyneeds(ucharesam-itl esaelcsomparedotpresvoiu’yserasales).

Collectsourcedata Extract,transform,load:

ETLprocess

aivatdawar srhetaCgomnypa

arepome.stsylasroneveist
ETLsystempulslrawdatafromthe

source,formatsit ,andloads

itforuse.

YCHANI SUPPL

MANAGEMENT

S(CM)

DorfamtSCM

ESTYLSTEM

soucres

warMesagtri

dataotdata

waerhouse

WEBLOGS
ESIRPRETNE
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

Digitaldashboard

Displaysregularlyupdatedbusinessresultsusingcustomizedgraphics.

21

of empolyes

TRCAKNI GEAMGIANLCIAMP

, l i ame na nepo ohw e l poep fo ega tnec rep eht skcar t draobhsad s i hT

wordlwideare

yad tnere f f i d no esahc rup a ekam dna , e t i sb.ewkeewa enhot kcfoi l sc

S Y AD

fuyl condifent

Mon

euT

aboutheri data
dW
e

Thu

Fri

etiralcs.ylki

Sat

Sun

Mon

euT

dW
e

Thu

Fri

Sat

Sun

Retreiveandanalyze
Mon

euT

Stafcanfetchdatatoanswer

dW
e

specificquestionsaboutwhatis

Thu

happeninginthecompany
.

Fri

Sat

Sun

SPREADSHEETS

mpoFrmi aryBI

otodsplaiydat

b(oacdsirvanced)

OLAPCUBES

Enabe3l-Danaysli
 OceanofPDF.com

Business analytics

gnecide,lgn-)leiBnM
sthIeaub(itcsor

scBlows
iAya(tln) advancedstatisticalanalysisofdata,

whichisusedtohelpmakefuturebusinessdecisions.

Howitworks htatnaylzecuernatndpasdtat,

BAatkesasceainfpitporach BAow
lasbunsiesesotfercast

otnietprernitgniofm
r aoitn. whtiahgihdegerocfdniefnce.

s ’ adBvunasienscesudseBA BAcanbeapepidlonamacor

sow
tfaerotsotlanaylze evlotegleatboradveiwuofter

niofm
r aoitnabouptasotcruernt busniespeorfmanceandona

ertndsandbehavotirperdcati mceorivlotealseosfer,xampe,l

ufterscenUoai.rknielbunsies htkieoldnoidfviunsailnchie

gineltnceoprevdcietancyasitl makrestmaknigpucrhases.

Business analytics process

Askiledanalystinterpretstherawdatabyusing

BAtools.Theresultsinfluencethebusiness

actionsthatwilbetakeninthefuture.

BUSINESSINTELLIGENCE

ANDBUSINESSANAL
YTICS

Theexampleofa5percentsalesdipshowshowBIand

BAcanbeusedtoexamineandunderstandthesituation.

Businessintelligence

agitsevni aetapdyonfTit Resreuvetslpas

aland
t

curenteventnsithebusniess.
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

Datavisualization

Formulationofgraphsdepicting

theresultsofdataanalysis;graphs

mayrankdata,groupcommon

attributes,andcompare

relationships.

ttaPernmatching

Processoftrawilngthroughalrge

quantitesofdatatofindpatterns

betweenvariables,whichcanbe

appliedtoothersetsofdata.

Datamining

Useofcomputerziedprocesses

andsoftwareprogramstofind

relevantpatternsinlargesets

ofdata.
 OceanofPDF.com

Marketing and IT

Theuseofdigitalmarketingstrategiesmeansthatmarketersare

workingmorecloselywithITspecialiststodevelopthebestways

oflaunchingandmanagingonlinepublicitycampaigns.

Convergence of marketing and IT

Communicatingwithcustomersonlineisavitalpartof

manybusinesses.Asaresult ,marketingreliessomuchon

ITthatinsomecompanies,marketingteamsspendmore

moneyontechnologythantheirITdepartmentsdo.

Instalingasystemforrecordingandacki
tr ng

Locatingkeystatisticsfromvastamountsofonline

Marketer

Mustgrasp

technologyrequired

toexecuteandtrack
Usingadvancedtoolstogatherandanalyzedata

onlinecampaigns. fordevelopingfuturemarketingstrategy

Understandingandkeepinguptodatewithadvances

inmobileapplicationsande-commercepotential
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

Howitworks
.ygoThe
lonhcet responsibilities of marketing

Makretsrnedotknowhowotusetchnoglyot and IT departments often overlap, with the

noiem
sta.reoufnm
,erfcvenm
ihaeictsAr hybrid professional role of marketing technologist

see below

sreci)OsfCIfah(o ve adapted
lanrsegnathxeioct (

08,

markenitg

technology

toosl

are

baliavel

to

busnieses

IT person

opledvorndifMtus

ot soltewratofs

mnadeiplnet

THEMARKETINGTECHNOLOGIST
neimonlaeg

campaigns.

areneg , sngiampac ezylana dna rot inmoot erawt fos no yler sretekrmaeni lenOt

conetnt ,andextradatcta The

. jobofthemarketingtechnologist ,whohas

knowledgeofbothmarketin,requi
gandresITabroadknowledgebase.
 OceanofPDF.com

Collecting

consumer data

ytinorgsiankCysedufprtabis

outanhtdseremarketplace.However
,itrequires

usinginnovativestrategiestoovercomeconsumer

concernsaboutprivacyissues.

Howitworks

Theraeranumbeorm
f ehtods

Collecting data to
companeisuseotclotusotmer

daW
t. henhtesrcionatcbtew
t ena

create consumer profile

cusotm,m
earndakhrtetscrompany

Digitalmarketingande-commercehaveaccelerated

canusehteoppoutrnytoigahtears

therateatwhichcustomerinformationisgathered.

muchniofm
r aoitnasposbeTil.hsi

sinSomputmeusochtm
eshaqtor,sud’eisr

mgihtappenahteponisteanfila

usachOpnhoq,tsaei.rnuaestlai

soterorniw
el, hermakretsraer

whneptboaluirndsctkwgi,etbis

abeotlbsevrecu.sotmebrehavoir

. ocum
thsecoearnt

Makretsrmaysaolchoseotcsiol

niofm
r oaintderyiclbtyasknighteri

cusotmlesrontifergsoartinofm
rs

andconduncitgetm
l akrneitgscla

ocrusotmesruvreys.

WARNING
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

TECHNOLOGYTA

THECHECKOUT

Socialmedia

Inthistechnologicalage,businesseshave

10
Viewcustomers’

themeanstolearnabouttheircustomerswithout

profileinformation

ofglobal

bombardingthemwithquestions.Retailers,for

onsocialmedia.

example,typicallyusethreemethodsinstores

nIterneutsers

tocaptureinformationaboutthecustomer
.

run ad-bolcking

wostfaer whi
, ch

canstop onlnie

dartcknig.

olcyatdrl

W
bseitetrackers

a r T ckwebsitevissitor’

movementaroundasiteand

seewhatattractsinterest .
 OceanofPDF.com

Data warehousing

onmorvsm
eiTnoracfvthlw
dpegafiheousar

snalse’cm
rynoseavtip,gcuyhasnld,w
lle

delom
derisncgaolufdbsw
rtienguicerayvdsilt.

Howitworks beacesedbyalerasoaf

Thedatwaerhouseaierpotsyir company—orfmacounsot

htdaoselcmpansya’elsand opeoarintsotseaTsl.hedataer

opeaoritnahslotiyraswaels eotnfusedotasesbesiafblout

erlvanetconomcaindartde htebunsiesF.oerxamhpte,l

niofm
r aoitnorfmohtesroucres. makrneitgmanageorafpoweotrsl

Theniofm
r aoitngoeshtorughhter companymgihptersumehta2to5-

satgesatseinetshrewaerhouse— 35y-edoa-lm
r enaermkyoeirlt

exartced

srtif orfmsoucrhet,en pucrhasetpiorducshtanwomen

oalded

sti sti, ,anydilaf nihtesameagebarckTe.they

artnsofm
r ed

niotusabeolfm
r ast. woudelthstbiefylanyanzlig

Tsh,tkinowongaeshteErTL seasldatandcusotmercodrs

porcesO.ncesoterhdte,datmay acesedorfmhtedatwaerhouse.

Warehousing process

wheotmrfonm
iortanfi serqiuer ssneibsuheW
tnhed.etpudaylralugereradeortsatdaehoar,usheT

f eblissecanaontimordetfnsaewratofssngi ousndim
ezyortanflaindahemortaolDats.a

produlchetni srevres lnaretxeonorsrevrterspaedhosurn-hit.onadeorbytsdebeioyvnac

paTpingdatasources

T LO P

Theinformationacompanyoclects

hcus sedul cnI

includesonlinetransactionprocessing

sa snoi t casnar t

sdnufer dna se l as
TP)(dat
OLa ,historicaldata ,anddata

LO a i v dedTProcer

fromexternalsources.
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

WHOUSESTHEATDAWAREHOUSE?

Thekeydepartmentsofacompany

canaccessthedatawarehousetofind

FNI ANCE

outhowtheyareperforming.The

t i forp saw “Wh

ta

methodbywhichthedataare

t cudorp no ni grm
a

formattedandstoredmakesitpossible

” ?noi ger a ni dlos

forthemtoseekanswerstoquestions

relevanttoypi
them.
calTquestions

variousdepartmentsmightaskinclude:

Storingdata

Thedataarestoredinthree

categories:metadata,summary

data,andrawdata.

Accessingdata

atdahet ,soltewratofsngUis

A T AATEMD

nidevirterndadezylnabenac
 OceanofPDF.com

Customer profiling

Marketerscancreatedetailedportraitsofcustomersbyusinginternal

companydataontheirpurchasehabits,preferences,andlifestyles

audsentidnlae.trsociauntblsdexor

Howitworks noim
tarof.nelpehctiTaekmra

nIodreotrbesutndesartndhteri seduckloaycienhtsadbilt

audeincem, akrenitgdepam
trenst ,eg,a,norshteudcnrousbegasp

dneifhtdieraculsotmebry lsaw
,le,noyirtapulcdancsao

deveolpnigacusotmeprl.orif gdneilnrsieacdnetoecidm
ro

Theybduhltseipbloriyfgahtneirg l,agsnctidpniyebpa’hstnosehrept

niofm
r aoitnabouhteknidof secyahecuslrtw
paeh

pesronwhousuyblauyshteytpeof ekypiehotdnm
utaslo

porduhcteywshiontirduceot .dnoepst

Segmentation model

Byconstructingasegmentationmodel,ylaeredwithanumberofavriables(diferent

levelsofinformation)aboutconsumers,marketerscangraduallycreateaclear

pictureoftheiridealtargetcustomer—inthiscase,foratrvaelcompany
.

Woman,age35to54,withhousehold

incomeof$85,000+

LivesinNew
orkCitYymetropolitanarea
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

Behavoi ravilew

Shoppinglocation Prefers

toshopinsmallerstores

st ibah gnisahcruP niBuys

Sociographicview

sdnopse,r yvaesnmotekbul

aidme laicoS hseayrveAlict

stnuocs idot

conhwistecistesrnti

yol foyetelrageD i a F htufl

ytm
iom
nCu unelaIfit

opbatnerduatot

memawnbzedsrihoaslci

serfoerbte

ghnbeoihtorbedsuticornt

sbulc dna spuorG Memobfer

spuorg gnikih dna gnihctaw-dr ib

Customer

profile

dimensions
 OceanofPDF.com

CUSTOMER PROFILING

Creating a customer profile

Byconstructni gaprofileofanexistingcustomerbyusingdatafromwithinthe

company
,marketershaveaclearerviewofthebuyingpatternsandhabits

ofanindividualThey
. canthenmakeprojectionsaboutthelong-term

valueofthatindividualasacust.omer

A TWEBDTSEIA

WWW

How often do they visit the site?

Which web pages do they look at?

A T SOCADILA

Which social media networks are they

connected to? Do they share links?

A TRANSACATOIND

How much have they spent , how

often, and on which products?

A T CRM
DA

l l ac ht iw yrot s i h t ca tnosc ’ r ti eahthW

dednopser yeht evah woH ? s re tnec

? sng i apmac ot

TLAAADYTYO L

Howolahyompa
terohltyce ny?Do
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

O“nyceou understand

, cuostmebrehavoir

everythnigeslefasl

” nitopalec.

ThomasG.Stemberg, eruosfepSatclirnopdfelfsr

Assessingcustomerprofile

Goodcustomer Badcustomer

❯ ❯

oteqryufeRlnuetrs Bcenortmlcalbdars

mepraukcehrtas ocsmhntwaipl

❯ ❯

moektnRparioesndgs pournedtsFuqrcytelnt

oprmoertns-ioantd unefrdlulforf

❯ ❯

pretiaovrfdouesSharcnt yt layol snm

sioarjgorepveN

mnweatlodscikr senrtowerufglpnsisor

❯ ❯

senrtowerufglpnsSi mSpesnolhdtasney

serfoapnlsedci ocoftocshentuigem
r
 OceanofPDF.com

Big data

Businessistryingtoharnessthehugeamountofconsumerdatanow

availableonline.Thisinformationcanbeanalyzedandusedtocreate

detailedprofilestotargetcustomersmorepreci
. sely

Howitworks Thechenlageofm
rostgranzoaintsotihfsorugh

noilam
tartoiafgenshtngfm
uiadohtB bgidantoidfnoifm
roainthtahtashtepoetonailt

artnsmetdist.Ievrtaihm
enIetnredetveyrday addvualeothberiunsiesSw
o.tfaerotsaleravbaleil

tner,esfm
toarfhndogepdiyntfm
ash htactananaylzehtemasesoefxetnradlatgenearetd

scitse.is,aobteadm
lnueiocdtm
nuioadevts onhtenIetrne.t

Internally and externally mined big data

emlobisasecourshucom
srf atdassecaoteblaerasessneiBus

ocnda ,skwortneamdielaiocs ,onsiomtcacmm

alniucer

.eople ofonsi l l biofytivitcahethowshcwhi,onsitcansart

s o u
r
a
c
t
e
a

t Anever-expandingamountofdataisbeing
x

generatedbyoutsideorganizations,which
E

wiprl oveni creasinglyvaluabletobusinesses.

Socialmedia

Datarevealwhatpeoplearesayingaboutthe

organizationanditsproducts.
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

50–80

odfatasceinm
tist’ e

sipent prepanrigdaat

beofcrateinbe used.

Internal

datasource

Internaldatasenttothebigdatavault ,whereit

sitracedandrecorded,aredrawnom
fr allparts

oftheorganizationandformaunifieddatabase.

aTnrsactions

Spoecuntm
psderer

eosrtsnticitofFafr

tismvTipsernt

Logdata
 OceanofPDF.com

Customer r e l a t i o n s h i p

management (CRM)

pohnisCiRom
atM
ucslerm
(m
esadntzgyom
seaic)renptu

eond,team
usndgio,-slranogtideusm
ctkeprapotr

.ytilnosbaitanoim
alegtduoafsnrctipvoera

Howitworks ssednmaetiloh:w
asfuebntim
oya
sw

CRMsaiw
stofnaehortilcompanTsIy’sysetm spihsnogn,istm
reaosvdoahtlem
rsidtpuxncew
riali

htaertcodrnsliaetorcintshtebunsieshaswhti dn,aygntildam
tyaw
reotheakslrtium
ya

cusotmeTsr.henoifm
roaintcanbeusednianumber ecm
roievhtlroesaturespw
cyiaobem
dtium l s.

NEEDTOKNOW

CRM system

c delbaneT-ygolonh
Thesystemusesreliable

tm
negam
napihsnoi taler

processesthatallow

(TEM
R) Uauotesm
f eadt

companiestoconnect

motpoaerncsutm
gseer

moreefficientlywith

opnihsatelr

customersandultimately

Eernosptruaicnelnig
offerbetterservice,

E(RP) CoRtPeM
ocurs
resultinginlong-term

❯
gainsforthecompany
.
Coludb-aesCdRM

ComzeCpduieRrtMem
ytshta

ecohtnuocladgnylistsexi

AUTOMATION

CRMcanuseautomationasatooltorespondtocustomerswhovisitanduseawebsite.
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

Marketing

a T rgetgroupsforspecial

campaignsmoni
; torand

;ysdatelayoeltadrenwrgear

871

reutrn

aergvhet

onivem
st ent

CRM

dveilredby

Customercontactform

CRMusestheinformationtogroup

customersaccordingtotheirbuying

behavi
. or

Pricequote

Thecompanysendsapricequote

inresponsetothecustomer’
s

interestintheirproduct .

Customerfeedback

Thecompanyasksquestionsand

monitorssocialmediatoglean

informationaboutcustomers’views.

E-commerceatrnsaction

Thecustomerpaysfortheproduct

viatheInternet .

Supportticket

Anautomatedticketallows
 OceanofPDF.com

Compliance

Inmostcountries,companieshavetoadheretolawsandindustry

regulationsthatgovernhowtheycansellandmarkettheirproducts.

Therulesaretheretomakesurethatbusinessesoperate. fairly

Howitworks etm
r sandconodintias,ndspammakrneitgs(endnig

Govenrmensm
ti poseurelsonmakretsropervent unetcsdiolemTs.)ahlierguaoltyrbodysaibeolt

anyunscurpuolum
s,eslaidnigou,rnwecolmeparceits, nivegsitaetanycompanyacusedobferaknighteurels

suchasfeladvnseigthru,ealrfiotdsocilseal andmiposepe.ntfisdashltecompanygtuli

Marketing regulations

o T protectthecons,reugulmeratorybodiesproduceguidelines

instructingcompaniesonhowtheyshouldmarkettheirproducts.

Businessareassubjecttoregulation Exampleofmarketingpractice

Comparativeclaims

Endorsements

Speciaofl fers

Sweepstakesandcontests

l eT emarketing
 OceanofPDF.com

HOW SALES A N D M A R K E T I N G WO R K S

50

oafl emali in

2020was spam.

Typicalregulationstoprotectconsumers

Amarketermakingaclaimstprhatoitduct
’ isuperiortso’arlaivmust

beabletosubstantiateitwithproof.

Amarketermustbeabletoprovethatanendorsementby

apersonthattheyhaveusedtopromoteaproductisgenuine.

Amarketerpromotingaproductwithaspecialoffermustsetouttheterms

andconditionsinwritng.

Alcompet
l itonsandprizedrawingsmustadheretolegal

guidelinestoensurethattheyarefairandimpartial.

e T lemarketersintheUSmustprovidekeyfactsbeforeanorderisplaced,includingbusiness
OceanofPDF.com
 OceanofPDF.com

WOH

TAR E P OONSI

AND

ONITCOUDRP

KROW

Manuacfgtinrpdordouinct

❯ ❯

Porduct Cornlt Supcpyhnlai

 OceanofPDF.com

Manufacturing

and production

Onceafirmhasdecidedwhatgoodsorservicestosuppl
,itsdiryectorshaveto

choosethemethodofproductionthatbestsuitsconsumerdemand,theproduct,

andthemarketaswellasonethatwilbethemostprofitable.Companieswork

inthreegeneralareasofindustry
,whichtogetherformaproductionchainto

provideconsumerswithfinishedgoodsorservices.

Production methods

BeforetheIndustrialRevoul tion,productsweremade
Primaryproduction

bycraftsmen.Then,factoriesbroughtpeopletogetherto

Theacquisitonandprocessingofarwmaterials—inthis

workonmachi
,thypiiswas
ncesally.Tjobproduction,with

case,navybeansaswellastomatoesforthesauce

onepersonmakingoneitem.EconomistAdamSmithfirst

nitroducedtheconceptofdivisionof,whilaborchledto

massproduction,withcarmakerHenroryFdpopularizing

themovingassemblylineatthestartofthe20thcent
. ury

o T ,manufdayacturerscancombinethebestofallmethods,

withlarge-scaleproductionofpersonalizedproducts.

Productiontypicalylinvolvesthreestages—here,from

PRODUCTOINIPRACTCIE

navybeantocannedbeanssoldinsupermarkets.

NatvieotSouthAmercniabv,yeagnoerwsnehtieofrhte

mi mautregrenpodeas,etnrefshagsrenbeanofhtsr,e
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

Manufacturing and production

o T

$
reso

3.85

trillion

the vuaCloehfnsannual
ia’

manuafcturnigoutput in

t ni tsehgiheht ,0202dwhelor

Secondaryproduction r eT tiaryproduction

Themanufactureandassemblyofraw Servicesthatsupportheproductionanddistribution

materialstoturnthemintoaproduct ofthebakedbeanss,uchastransportation,advertising,

orservice;inthisinstance,bakedbeans warehousing,andinsurance
 OceanofPDF.com

Job production

Injobproduction,itemsaremadeindivi.dEach
uallyitemisonejob,

whichisusuallyfinishedbeforeanotherisstarted.Thismethodis

oftenusedforsmall-scaleproductionorforlargeone-timeprojects.

Howitworks seriquerdiJo.bporduocintcan

Jobporduocintsbiestuediota saolbeusedofcrompexlpeorcjst

bunsieshtahtasotmestpceifci andhtosenivonilgealdnige-dge

, cuostmerqeurmieTnsy.tlpcail nu,icldm
nligf etchnogly

hteseaerunqiuerquew
st, hci porduocitnm
; aojcronsurtocitn,

anidviuoarletamhandesl suchashpisohftrenavy;

orfmsantosirfhC.usotmm
- ade acrhetdci-tegsinedbdunligs;

sutouifrnutieraerxampeTls.he andvlecingnienirgpeorcjst,

scaelmaybesma,naldm
rifsoetfn niucldnigbdirgesandutnnse.l

satw
rhtoijbporduocintbecauseti

sm
i pealntdinlvesm
t ent

Wedding dress production

Abride-to-becanchoosetobuyadresofftherack

(typicallymadebybatchproduction)orhaveonespecialy

designedandmade,whi
forher
chcostsignificantlymore.
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

Manufacturing and production

JOBPRODUCTIONPROSANDCONS

Pros Cons

❯ ❯

anegrhoiyfsoldPurtc oDwlfraonlest

ytqiual eco,ncaslom
ofesi

ocnoipdrugthcisots
❯

oanictdfsoiastGbjerat

owlonlfediokpir veniLatsbo-r

ohrsniffohugtrtm
arts
❯

anmSdspaleciart

yfsiPoatrsdcnucer msayllkisnmtveisent

ocutm
dsnuvidaledrs eqdrbuei

❯ ❯

oynhwltitCmipaonrfake mcefoHpighauryti

ewfcaoutsmesr niycoutlm
sepaleci,esr

oneicsrmiotfes
❯

mwsod-br,jfsrolFal

meocrhumtmeondisat autasnojHcielreavy

sotcsngm
ediurecktar ocutmsohfansuedrlf
 OceanofPDF.com

Batch production

Whenanumberofthesameitemsaremadetogether
,itiscalled

batchproduction.Onebatchfinisheseachstageoftheproduction

processbeforethenextbegins,usingthesameequipmentandsteps.

Howitworks efwaosfudiretncm
iatlosfarclsaulpepirl

Bacthporduocintoalwm
sraifotmakeaquayntit othousandsofardepam
trenstoear,nd

etom
ifnsioneporduocinturnF.acotyrequpiment bacthescanbemadeaseotnfaserquerdi.

sgieaerdupnietm
r sofcaelndspeoatcsil Bacthporduocintsciommonihteofodchtnl,ig,

htactnbechangedoferachbacthF.oerxampe,l ,wraetofpanist,dhevsiea,ndpham
r aceucaitl

equpimensiteupotmake20zsei8dersensi nigerdeinstidueEisrt.achbacthmusbte

erdafbcairndhtenadujsetdotporduce40zsei10 artceabw
e,lhteicaldraetsatmpnigo,drer

dersensibuleafQbc.iruaeinstciatnvayrofmas otcompyw
lhatiw
l sandsatndadrs.

Bread by the batch

Breadiscommonlymadeinbatches.Abakermight

make100whiterolsandthen50alrgebrownol aves.

Mixbulkingredients

Dividedough

Ingredientsforthebatchofwhite

Aftermachine-mixing,thebulk
roslaremixedtoformadough.

doughisdividedintosmallpans.

Batch1
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

Manufacturing and production

BHACTPRODUCTIONPROSANDCONS

Pros

53 ❯

owlutniEeco:anlsomfesi

mnugeam
rsadliebaser,scots

Cchoedurm
tsifoer

loaves wee,ziseam
xoe,rpfl gh,otif ,

ovralfnad

Oyantpuodvrituct

brAgeavread

y/taplsecioufehswtneacsri

dm
ecadtinachyeri

eaetnyeayrpler

personihteUS

De-panandcoolrolls
Bakerols

Theroslareremovedfrom
Thewholebatchis

theirpans.
bakedatthesame

timeandatthesame

temperature.
 OceanofPDF.com

Flow production

Thepurposeofflow(mass)productionistoproducealargenumber

ofidentical,standardizeditems.Thisusuallyhappensonamoving

line,whichcanbeinterruptedwhentheproductischanged.

Howitworks exampew
l herem
l ensthofecarepuotgehter

Fow
l porduocintynpcilavoelasgrleafcotisr aolngnaielor;boatm
r smaynw
isaltheas,nld

equpipedwhticonveyobrstealndexpenvsie workersmaypeorfmspzeaicdlojbSgsc.ianfit

machnieyrht;easembynloidfviuacolmponenst, ouptuspitosbeiw
lhtievenasmnlaumbeorwfokresr.

whcimaybeborughnoritfmohtecrompaneisa;nd Newspapepnreioltsafr,indchemcpailnst

hteauotmoaintaotsfkCs.am
ranuafcuntirgsain saoluosew
lfporduocnit.

The production line

Inflowproduction,theitembeingmade,such,moves
asacaronaconveyorbelthroughdiferent

stagesuntilcompletion.Componentstobuildthecarmayhavebeenoutsourcedorproducedin

anotherofthecompanysfacto’ries.Theyareallreadytobeusedalongtheline.

Chassisassembly Wheelassembly Engineassembly

R A PY TASSEMBL
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

Manufacturing and production

FLOWPRODUCTIONPROSANDCONS

Pros Cons

❯ ❯

oprance:alcsEocdnofumecsi Expmveniesqranchuyeir

nguaermglochoedybafpselr m
ntvesiencatifgnis

❯ ❯

abneloaduUrltmlnokisnat m
wwo
evkomreanistakyerRipet

owl stocsepk mevsdatoilbte

❯ ❯

e,sqgiaerutblaM
noistuaglhieatr nobaeRirnqtkel,spum
ifien:t

otcwslos edthalspordinuct

aTnrsmissioassembl
n y Radiatorassembly Seatassembly
 OceanofPDF.com

Mass customization

Sophsitcatedtechnoolgyandmanuafcturnigdeveolpmentsaolw

massproductstobepersonalized.Thelowunitcostofmass

productionpairtswiththemarketingopportunitiesofcustom-made.

Howitworks ow
laconsumesortcusotmzeihteri

Mascusotmzoainteofsrnew pucrhaseTs.hepcesirgenyelar

oppoutrenitsofhtremanuafcutnirg hgihehtranosfartndadrzeidgods.

andsevrceinduesSirt.oam
cil edai, Revoulitnayrnewetchnolgeis

,3D-modniegltchnogly aerxpecetdotufhtrerxetnd

otecso-,lmmecresw
otfaern,d cusotmzoainw
tl,nignidviusal

exlbefiplorduocintsysetmsand ofter,xampsec,lanhtberiody

porcesesaoerw
lanigcusotmesr conotusranduseaugmenetdyetrial

otcogniuferporducsotmacthteri otdegsinandodreurnqiueochtlnig.

ownatsetsandnednIsd.ueisrt

suchasofw
t eap(rcauitraylr

ahcetsihlocehtln,si)gca,sr

,andcomejpwuetsrearlydy

Customers design own products

Masscustomizationhasenormouspotentialtochangeconsumerismor.F

example,consumerscanbuyshoesdesignedtotheirownspecification

viatheInternet .Thisisahigh-statuscommodityamongcertaingroups.

Lacoerl
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

Manufacturing and production

FOURTYPESOFMASSCUSTOMIZA
TION

% Inhisbook MassCustomization:TheNewont
Fr ierinBusinessCompetition

25.3
B.JosephPineI outlinesfourdistincttypes:

earvhget
❯

veiabotcurlCtsom
lozaint

wicoduntvm
sihaoltW kero

amounmtore that

tusioptrdcuictdfposevcil

oefm
crhniof,sgly Tnedrh.seti

consumearsre
em
sxacom
eb,plpseurt

onic.atipfsecis ocutmser’

nwioptglaiyfor
❯

Adcuovatepsm
itozniat

opredzanditarosPdrueccst

personazilaotin

. ocuetm
bnsayderzbhliat

snocmi Sr.UpLuoatn.ryoaFnect,

setlemhtysangihtilpordauces

ormfocnutm
gsichtoesres

m
aoepgrmoni.psted
 OceanofPDF.com

Continuous production

Duringcontinuousproduction,aproductismade24hours,aday

sevendaysaweek.Theproductionlinerunscontinuouslytokeepup

withdemand,andstaffworkaroundtheclockinshifts.

Howitworks eoclrtnciomponenastn,dpolirduAcst.swhtimas

Wohw
tlfiom
rasporduohnictse,loitppedot porduocinpt,orcesesaerauotmaentdisagfet,vlsel

changeporducstom
rodCse.lonituousporduocint aerkepotamnm
i uman,dqyutciaoslneiortsle.nailt

useshtesameconcebp,utritnsht,orughouhteyear Thesrhigihcomopinteitdueisrtunsig

souptusnitonsotpT.hsm
i ehtodsuisedofirencaitl coniutousporduocniM
t. agrn,bism
utayboew
l

commoedistwihtihgihco,nsetindtemanduicl,dnig demandseoitnfvaeryitlsaben,lcouargnig

, repapcadrboadrp,ackagniaglu,ndyrdetgren,t nivesm
tenictaeptqliupimen.t

The paper trail

opyesfroiacrtsnofhdtruwye3ah6sg5rt,esoplaturiP

paorpdfhwm
etrcoaOnuLtlm
nshaiegkrt.dceber

wearhsAtabendhtriyedfhb.etapdnchseibukdlear,

ecyrosmpiea,cyelrfilstielnodf.

Wod Papermaking

Lumberisarenewable Inthsicontni uousprocess,

resource,andlogsare automatedmachineryruns

stockpirucksled.make
T 24hour,365sadays
day. ayear

constantdeliveriesto

processorsforpulping.
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

Manufacturing and production

TYPICALUSES

121 lbs. Continuousproductionisusedforundiferentiated

commoditiesrequiredinlargeandconstantamounts.

opfaper siusedon

Y
G
R
E
egareva byeveryperson

N
E
eacyhear
onthepalnet

A
P
 OceanofPDF.com

Hybrid processes

Manufacturingfirmsmayadaptexistingprocessesorcombinetwo

productionmethodsforoptimalperformance,particularlyifthey

makeawiderangeofproducts.

Howitworks capsueal,nqdiuldiofm
r and

Theraermanyexampeslohfybdir nivayrnigdosese;achbacth

porceseOs.nieskledbacothw
lf ow
lfshtorughaseisroetfps,

porduocintw, heronyw
tl ohtre dependnigoncompointsi

peicesoefqupimenaterquerdi andofm
rorfm
, buklporcesnig

andabacothw
lforsfmoneporces otpackagnigA.nohterxampel

.Tshciomotam
nohtoenrhite sm
ciel anuafcutnirgw, hchi

chemcaislndpham
r aceucaistl combnieosjbporduocintwhti

nidueFisrt.noirsatncaec,ompany olw
fm
( asp)orduocint.

maymakeheadachemedcoaint

andahayefvermedyniatbe,tl

Combining

Flowproduction

methods
Oneprocessishandledbyoneormoreworkers,andthatjob

iscompletedbeforetheproductorpartmovesontothenext

Ontheclassicassembly

workstatoin.Worker1usesonlyonesetoftoolsfortheprocess

line,eachworkerisskiled

beforetheproductmovesontoWorker2,andsoondowntheline.

atproducingonetype

Seepp.276–277.

orpartofanitem.Atthe

otherendofthescale,

onepersoncompletesall

NI PUT

stages,creatingthefinished

productfrombeginningto

end.Cellmanufacturing

WORKER1 WORKER2

combinesfolwproduction

withjobproductionto
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

Manufacturing and production

HYBRIDPROCESSESFORININOV
TAON

Bycombiningmanufacturing

processes,companiescancreate

productswithnewandoriginal

qualites.Forinstance,afoodcompany

dough

thatmakesbreadandfrenchfriesmay

speedupproductionofthefriesby

bakingtheminthebreadovenfirst .

Thishastheunintendedbutbeneficial

consequenceofmakingthefries

heal
.Anew
thierproductiscreated,

whichmaynowbemarketedas

anewpropositiontoadiferent

setofconsumers.

potatoes

Jobproduction Cellmanufacturing

Oneworkercreates Combiningthebestofflowandjobproduction,hereagroupofproducts

aone-of-a-kindproduct , orpartsisproducedinseparatesmallunits(cells)madeupofanumberof

suchasacustomkitchen, workersinthe.W
factokreorsyaretrainedtoproducealltheitemsintheset .

fromstartofinish.This Disimilaritemscanbeproducedwithoutslowingtheproductionline.Theidea

wayofworkingcanbe sitom
i proveperformancebygivingeachcelladegreeofautonomy
.

morerewardingforthe

,who
workerusesarange

NI PUT

ofskils,butitendstobe

costlyforthecus.tomer

Seepp.272–273.

CEL1
 OceanofPDF.com

Management

Everymanagerinabusiness,particularlyinmanufacturing,hasto

ensurethatallresources—frommaterialstoequipmentandstaff—

areusedeffic,whi
ientllyekeepingthecustomercontinuallyin

mind.Managersmakekeydecisionstolaydownprocedures

andsetstandardsandthenworkcontinuouslytoimprove

processestoensurethatthecompanyremainsprofitable.

Which approach?

Howpeopleandprocessesareorganizedinmakinganddeliveringtheproduct

tothecustomeriscritcalifacompanyistosurvivefiercecompetitonandrapidly

shiftngconsumerdemandsinaglobalmarket .Inmakingdecisionsabouthow

abusinesscanmeetitsgoals,managersmayocmbineanumberofapproaches,

asmanyareinterlinkedandachievesimilaroutocmes.

MANAGERORLEADER?

Managementandleadershiparenotthesamebutare

closelylinked:
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

Economieand
s

diseconomiesofscale

Kaizen

Whatscaleofoperationisbest

Howcanwedrive

forus? Seepp.286–287.

continuous

m
i provements?

Seepp.298–299.

TEAVONI

VLOVNI E FOCUS

OYM
LEPEES AVONLUE

TARTS EGIC

ALLIANCESWITH

MINIMIZE

SUPPLEIRS

ETW
SA

Just-in-time

OCUTSMRES

UNNI TERRUPTED

T TAHEHEART

Howcanwemeetcustomer

WORKFLOW

WHOATF

demandandminimizestock?

WEDO
 OceanofPDF.com

Economies and

diseconomies of scale

Economiesofscaleareoneoftheadvantagesoflarge-scaleproduction,

stnsaoc,ngdim
elw
toedhuso.cafHpielyrnw
orve

asolgoupastheoperationgrows,resultingindiseconomiesofscale.

Howitworks
,sw
dornktm
e,artxupelbifSypl

m
e:stplheanscoim
ftaEeciro , ,s.tyum
ohesnscrHtopw
uanieorhiev

)tgde,aunihcorpeavnd(tcholr sem
nocenosilacfium
sodrctw
oayherpenoth

seinceicdeixs,dloefitrshoalcnfde noexipniectargshri,m
aoksdtcrm
tsoenlfw
ciitsa

evim
est.ngeavsm
noitadvcbgTushitpe . yt,ivloikrctadueontym
frpeolcpl

Economies of scale

Whileitmaybeinefficientforasmalldairytosupplymilktoasupermarke t ,

itscost-efectiveforalargedairyoperationproducingthousandsofbottles.

Ifadeliveryistoolarge,though,wastecancreepinduetoassociatedcosts.

DELIVERY

1VEHCILE

OF100

BOTELS

Aveargecosthigh
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

NETWORKECONOMY

Onlinenetworks,suchaseBayand
acebook,
F
9 %

rarelystyraintodiseconomiesofscale.Theycan

delvieecronomieofscaelevenatanniternatoinal

hgihenreptrotif

level:thecostofaddingonemoreusertoa

networkisalmostzero.Howev
,theresul
er ting

ni2020

benefitsmaybehuge,becauseeachnewuser

inthenetworkcaninteractortradewithother

2016aetfr

membersofthenetwork.

moilin more

2+VEHICLES=MORE

DRVIERSANDFUELAND

POTEANTESATW
IL

DELIVERY

OFMORE

THAN

10,000

BOTELS

Aveargecostgoesup
 OceanofPDF.com

Lean production

Thegoalofleanproductionistoreducetheresourcesusedto

supplygoodsandservicestoconsumers.Bycuttinghumaneffort,

materials,space,capital,andtime,leanproductioncutscosts.

Howitworks Opmitnzightoew
lfopforducstand

Theofcunseialnporduocintsoin sevcreishtorughvualesrtams—

ecinefcyotmaxmizeivualeofr whciaersequencesoayvtfhcitat

.htecusotmebrunteoafctqyutial olw
f hzoirnyaltcors

Leanseksom
tielniaetlaisvcit etchnogleais,eastn,dufnocints

htadtonoatddvauleothe otcusotmesr—ow
lashtebunsies

porduocintporcensiuc,ldnig to respond more quickly to

hodnlignivenotyrso(tcerkp,)nairg consumer demandecEin.fcyasol

afsut,nldunneceysm
lairovnig maketsm
i pearlndmoeracuaret

peopelandporducstaorunda otmanageniofm
r aoitn.

manuafcutnirgpaln.t

Case study: W
sate

Itemsproduced

how
oyota
T

beyond

eliminates

customer

demand
waste

Leanproductionis

aboutgettingridof

waste,sometimes
Leansolution

callednon-value-
noitcudorprevO

Manufacturebaseduponapullsystem,

addedactivites.

producingproductsascustomers

Carmanufacturer

orderthem

y o T otahasidentifed

eightareasofwaste
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

CREA
TINGALEANCOMP
ANY

In their 1996 book, LeanThinking:BanishWasteandCreateeWalourthCor

inYporation

aJmesWomackandDanielJonesidentifythefiveprinciplesofleanmanufacturing:

❯ l a V ue

ocum
ntsevadioeftrosuceanhordet,csiyatnelwvien,rstiuev—,Ulsyres

. poaytngiolm
rwlyo
faendrhiyawonpetdsrluthcoearlm
wutcshsaetr

❯ l a V eratusme

oclaelmnrdgbetiyshutaM
emvlshietapvinacty

hetotnboyearm
csutvnglierlatcm
dniohtTsaboeyusti.oclrnt

minehdasbtlio.euslenahbgyitunb,seui

❯ owFl

ounrpish.wdtoiut, m
usernohptegsnotyrihaltM
aluesreak

❯ Pul

demuactlaswnodi”schuy.enortkl emtysm,Iplem
u“laent

ghitarvoemncarftniaebdtlsam
ilyniahreM
scteusrake

woager.tnsbadolnresg,ucirtm
cuite,ghtirhetaptordsoucftyqtuaint

❯ freoPeinct

s ’ onioagzhtco
nrm
einvoeum
pfirunsptoaerscM
nhetaek

. daeyvrerbtegeotngyiranketydpue,rtcul

W
sate W
sate

Superfluousstages Unprofitablestages

A B C

inthe intheproduction
segats

transportation orreworkingof
ni

gnisecorp

process aproduct

Leansolution
Leansolution

A B

Mapthevaluestreamto
Materialshipped

identifynon-value-added
directlyfromthe
noitatropnsTar

stepsintheprocess;getit
vendortothe

rightthefirstime
assemblyline
dedda-eulav-noN
 OceanofPDF.com

Just-in-time

Thesystemofproductioninwhichanactualorderisthetriggerforan

itemtobemanufacturediscalledjust-in-time.Itenablesafirmto

produceonlyrequireditems,intherightamount,attherighttime.

Howitworks
erofquendtveislrandoslof

Asolecdaldemandp-ulorduocint, pucrhansigeconomeisofcael

m
unitjs-emeanshtasotcekvlsel ds(ciounostfbrukbluyniTg.)he

oarfwmcasoet,ilm
r ponenw
st, okr sysetmdaetsbackot195ht3e,

niporgersan,ndsihfedgodsaer raeTyoyoatborughnm
uitjs-te

kepatosw
l asposberid,luncig manuafcutnirgT.hepharsei

coTst.hesysetmerquersideadlti somm
eitesusedniamoergenearl

palnnigsc,hednuigal,nodlw
f senseotdayotmeanmielniatg

oerfsoucreshtorughouhte wasetorsfoucres.

porduocintporcesn,owasetid

bysopcahsietdporduocnit-

schednuiglsow
tfaeSr.upepisl

haveotbedvielrddeyrocitl

hteporduocnitelwhenhtey

aernedederq,nuirgsortng

oaerintlshpisandnietcronnecetd

sysetmswhtisupepTsir.lhe

OTNSW
ECKDSIELVIEREDTO

bensteoirfducednivenotyr

VOESRREFETLISHSEL

aerbalncedaganihstecost

-TUSJNTI-IME

PROSANDCONS

Pros
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

CUTSOMER

SELECTS

TIEMFROM
9.7

SHELF

aergvhet

gorwht

thegolbal

-sdhreitmandT

Just-in-time in retail

manrkiet

o T reducestocklevels,manysupermarkets

nowusejust-in-timedeliveries,relyingon

computerdatasystems.Inmanufacturing,

systemsareoftenbasedonKanbancards—

docketsforwithdrawingandorderingitemsat

eachworkstationoftheproductionprocess.

CASHEIRSCANS

BARCODE

2
 OceanofPDF.com

Total q u a l i t y

management

Successthroughcustomersatisfactionistheethosoftotalquality

management(TQM).Everythingacompanydoesisrelevant,andthe

focusisonmanagingandimprovingprocessesratherthanoutcomes.

Howitworks latnsoezdw
ieerefsiohoasv

esetaeinm
sQoaTuCM
pract sessem
teutcopkaonrahrfitp

desnuocoifta-zm
roeinatgsuroc dserreehgviuoilperplhouedts

sevseloyltvoanhm
lieatp .gmnsroiturpfauertscuneadpM
oe

su.ountm
neivotsm
nrpoaiIc ,nolaictaictidinm
suoorscgia

ccigeihm
tceaotrsrpdytnas nhgiuam
.ouhtntonm
ielAm
toa

ytitsearlhatfeutohaqp darearlpsm
ixedhoirSw
tsio
m

123–023e.epps
sei t.eirvuti’tlsduncscaenisub m
agi(S sesuco,M
QfT)

ensmlim
reovehtfesoltdCu slydantrarediehnatlnatnursqio

rdeireuhsytb,m
aeyt i lauq gngsniticucendudaodfhenrepadrt

.nonioticatafzsinagstarehioTs elba.isft ilutnsaeurq

Case study:TheWalt

Disney Company

Manufacturingcompanies,inwhich

thefocusisonmeetingorexceeding

ThW
ealtDisney

customerexpectationsbymaking

Company

productswithincertainspecifications,

TQasedusntTQofearM
m
.xespl Disney’
sgoalistomaximize

,seirtndusi ecivresnideipalbeoslanac long-termshareholdervalue,

.m
eaxeplodgasi ynesDihcwhiof andpartofthisinvolves
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

70,000

WneysDoirdl
metm
asc“”bser

owtkor . hpaystm
ugeseka

Empolyees Exceptoi nalservice

Disneycallsitsemployees
cast“ Castmembers(employees)are

member
”Theyars.etrainedin focusedondelighting

everyaspectof,delivery thecustomer—theirsolejob

includingposture,gestures, istomakevisitorshappy
.

facialexpressions,andtoneof

voice.

Suppliers Continuous

m
i provement

Disneycolalborateswith

suppliers—forexample,ithas
WDitalsneysawthetheme

partnershipswithMcDonal
s d’
parksasanincomplete

andCoca-Cola—toensure
product;
,m
i tproday
ovements
 OceanofPDF.com

Time-based

management

Thegeneralapproachthatrecognizestheimportanceandvalue

oftimeandseekstoreducethelevelofunproductivetimeinan

organizationiscalledtime-basedmanagement.

Howitworks stpieopehlaveotbemdlsk-ainutdlabeotlmove

Theafsptaceocfmopinteim
teansabunsieshtat swylbtfeiw
t enefdrniatsktsm
i; achnieyrhasot

canmanagm
eitecyinew
lftnloyjiagcsainfit belxbfeilsohtaptorduocinturnscanbechangedat

comvpietaitdvanatgTe.hsaipepisotlnewporduct shontrcoeita;ndhterhasotbeacutelrom
f utal

devoeplmeafnset,rsponsm
eitesotmecthangnig urtsbtew
t enwokresrandmanageTsrm
.i eb-ased

makreatndcusotmenredasn,derducedwasFet.oar managemesnaitkeyaspecoaltfnporduocnit.

bunsiesotpearetm
aiteb-asedmanagemenstysetm,

Case study: managing

time at Amazon

Withapproximately398,264,685squarefeetofstorage

spaceinitswarehousesandhundredsofmilionsof

customersworldwide,Amazonisanundisputedleader

inonlineretail.Oneofitskeystrengthsisbeingableto

deliverproduct,wisquithcmany
kly customerspayinga

premiumtogettheiritemsevenfasterthroughitsPrime

subscriptionosbeervablice.Tetodothisatareasonable

cost,thecompanyensuresthateveryprocessaddsvalue

andtakesaminimumamountoftime—frommakingsure

thereisenoughstockandspacetostoreitopickingthe

rightproductanddeliveringit .Muchofthisisachieved

throughtheuseofinformationtechnol. ogy
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

RAP TOFPROJECTMANAGEMENT

Time-basedmanagementisacritical

partofprojectmanagement .Timing

34

aidsinclude:

of organziaotins

o o T sl hsowschGtaruastnch

chtarbarachsedulectpohrjet ,

mosytlor

anm
odptleaym
sotrninagki

.sgeatrndopsergyldai

swyala compelet

mePtcoarnjaegtm
sysent

NCoIrntelsNPdRetcIo(CjE2

porejcst onm
ti e.

moErm
anhveaiolntsdis)ent

nieptsbepytssepcotrjuectsphel

wedzagyonri ,alco.gisl
 OceanofPDF.com

Agile production

Speedandagilityarethekeycompetitiveadvantagesofagile

production:thefocusisonrapidresponsetothecustomer
,enabling

thebusinesstotakeadvantageofshortwindowsofopportuni
. ty

Howitworks

Thegoaeflgpiorduocintsoisatyaheadhotfe

comopinOtei.tnficopronaritgconcepestoalfn

sepp28.–289
porduocnit( ,a)eglhiasanexart

dmienosinm
:enitgcusotmedremandarpdyialnd

etsieor.Ilnbxefialndacblovareitwokrevfycisrt,l

w.Theocamndveipsrw
lyanltfydievfycitl

hasotbeabeotlchan.genoirceaseporduocnitqucykil

Degsinopforducstmgihnitcoproaretmoduacrloncepst,

ow
lanigofcrusotmzoaintn,dosrtngoaerintlshpis

whtsiupespriaelse.anlit

e
m
r

u
C

Customer

demandsi

grtigerotsatrt

pordouinct
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

Modular

products

Independently

createdpartsusedin

diferent/customized

products

Knowledge

culture

Capturing

experience,learning

frommistakes

71

ofrganziaotinusse

agealipproaches for

proejcst elsoastmem
it es

aTnrsportation

system
 OceanofPDF.com

Kaizen

StartedinJapan,kaizenisasystemofcontinuousimprovementthat

involvesallemployees.Fromseniormanagerstostoreemployees,

everyoneisencouragedtosuggestimprovementsday.today

Howitworks

Thek,zaeinp,m
ohsloipahksyte“ibotdetrobietr satndadrsandhtenolknigofw
raysotconituyla

miporvetivenstfbi’orkenb,ecausefw
i edo,nt’ mi porvehtosesatndadrstiIu.ppoetrdby

wecacnto’mpetwhtiosewhod”oK.azeinsariyel arfmewokranotifgco,mmuncoaint,

abouditeaosfm
roacrjhangebuhtasmoerotdowhti andsupevorsinandersuntm
il porved

ongonigsy,setmnicear,im
t em
niatlporvemeAn.t ea,ld ,qyutial ,pordyutvcit ecniefcy

erlnstaetmpom
teilniaetunnecesayreaisvtc,i .mitaen,dcusotmoeylrtal

muda

,ow
raset( daeyl ,K)azeinsatrwhtisneitghgih

Creating good change

, ytviam
ctoiefmparclehoyvznsKruteadgiht

chedkcno,anwp,laysntqiue,act.
arzlnkaiotCalernt

otrfnegoiemoyenpvfm
roate,isplfent

anchodam
ntgen,iswm
dhyltowraelnio.ucatknr,i

BETTER
Innovate—find

andimplement
ANDBETTER

betterwaysto

meetrequirementsand
KaizenwascreatedinJapan

increaseproduct
. ivity
afterWordlWarI.Itcomes

kai

fromtheJapanesewords ,

29
whichmeans“change”or“to

zen

ocrrect”and , ,whichmeans

escoed
nasvds

”Compani
g“ood. essuchas
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

a
d
r

d
n

a i

z
t

e
S

Standardizeoperation

andactivities;make

eachmi provement

standardpractice,

enshrinedinthefive

foundations,or5S.

Wilingness

tochange

Communication

M
e

u
r
 OceanofPDF.com

Product

Theitemsthatfirmsselltosatisfyaconsumerneedandtomakeaprofitforthe

businessarebroadlytermedproducts,whethertheyaresomethingtangiblelike

toothpasteoranintangibleservice,suchasaninsurance.pol
Inaictypi
y callife

cycle,aproductisdevelopedandlaunched,andafewcustomersbuyit.The

dominoeffectcauseswiderdistribution.Growtheasesasthemarketbecomes

saturated,andsalesflattenanddeclineuntiltheproductisnolongerviable.

Product evolution

Fromstartofinishever
, yproduct ,

suchasatubeoftoothpaste,goes

throughaprocessoftesting,

innovation,andqualityocntrotlo

ensurethatitwilmakethebiggest

impactonreleaseandthroughout

itslife-span.Successfulcompanies

understandthelimitedlife-spanof

productsandthusinvestintheearly

stagestomaximizegrowthlateron.
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

PRODUCTLIFE-SP
AN

Homeentertainmentoffersdiferentproductsto

2.8

consumers.Thesearefourexamplesofproductsat

diferentstagesintheirlifecycle(

onrdtIiutc

avhoeytmolrfenctrablyoinl

trillion

oGwhrt Streamingservcies—moresubscrpitoins

htevauleof
goods v , ecneocineecdvniaohc o, etunelteanud

Myatuir
on—isevielotnitnighd-eifRaergul

rtadedbewt eenEU
echntm
gdcoblaehyilostpoehri

Dniecl DV—asDyeprluDspedbVredcsyDdi

ni2020
membesrtates

ecasrmviteorsngiuoetshr,l-ei cheaper
 OceanofPDF.com

New product

development

Companiescannotstandstil.Intoday’sfiercelycompetitive

marketplace,theyhavetobudgetforresearchintonewideasand

identifynewproductstobringtomarketsimplytostayinbusiness.

Howitworks andgenearetapodieflaesf,w

Newporducdteveolpmensait ow
f hcicanbexpoerldT.hey

porceswhtianumbcaeitolrcif mgihw
t okrwhtipoetnailt

satgesotensuerhtatbunsies cusotmesrandsaolwhtisupepsir,l

ofcusentsivesm
t enotnporducst fpiaohtrfemanuafcutnirgporces

htaw
tslenldaib,ov,elm
aake sotibeoustoucreodnteri,fand

atsIpat.orw
ifhtiandiea, deveolpdieasbeonfeyrialf

posbyiom
tl porveandaerulnchan bnirgnighteporduoctmakre.t

enxsitgporduSco.tmecompaneis

urnsesoinsotencouargeceryvati

The development process

Thenatureoftheideaandthesizeofthecompanyaffecteachstageand

howol ngtheproducttakestoreachthemarket ,buttheprocessis

generalythesame.

Screenideas
Ideascancomefrom

anywhere:customersmay

Criteriahelpidentifyproductsthatfit

expresaneed,oremployees

busines,wistralbetegyeasytomake,

maymakesuggestions.

andwilbeprofitabletoproduce.
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

s eT tconcept

Feedbackrfomconsumers,usingfocus

groupsi,nterviewsor, onlineevaluation,

ensuresthatanideaisworthpursuing.

s eT tmarket

Productistestedon

sectionofmarket ,

perhapsaselected

geographicareawith

goodrepresentationof

targetaudience.
 OceanofPDF.com

Innovation and

invention

Innovatingismorethanjusthavingabrightidea—itisthewaythat

inventionsandideasreachcommercialsuccess.Itisthelifebloodof

anycompany
,becausestayingaheadisessentialforsurvival.

Howitworks Huawetcihnoglycompanekisn,owhowotdohts.i

nInovoaintnedsacuterlhtaetncouargespeopel nInovoaintsniostm
nicer,m
laencathlangesbut

otbenivenvietandexpoedrlietasIol.erquersi artnsofm
roaintaolnesu,chasovnliganenxsitg

porceseshtactnatkednilteiasanddevoeplhtem. porbem
lniaryedcfrlainw
taydoireynfigt

Sucesubflunsies,aesnu,dchashteAppSeo,lny anunknownporbem
l andnivenitgasuoilnt.

From idea to product

Innovationistimulatedbymanytriggers.Theideathenrequirespeople

tobeworkinginaconduciveenvironmenttoensurethat

itsimplementedandmakesadiference.

Innovation triggers

Shiftsin,such
socieastyleapsinIT

andgrowingconcernsaboutclimate

change,aswellasinternalcompany

developmentscreatenewneeds.

h n
c
e o
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n
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e

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 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

DIFFERENTTYPESOFINNOV
IATON

Sustaininginnovation Significantly Breakthroughinnovation Product

improvingexistingproducts,typically orservicethatsimultaneouslyshiftsa

throughtechnology—forexample, marketandhassignificantoutcomes

morepixelsincameras,smallerand fortheworldatlarge,suchcloud

morepowerfullaptops computingorself-drivingvehicles

Sustainableoreco-innovation Disruptiveinnovation Displaces

Newproductthathasminimalimpact establishedcompetitorsorchanges

ontheenvironment thenorm—forinstance,online

gamblingreplacingbettingparlors

Frugalinnovation Low-cost

productforemergingmassmarket

nIetlcutpalrophtesPiIyrte()xpreosinoanfdiea.

PImgihbteadegsaini,venoitonarn,ohtyetpre

noeiltcfucaerloitanc,atdnibeporetcetdby

awl —oefxramwpehtpal,iaetnt .

Brainstorm Action

Individualsand Thecultureandprocessesofthe

teamsneedthetime companyhavetobefavorablefor

andmentalspaceto testingtheviabilityofideas.

thinkcr.eatively

a t m i
a s e
g r s
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s
L
 OceanofPDF.com

Design

Anyproducthastobewelldesignedtosucceed.Excellent

designsforeverydayitems—fromtheAnglepoiselampto

reflectiveroadsigns—haveshapedourmodernworld.

Howitworks

S
R

H
M

Thesnatirgponiftdregsinsi
O

T
S
A
E

U
andieaofrpordsulhctiuaftl

C
E
R
anedw, hehtseairspeytacil

etm
i osromehtnignidaoydt-ay

usTe.hedegsinehrasothnikof

waynsiwhchiaporductan

sevrestpiuproseandmeother

Y
G G
N
I
O

aenti,curldnigaeshtcesoi,t M

O
R

N
O

T
H

,andenorvnimenatdlyutairbli

S
C

N
E

I
T

condsieoarintTs.hedegsinmay

A
R
W

B
E

benitgotahrlepordusc,th
N

sAase’rpcatlnguadlrevceis

whtiorundedconreofsrw
, hchi

toibantiedadegsinpaetSno.tme

degsinsaecroinscu,ichashte

edtegsCinsiocaC-aobYle.olt

Product-design process

moerhtanujsthapAe.swasle

Designsformass-produceditems,suchas

ntuicld,esmsaetlir ufnoycnital

furniture,lighting,domesticappliances,and

andcoarlndexetndorsfmhte

communicationstechnol
,takeoagylotofhard

porducsothperiackagnig.

work.Theprocessofcreatingafunctional

designthatlooksgoodhasseveralsteps.

CONSIDERATIONS

FORDESIGNSUCCESS
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

Developconcept

Thedesigncanbebrokenintoocmponents,suchas

functionalrequirementsandproductionoptions,with

eachevaluatedindependent
. ly

32

hgihervenue generaetd

byhtemost desgin-focused

companeis yveiofavers
E
M
O
T
S
U
 OceanofPDF.com

Quality management

Forbusinesses,qualityisnotavaguetermbutaphilosophyof

meetingorgoingbeyondconsumerexpectations.Excellentquality

managementcangiveacompanyakeycompetitiveedge.

Howitworks ces.vTirodohst,eiyhaveanumbeorf

Manyconsumesrmgnihdfthiadrotdneifqyutial satndadrsokreypeofrmancneidcaioKtsr(oPfsr)I

becausetcianbesubevcbjit,uhteyknowtw
i hen htemanuafcuntirgporcesandconituym
laeasuer

hteys,ceo.tmHipow
anesineverdotdneif htemsvelsaganihstesQe.yutdiaolesnoatppuyjlst

andmeasu.etrTiheyknowhtaotbdulaigod otheporducotsre;vcsrpetfirpleslouothe

erpuoatinandhvtier,yhaveotexcedcusotmesr’ asoaceitdpeopealndporcesesandacorshte

expecoatinnsietm
r soqfuytofaibrlohtporducstand ogranzoaniteanlorvnimen.t

Cost of quality

Qualitymanagementisessentialtoensure

thatanydefectsarenippedinthebud,the

earlierthe,and
bettdef
erinitelybeforethey

becomeapparenttothecons.umer
TCEFEDFOTSOC

Quytamil anagemenat

CUSTOMERFIRST

hteporduc-dtegsinatgsei

olwac-noetdisgartlo

hteporcebsecautsei

Beforethe1970s,qualitywasseen

prevensuiteafshrter

assomethingtobeinspectedand

downhtiel.

corrected.Then,U.S.businesses

begantoloseouttoJapanese

companies—forexampl
oyota e,T

andHondawereabletoproduce

carsatlowercostandatmuch
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

60

ofrganziaotins agreethat

customers arethe keydvriers

othferi qpyutoriaglrms.
 OceanofPDF.com

Product-process

matrix

Aproduct-processmatrixisatoolthatcanhelpa

businessidentifythebestwaytomakeaproduct,

basedonvolumeandthelevelofcustomization.

Howitworks

Porducstpashtorughefdrnit

Choosing the best

satgeasn,dsodoeshteporduocint

method

porcesB.unsiesesytpycailstr

whotiw
l vuolmeandaerhgihyl

Abusiness,orbusinessunitinalarge

elxbfeilbuntovteyrcoeisn-ft.

company
,occupiesaparticularegion

Apnisrthopodresmakseairn
inthematrix.Diferentprocessessuit

diferentproducts,dependingonthe
exampeolafcompanypointsiedni

stageoftheirlifecycleandthescaleof

htebotmhe-tlfandconreorhtfe

thebusiness.

pordupc-torcesmw
xai,rthereach

objsuinqiueandobjporduocintsi

moesvftciPe.orduocintsatges

htenporgershtorughniceransig

satndadrzoaintandmechanzoaint

outlafuotmoaintC.ompaneis

hteotpgirh-tandconrehravehgih-

vuolmeporducstandasmarnlage,

soconituouow
lsfporduocintsi

htebesotpoitn.

over

4
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

Process

Mass

produocitn

Contniuous

olfw;nonsotp

porces

( espp2.80–281 )

Carassembly

Assemblynile

YVAIBLERAREL

Connecetndile

Anasemnbisyleontormyal

olwfpor;ces

asutbieplorcoefmsraknig

repeaetdofr

mpeuitlordoulacwstor

eachporduct

meduimvoulme.

( espp2.76–277 )

Low–meduimvoulme Hgvhioulme

Somesatndardzaoitn; Satndadrzoaiptnor;ducst

mpeiuoltrducst manuafcutrednailrgequaenits

Batch

produocitn

YVAIBLERAREL

Dscionnecetd

Bacthporduoncistnotom
ryla

owlnfei;l
 OceanofPDF.com

Control

Essentialinanytypeoforganization,controlisfundamentalwhentheprimary

goalistogenerateprofits.Controlneedstocovercosts,resources,andquality

oftheproductorservicetoensurethattheoperationrunssmoothl
.Aswel
yl

ascrossingdepartments,controlhastorunfromtoptobottom,withdirectors

formulatingstrategywhilemanagersallocateresources,people,materials,

andequipmentandoverseetheworkofindividualsandteams.

The chain of control

Itissimplesttothinkofabusinessasanend-to-endchain. fartheralongtheline.Controlsareputinplacealltheway

Leadershavetomakedecisionsonbusinessgoals, trategy alongthechaintoensurethattheorganizationisworking

andpoliciesatthestartofthechain.Thisiscritcalfor towarditsgoals,thatitmeetsthedesiredstandards,and

controallongthechain.Ifthereisnocleardirectionfrom thatindividualsandteamsareclearaboutwhatisinvolved

thestart ,problemsbecomeexacerbatedastheytravel inspecifictasks.

Controlinpractice:strategiccontrol

ABCCakeCompanysgoal’istobethetop-selling

cupcakebusiness.Itsdirectorsdeterminethe

quantityandqualityofcupcakesthecompany

needstoselandwhethertoinvestinanew
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

LEGA
YI

Manyindustr

aswellastheir

84:1

the medainraoitCfEO

oetmpoylepa of FTSE

100companeis ni2019

“ Dvrihetybunsies,

owtirli drivethee.”

UastS,et.smanandsceinsti

BenajmnFirankil

ABC

ABC

CAKES

CAKES
 OceanofPDF.com

Managing capacity

Intermsofproduction,capacitymeanshowmuchworkcanbe

achievedinagiventime.I,daeal
busilynessmatchesitscapacityto

customerdemand,usingitsresourceswithmaximumeffic.iency

Howitworks faindwhendeman.dgoesbeyondcapaytci

Eveyrbunsieshasotcondsiehrowmuchcapaytci Bunsiesesmayeofcrnsumensricenvietsohpel

tniedstofirpeoarintandhowotmanage managecapaytc—
i nofirsatnceh,eapaeltm
r- onrig

htsciapaytcbiohtdaoydt-ayandnihteufter. anrtifersencouargepasengesrotaveaturlfsh

Managemenhtasotchoseaytpow
:irhehteotr , ruoheansigovecrowdnigonartishtateruoltf

dveilrxeclnctusotmesrevcreibyhavnigexart capayntcihteyalm
r onrigLk.iewsem
i, anyhoetl

,andhtuspcteirporducastopreaytcicveishgihor, chanisdonocthagrexaiefdpceoirfomnpcsi,gr

otmanagsetrisoucrecsinyeoflatrbetrutnron htemacodrnigotdem. andotmnaitcapaytci

nivesm
teanht,sekirodsfaipponitgcusotmesr

Capacity decisions

cowmthseputorinfTm
dhiasem
dcieanlt

odnemyca—nptodarciwouptm
shoterser

coontiaslpreonifegam
ritshltes .

Customerfocus

Managecapacity—

Thecompany—inthiscasea,cardealer—keeps

raiseprices

morecarsinstockthanrequiredsoitcan

alwayssatsifycustomerdemand.
Customersarehappytohavea

productimmediatelybutmust

payahigherpricetoocverthe

costofholdni gexcessstock.
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

HOWACAP
CITYAFFECTSACOMP
ANY

Capacitymanagementiscritical esvnlgifaSt

toensure,forexample,thata
❯

abexo—m
lrUfoe,psl

manufacturingoperationhas

woktrfhsi

therightlevelofresourcesto

hoW
uwoes,tm
cshaileart

worktoaproductionschedule.

mucohd/reotnwof

Itaffectsmanyareasofthe

sevl ock)ts(nvoeyIrt

business,asallareinterlinked

andcostthecompanymoney:
Pocrhndseguictl

❯
❯

c a zeFisceiofytr
poSercsoaendfs

❯
❯

Wanhadtowmuch
p y T nomfrioefniat

eqnpuemidsedient
echtnouegsdyl

Resourcefocus

Thecompanyusesresourcesasefficientlyas
50

possbielWast
. ageiskepttoaminimum,but

exapgeractdv

satisfyingdemandishardbecauseworkisatful

capacityandoutputcannotrise.

gorwht

at e T sal

Managecapacity—keepstocklow

Itproducesstockaccordingtodemandandholdslowinventory

tominimizeunnecessaryspendingandstoragecosts.
 OceanofPDF.com

Inventory

Companieshavetomanageinventory(stock)tomeetcustomer

demand,eveniftheytradeonlineandhavenophysicalstorefront.

Successfulinventorymanagementisacomplexprocess.

Howitworks Eevfcientivenotyrmanagemenitvolesysetms

Sotckmaynuicldnseihfedgodw
s,oknriporgers, andporgarmosfreaoslfercapst,orduocint

andarwmGase.tilnretghtgeirhsvltaieblanlce atgreast,ndacutnaivlenotyrsatupsu,lshte

bew
tenhavnigenoughotmectusotmedremandand phyacrstiknligandhandiglhotfedrfnit

havnigotmuchw, hchiscioynslietm
rnsiohfed etm
iBs.acrodesandaredofqi-uencydcoiaentfit

godsota,rgespacaen,dwaerhouse.Ssaftockmay R(FDIat)gshavervoulintzeidnivenotyrmanagemen,t

saolsevualetfsipolbriecomeunsableblecause maknigtm
i ucheaeostirmontsoricekvlse.l

ochfangen.saifhoniorbseotlchnogly

Inventory management

abnwecatlinm
een
vfeoniyratnkueSsalgfiecmrstsent

ohm
ntdocugitm
yslfokausntckm
.hidseram
tngizi

sh-conrtThm
igtclohusefptyxamnilsaghyie,tpnlI

videlctrdioarnfdestisanorgfeacoutesym
rf .esr

Makesaleorecasts
sf Orderfromsuppliers

Thecompanysetsproduction Decisionsonthelevelofraw

targetsbasedonpredicted materialstoholdarebasedonlead

demand. timesandreliabilityofsuppliers.
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

NEEDTOKNOW

$
❯

FOoI(u)tsrifni,tsrFi emtnvienOoysdtrels

1.8

acorfdoslecodraseor( tsriofudonsligt

myov
lcalhpntgioyshieadrt)psuores

FLOIo(u)tsrifni,Lats porM
dyeucrlndtots

do)slecodraseor( tsrifdemotslis

trillion
❯

-kcotSK(kUeunp)tgi em
thitnacitsAdi

ocdwekctsntihas

olgstolbaynli

RaDFtgI negm
acrkientashbeoltpchAi

enosream
drtibyianof

eroerftauslirs’

msimanagement

Mainwarehouse

Thecompanymayhaveonemainwarehouseoranumber

ofwarehousesashubsforsmallerstoragefacilites.
 OceanofPDF.com

Quality control

Thereisaseriesofprocessestoensurethatabusinessmaintainsa

requiredlevelofqualityinitsproductsorservices.Qualitycontrol

isparticularlyimportantinindustrieswheresafetyisanissue.

Howitworks Quytcaioleniosrtlnaperdetm
rniedpecrenatgeof

Bunsiesesmeasuerandmanagehteqyuthoiaferli porducnsotfirspeocinta,gerdcoervcietaocinta,nd

ouptuatganisntoaintealgastlndadrsandno/iretnal ermedoaesftirlmnm
izeiufterdenfIcstd.uesirt

satndadrFs.oerxamphetl,manuafcutnirgnidusyrt niwhcisaeysftpiarmounicl,dtnigofodchtnl,ig,

setoiwnsatndadrCs.hecknigatkespacleaganist pham
r aceuar,tcniats,olndsurtocniat,dcar

hteseandanynoaintsatlndadrsavtoaiursponist cm
artifanuafcutaer,subeocjtexertmcyetislr

oanlghteporduocintporcesu,chaswhenarw satndadrsoqfyutciaoSlno.rtm
l eaerhterot

,dunmirgpaoretsdiarvluenoichntae,nafdcotyr poretcwokresr—nofirsatnfchtie,yaerhandigl

beofrshpimenshioftedgo.dsothecusotmer chemcsa—
il weholtiesraefguad.rhteconsumer

The bread and butter

of quality control

Hygieneandsafetyareessentialinthefoodin,asdus
inthtrisyexampleofquality

controinlafactorymakingprepackagedsandwiches.Samplesaretestedall

alongtheline.Anylapsesinqualitynotonlyareadangeroushealthhazardbut

wouldalsobeextremelydamagingtothecompanysreput’ ation.
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

GLOBALFOODATSNARDS
D

crhetyoapsfodrsouctfyohgteblqshieutanlEguisr

anecohdnthoFewam
ldwrefdoslr.iaoltunvidhebUdtsyedtni

yonleiratlnChstem
1on9iNdA6ou3exnl,siatr

ancdn,esidguealpirnotdsf,aorfcoeidtfsecotsrzdgni

opicvrebndho-casti,sutsdjophselat yuarnvotlst.I

unhedcygl,ieytanqidyuoetalfsdofpasectlal

ng.iabelandcoam
ntn,sait

18
Packagingstation

Samplesaretestedtocheckthat

sealingisaccurate,labelsare

correctlyapplied,andoveral

presentationisgood.
billion

hteproejcetd

thegolbal

sandwcihmarket
 OceanofPDF.com

Six Sigma

Usedinorganizationstostrivefornear-perfectproductsand

services,SixSigmaisadisciplined,data-drivenapproachfor

eliminatingdefectsinanyprocess.

Howitworks EveyrSxiSgimapoersjcitaeyrulf

Thedieashtiam
t easunirghte documenoetlw
df,sadneifd

numbeordfefncstianyporces sequenceoseftpas,ndhas

maketspiosbeiotlsysetmycalit queaidnfvitualeatgresut,chas

giuferouhtowom
tielniaethem niceransigcusotmesraoficnt

andgeatsocleotzeordefcstas edronugcisT.otoacheiveSxi

ponsbIeid.lviusalerantiedot ,amanuafgcSuntim
rgaqyutial

becomexpenstrihedferint porcesmushtave99.6

mehtodcesr,naitgacaderobafclk pecrenotfuptuerftodfefcst

bgste,rlenbasten,ldchampoins. 34(.defvcitepastrpem
orinl.)i

SIXSIGMAROLES

SixSigmaprofessionalsareexpertsatimproving

processes.Theydrivetheimplementationofchange.

Masterblackbelt a r T insandcoaches

blackbeltsandgreenbelts;worksat

highestlevel,developingkeymeasures

andthestrategicdirection

Blackbelt Leadsproblem-solving

projects;coachesprojectteams,assigning

rolesandresponsibilties;aitrnsgreen

belts
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

Define

Definetheprsopurjectp’ oseand

scope;di entfiyprocessesthatneed

improvement;determinecustomer

needsandbenefits.

Svntrigofr
2

perfection Measure

Usedataoncurrent
TheDMAICmethodology

processesasa
(standingforDefine,Measure,

baseline;pinpoint
Analyze,Improve,Control)isan

problemlocations
integralpartofSixSigma.Itis

andoccurrences;
usedform
i provingexisting

identifypotential
businessprocessesthatare

areasfor
falingbelowtargetsandwhere

m
i provement .
step-by-stepm
i provements

canbemade.

Analyze

Identifyrootcausesof

problemsandcheckthem
 OceanofPDF.com

Supply chain

Alongthejourneyfromrawmaterialtofinishediteminthehandsofa

consumer,everybusinessneedsanefficientsupplychain.Supplychain

managementinvolvesdiferentorganizations,people,activities,and

resourcestotake,forexample,grainsofcornfromafieldtoafinished

boxofcornflakesontheconsumer’sbreakfasttable.Thecompanymay

outsourcepartsofthechaintootherfirms.

Supply chain management

Thetraditionalsupplychaintakesarwmaterialsand theenvironmentalong, theway fromfariwagesforlabor

resourcesthroughtoafinishedproductforthecons.umer atthesourcetorecyclablepackagingafterconsumption.

Thecompanyhastomanagecostsandensurestandards, Supplychainisbigbusiness—intheU.S,.5.75milionpeople

beingparticularlycarefulthatitdoesnotharmpeopleor areemployedinwarehousingandatrnsportationalone.
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

EXTENDINGTHECHAIN

64 %

Auvedanlgi

oreaftlrsi tays hey

waastingeasirtusohjatnhyaetnrnpschaoietr

orf otducprm
Bo.tA

hadto adaptheri

Deunglfoaitncs

coanbhsutecisres,zdxipterpasleci

suppylchani ofr

chetm
anovedcal/osrbniyetovimiactpaoenrsi

owcnsti ofanbhcmrhsoep.frany

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phaetckgeo.f
 OceanofPDF.com

l aV u e c h a i n

Ratherthanviewingsupplychainsasaseriesofactivities,organizations

areincreasinglypayingattentiontohowvalueiscreatedateachstage

oftheprocess.Loweringcostsorraisingperformance.iskey

Howitworks
hotfevualechansihtahtoweisavtceirtogranzeid

HavradrBunsiesSchoplorefsoM
rchiaePloetrsift andcaeirdoudtetm
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noirtducedhteconcepoatfvualechanihsbiok htustm
i agrn.p)itE(orfanchiklhotfechanimust

ComvpeitAitdvanatge .Mosotgranzoaintshave communcaietohtedrepam

trensteclyarnd

dozens—posbyihlunderds—eoisavtfcinltghte .Foerxampm
e,lporam
krneigtypalntdseaslmusm
take

suppylchanihteporcesocfnvneitrgarwmasetilr acuaretseaoslfercastandpashtemonmiteofr

nip(uost)porducstosrevcreiso(uptuTs.t)hesecan porcuermenotbuyhtecoeryctpeandquayntoitf

beacidlsfigenyealrshetieprmirayrosruppotr arwmaw
set,ilrhchiniutnrmusctonnecw
thti

eaisvthciabltunsiesesmusutndeatrkeT.hediea niboundocsglitocianogranzeircpeoigtfods.

orter’
P s value chain

Primaryactivitesworkdirectlytocreate

ordeliveraproductorservice,while

supportactiviteshelpimprovetheir

oapplefyft.iTchiency
avluechain,a

companyhastoidentifyeachactivity

andeitherloweritscostordiferentiate

Inboundlogistics
tifromtiscompetitorstoaddvaluein

thecustomer
seye.’

Involvesrelationships
SETIVTICAYRAMRIP

withsuppliers,

includingallactivites
dnaeterpoosutcmntemartpedhcaE

. preakaofmitcvnaiosethic-euavl
neewetbnoatm
i yoarnesfciendvoipr

toreceive,store,and

CASESTUDY allocateinputs

Zara’
svaluechain
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

ONLINEVALUECHAIN

spohtpueniastl hwM
tedo’lhfrtaofnerl

nertI orm
nfghsi,doaenryvtpgi

63,84

w,oakrnicdgh,enckgi panhwTodVchsgtai

ocuam
volse,hitheaondmluevalexpl somacilTedai.

nhuem
tofber

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coenatsesvdriassetm
asrhwtisfoacnld

Spanishrfimsupplynig

arnfocimTIan,m
odsghntiuractsneri,

brobagnldwteo,asrfynaretdopris.

s’aZra

extndiI

Outboundlogistics Marketingandsales

Activitesrequiredto Activitesthatinform

colelct ,store,and buyersencour

, age

distributeoutputs purchases,andfacilitate

transactions
 OceanofPDF.com

Outsourcing

Firmsmaychoosetopayoutsidesupplierstodoworkratherthan

completethetasksinternal
.Handi
lyngoverpartorallofproduction

oraservicetoathirdpartyincreasesflexi. bility

Howitworks ufnocnitsu,chas

Oustouncriggerwnihte1980sbecaum
sreifoslkedot nohtavehtespzeiadcl

savecostbyconartcigpeirhebarlunsiesiavtcit hteogranzoainOt.ustouncrigmaybeotacompany

othdripeaBistr.uotustouncrigotdaysniolnger t,onm
irhtesaym
beotaencougrnayrtzoainti

ujsatbouctostavnisgtaiIs.retgcothisalit .Rapdaienxophtaencrosinoucglsnfityrew
t okrs

niceransigymli poatrnihtegolbaelconomynihte andnoifm

roaintetchnolgyhasmadetiaesotir

.Bunsiese2sm
1scteanyutchyroseoustouncrigofr oustouchrteu,sacenarlitghtegorwhtofustouncrig

elmenstohfeporduocintporcesof;sruppotr ovehtrealsdtecade.

100

What services are outsourced?

Growthandsuccessformanybusinessesisunderpinned

90

byoutsourcing,asanumberofcompaniesask:whydoit

ourselvesifanothercompanycando
,or,betcheaper
itfatestrer ?

Organizationsrecognizethatusingexternalcapabilites,

80

capacities,knowledge,andskilsopensopportunities.Some

54%

businessesnowfocusonlyontheircoreoperation;ina2021
%)D(EYEVRUSENICOMPA

globalsurveybyDeloite,thesewerethemainservicesthat

70

organizationsoutsourcedtothird-partyproviders.

44%

60
ygolonhcet
noitamrofnI

50

22%
32%
e
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

NEEDTOKNOW

❯ ❯

Ouostuncrig aruSbocntwngiokctr Shceavsrid ocfeiPactr

acnohm
terbpnuoagyir hatcesvierscmifpsneocigv

oprahaotecrdmufctposnet mnieodauwnimtrcfayerler

hm
atnhetnmaguicrtf. uscho(noiagztrnoifsptar

HasR ni,fanegiascnloeti,dTI)
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unit.
hoatrnmfionsgucietrfDi

ocmaotbansopegyiaetr ’

nvedo.ilearesiptadrhitno

co
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. cheaprer

EXAMPLESOFBUSINESS
ASKTSTHATCANBEOUTSOURCED

Outsourcnigcertanitaskswithnia

busniessenablesfocustoremainon

corebusniessactvietwhi
s, chhelps

Aconugit

genearegtorwthaswelaslnicome.

Manuafcutnrig

Sometasksarebettersuteidto

outsourcnigthanothersduetofactors

niculdingexperstiehow
, mti econsuming

ataskand
si, howmuchafce-to-afce

mti ertiquireTIsoper
. aotinsof,r

Resacrhand

examplecan, behighlyexpensvie,

deveolpment

requireexperknowl
t edge,andcaneasyli

bemanaged
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. remoteyl

resosmor
,iurcehowev
s,eempleoryee

ofcusedandsobettekept
r nihouse.

a T x

perpoairnt
 OceanofPDF.com

Offshoring

Movingjobsoutsidethecountrywhereacompanyisbasediscalledoffshoring.

Acompanywilsetupoperationsoverseasandrecruitlocalpeopletodothe

work,usuallywiththesupportofemployeesfromtheparentcompany
.

Howitworks pehrapsotbeocsleotasoucreoarfwmTase.tilhrey

Osnhfgoirerwnhtie1980saWesetrncompaneis canasolsendsevcreisofhoesru,chascealnetisr,

whtihgihablocroszetriadlhtahteycoudlerap oclaintswhtiaeradysupepydlosn.kfIati

gcsainfsitavnigsbymanuafcuntirgnicouenisrt adodinctoi,mpaneiscanoustoucresohfoher,avnig

whtoilweorvehreadnIosf.m
roaintetchnolgTyI() wok.Frm
hiansdhetldabsteynahtdripwaytrokr

sevrceioslw
f ede,nabeldbyhtenIetnreatndgolbal sohfoermouw
losftehtcpailcreistu,chaspaynig

communcoaintSs.omm
reifsendmanuafcutnirg oclpaleopealrw
fi ageanduphdonlighehtalnd

sofhoerbysneitgupafcotynrianohtecrounyrt— saeyftsatndadrnsihtewokrpacle.

Global expertise

Samsung

OffshoringstartedinIndia,

andit,steliads
todayth.eway

SouthKoreanocmpanySamsungruns

ThecountrysITand’ business

manufacturingfacilitiesinthe U.S. ,

processingoutsourcingexport

whichisabigmarketforitsproducts.

industriesemploymorethan

fourmilionpeopleandare

Ohreton.illbi$147hwtor

saerantereffdievhaonsiger

,encatnsi orf ;esitprex of

EasternEuropealsospecializes

inITservices.Thismapshows

examplesoftheareasof

expertsieavailableindiferent

LeviStrauss&Co.

countreisand
, companiesthat

offshoretheiroperations.

In2019,LeviStrauss&Co.
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

THEPROSOFOFFSHORING THECONSOFOFFSHORING

❯ ❯

soctasbColrheapr Comeopmbrnliactusni

❯ ❯

rotsyam
wltoixPerat mioztnesrtfng
dniW
kro

❯ ❯

fatsezdiaplseocitAcse esitculifdcauineswrtcunerlgoktfirDi

❯ ❯

x a T besnteif utnesrcaligetopionCeavbulrne

JaguarLandRover Ukraine

JaguarLandRoverhasa
Offshoringbenefits

cutting-edgemanufacturing

ytiEcnapgelaibri

plantin Slovakia .

poAetwhocepsil

swldotepvlsam
frkisent

vensocimCtoispet

CloudSimple

In2019,Googleacquired

CloudSimple,aU.S.company

withabasein Ukraine ,and

subsequentlyopenedanR&D

centerthere.
 OceanofPDF.com

Reverse supply chain

Supplychaintakesaproducttoacustomer
.Reversesupplychainis

theseriesofactivitiesittakestoretrieveanunwantedorused

productfromacustomeranddisposeof,recycle,orresellit.

Howitworks Fnoirsatnceo,mpaneishaveotmanageporducshtat

Companeishaveotfcusonmoerhtanbnirgniga aerutnredofareufndp,orducshtadtonoastelnd

,aecnierftvpesor.Ndsuopctw
apyculsotmer aerutnredotporduceosrfmerosaltp,iorducst

chansiaoleses,napilyothefarceilgrenumber neahtrenedf.hiotnfIleraidvierom
tiporve

onfielsM
ra.ti anuafcutnoeris,dueisrt ,SwedshichnakiIeaeosfrtubsnyautiaybli

orfmcapresotcompuem
tsr,aynedervesresuppyotl backodetlm
i stuofinrutierofmcusotmesr.

ercyecplorducsotmeetnovrnimeneratglouaintls.

Reverse logistics

Thecostocompaniesofreversesupplyisenormous.

Foexampl
r e,intheU.S,s.tatisticsfromtheNationaleRtail

Fedaertionshowthatconsumersreturned$428bilionof

goodsin2020—withonlinereturnsalmostdoubling

asconsumersswitchedtoInternetshoppingduringthe

COVID-19pandemic.Thisrepresentsabout10percent

Companiesmayhaveprocessesinplaceto

oftotalU.S.retailsalesof$4trilonforth.eyear

collectusedorunwanteditems,whether

fromthecustomeror.aretailer

CUSTOMERRETURNS

RetailersSearsandenney
JCP werethefirst

storestoallowconsumerstoreturngoodswith

nopenal
.Thispityoneeringmoveinthelate
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

NEEDTOKNOW

❯
%
we-(oaecrt)sniEl

dcesovcirnetilorcalirectEl
84

uaehrntawadneodtw,tokr,

oBfraizln onileshoppers

oaerbeostl

erW
ahonuigs andveiAatrdm
tsni

akrielyotlmeank

orfonuyeancirfstpcalhiys

ngilelsorfhetrigooadgftr,es

purchase when

eavliretror

anteimtoa pohtsercyaisl

aTnrsport

Effectiveinventorymanagementiscritcal

Customersexpectitemstobetransported

toensurethatinbounditemsarerecordedso

backtotheselerinastraightforward

thecompanycankeepatrckofreturns.

system,inpersonorbyadeliveryservice.
 OceanofPDF.com

Benchmarking

Businessesusebenchmarkingtoimproveefficiencybycomparing

theirperformancewiththatofotherorganizations.Thegoalisto

identifyandlearnfrombestpracticeswithinoroutsidetheindustry
.

Howitworks arngeanofcuitsrl,dniganrtiegtc,hnogly

mp
oiTorverasutb,lunsiesmaoylkoudstiehte paofm
ltras,ndmanuafcutnirgequpimenF.toerxampel,

,ocrounogrytoaenzxoainptoidle,rouhtsyresr’ Fom
r ual1soietfnusedasabenchmakroeftramwokr,

elveslopfeorfmanceandieynfhitowhteyacheiv.eti asop-ticerwshavepefrcetdhtechangnigofur

Benchmakraeransuicldeunctouis,tomenaritgs, ernsietfwehtransevenseconds.

andpayandbeTsn.theifevuaolnitakensoitacount

The process of benchmarking

Thereareseveralstagestobenchmarkingperformance

beforeacompanycanstartoseeocst

savingsandincreasedeff.iciency

o m
c
m
a

s e

n r

w i

y
n
a
p
m
o
C

Identifyneedto

benchmark

Inthisexamplea,company

wantstom
i proveitsenergy

eff.iciency
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

SOCIALMEDIAMAKES Benchmarknig

ITEASY

searchofr

Itisnoweasierthaneverfororganizations

pcearisct
togatherdataabouttheircompetitors.

Socialmediacanprovidedataoncustomer

superoir
preferences,brands,andcampaignsofother

RobertC.Camp, benchmarknigpoiner
organizationsAnal
. yticaltoolsareavailable

tosimplifybenchmarkingacrosmany

diferentchannels.

l a r
i
b
m u
i
s i
l
t d

a i
n

k
s

o
’

e
o
l

n
y

r
n

g
a

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p

Analyzediferences
u
m

orgaps
o

e
C

Itseesthatacomparable

companyhasamuchlower

carbonfootprint .
 OceanofPDF.com

Corporate social

responsibility

Businessestodaymustaimnotonlytodonoharmtotheenvironment,

people,orcommunitiesbutalsotoshowcommitmenttobuildinga

bettersoci
.Thiestyistermedcorporatesocialresponsibility(CSR).

Howitworks

FoarbunsiesC,SRgoesufhtrehtranaminigotbe

comapinlw
thtinoaintnaoilretnoainteargluoainlts,

managnigskiorsc,oproaretpahnlhitorpy—htias

otbeanietgarplaotrefveyraspecotfpeoarints,

hpenligceraetasusantiabeblunsiesA.company

lhsitasotbecomvpietaitndpatobriefblut

musatvodimaknigdeoscinsmeyroflsho-tr

etm
r gnaIis.etatdhi,asotcondsiehtreufter

h,tenorvnimipeanco,tndsaoew
cytidie

arngeosaftkehodleCsr.ompaneisnowerpotr

annuyolanhowhteyhavemehtCeriSRandaer

benchmakredandarnkedagnaisctompotsre.it
 OceanofPDF.com

H O W O P E TR IAO N S A N D P OR D U C T I O NWORK

Wkorforce

Workpla,heal
cesaftehty,and

well-being;diversity;equal

opportunities;learningand

development;ethicalpolicies

andpractices

CSR

stakeholders

Anumberofdiferent

businessareashavetobe

consideredinassesinga

companysCSR,
’ fromhowit

affectspeopleworkingin

andforthecompanyto

widerenvironmentaland

communityimplications.
 OceanofPDF.com

How companies work

BusinessesintheU.S.areregisteredinthestateinwhichtheyare

headquartered.Thegovernmentrecognizesfourbusinessstructures:

soleproprietorship,partnership,corporation,andnonprofitcorporation.

Soleproprietorship ostfckowneAsr.puychlbidelcoproarintmakes

Anidviuoa(m
rl eaidrcoupem
l) ayergsethirei shaersavbaleoitlhepuchtbiorlughasotckexchange

bunsiesasaseoplorpeoitrshpfihteypanlotconduct hotrughohvtce-orunem
trakres.t

opeoarintsonhtoerw
i nT.hstiem
sipeolsfm
tr of

bunsiessurtcuteTr.heownseirldntoital LimitedLiabilityCompany(LLC)

ervenuesandw
pst,orifehm
lianitnigpesronal AnLLCcombnieselmenmsitoleftdipantresrhpisand

erspyotlfdanribeslibsetain.aidbnlIicomeorfm coproarintnsiaofm
rhtsaitypeopfasht-orughofr

seoplorpeotisrhpsiatxedansidviuniacolme. seolm
rpeiuotlwntepIsr.oetcshteowneorsfm

,buntoatsmuchaytsaicblopiroarnitdoes.

Partnerships

Pantresrhpisaerbunsiesenistofm
redbyw
t oor Nonprofitcorporation

moenridviuTas.lhemosbtacosfm
irshtiegenearl Anonpctoripfoarintengagenseiasvtocuifhtrer

panrtershpiP.anrtensriagenearplantresrhpi htepucgbioldsu,chaswokrnsichatcbs,eirnflit

cobniruteanager,dlua,s-knpidonshaeromfoney educoaeidntcolsiSfa,rt.ulchogranzoaintm
s,ost

albotrhenetprsenirexchangeofarporpointraet erfquenyelrtgsetirdwhtienIetnraRlevenueSevrice

shaerhotefistaLp.eirohbtlfuiysdlviedas RI(Sht)orughofm
r 50a31e,rc()genyealtrxe-xempt

wAm
.ieltdipantresrhpniucldesgeneaprlantrers ahtefdna,iem
fcrtnldasetkvTles.lheymay

anm
diletdipantresar(olknownaeslniptantrers) pstaorinfdpaycomvpietsiatrlbuaterporhbetid

whoshaenrihtepstboriufw
thosoeslesaergenyelar orm
f engagnigencasit.pvlciotl

miletdiothezsaihonltfiervism
teSm
ni.atorli

ageneaprlantresrhm
pai,lyetadiblpiantrershpi InCanada
 OceanofPDF.com

.U.S- S P E C I F I C I N F O R MT IAO N

Pviaryethldelcoproarintsmuast,mnm
i uemlif,

ORGANIZATIONSANDRESOURCES

chaetrdocumeniusct,ldnignameandaddersw,hti

hteSeceratyroSfatenihtesateniwhchiteyaer

omnrfihaoswentiAeabtirdosnBm
tesuiSTanmhtielal

headquaetrdPya.urctdlbieldcoproanritsaersubetcj

onthecorporatestructurespermitedunderU.S.law

euyosrem
abl.drescoqneuatiTrdgcshey

ww.sba.gov

meluisw
fthtieSecisutainrdExchangeCommsoin

x a T ation

quayetr1l(0Q-a)ndannu1a(0lK-er)postrdneiatgli

ervenunieco,mapset,norifdosleTs.heymuelsatoilf
TheInternalRevenueServiceprovidesanumberofonline

servicesforbusinessowners,includingwhenandwhere
nim
etrerpos8tKr(-ds)ocinlsggscianfietvensut,ch

tofiletaxreturnsandhowtoobtaintaxcredits.

asanacqoiuntsiodrvieutsieart,swaelsrpostr

ww.irs.gov/businesses

F(om
r 4ht)adtsocilsegscianfibtuynigandnisgel

Start-ups
oshfaersbycompannydisesr.

BusinessUSAisacentralrepositorywhereentrepreneurs

Companylaw
canaccessarangeofservices.Itswebsiteprovides

informationonfunding,taxation,hiring,growth
TheUCS.onutistvenstidviusatelshte

strategies,andmore.Italsooffersadvicetailoredto

poweotrguaetlcommecreandadmnseitarnd

specificgroups,suchaswomen,veteans,
r andminorities.

ovesrecompaneishtaotpearetwhtnihtberiodresr.

business.usa.gov

SatesmaniantiaDepam
trenotSfaetoerquviaelnt

TheU.S.Departmentreasury
oftheTalsooffersadvice

htatcsasergaosrtfciommeacrnildeavosr.

andservicesforwould-beproprietors.Inaddition,it

Depam
trenstoSfatemaniantipuycblsielacrhabel

operatestheSmallBusinessLendingFund,whichsecures

datbasesoerfgsetirdcompanehis,doladmvnasriet

loansmadetobusinessownersbyprivatebanks.

henairgasn,dcanatkenocfremenaotcnis.

w.gwo.tvP/raeasgesury/default .aspx

Registeringintellectualproperty

Taxatoi n

Themainarbiterfordeterminingwhetheraproductor

TheRISeclsoatxeorsfmbunsiesesonbehotfael

businessmethodisworthyofexclusivityistheUnited

efdearlndsategovenrmenAst.htm
eiteopnfirtg,
 OceanofPDF.com

How finance works

Forpubliclytradedcompanies,theSecuritiesExchangeActof

1934istheframeworkforfinancialaccountingandreporting.

TheSecuritiesandExchangeCommission(SEC)enforcestheact.

TheSEChasesatbhilederpnoitrgerquerm
i ensotfr Reportingstandards

companeiswhoseshaerastdeonpucebixlchanges, Companeismuoslgtanderpnioaftrnartcnilsaocints

husecaNtewYokrSotckExchanghet,NASDAQ ygnlidelrtanoupecohrCecEnAGtaSce

SotckMakren,tdhteNYSEMakreLtLCPv.iaryethldel SatndadrGs(AAPa)sesathbieldbyhteFnianacil

companesiaersubeoctjfwerquerm
i enst. AcounitgSatndadrsBoadrp,viarnet,onptorif

ogranzoainDt.ueotheniceransigygloblnalauterof

Taxreporting bunsiehst,esraimovemenotadopnItenroaintal

Bohtpviaretandpucbiolmpaneismeuliastfxerutnrs FnianRacilepnoitgrSatndadrFIs(RS.)

whtihtenIetnraRlevenueSevcreionanannuablas.i nIhteaetfm
r ahtosfevearlvenstiercent

Theduedaetbvs,airsede’ornlhtiefsatuSs.oel yenauicsrl,dnightebunsirtghotfesocdla-dco-tm

porpeoitrshpoiw
losfhtesamescheduealnsidviusal bubbeht;leniceraseduseocfnorntviaefsnrilacil

andmeluisbftyA1p5loirequesatnexetnosin. nisurtmenstu,chasmogtrageb-ackedsecuisM
t(irBS)

Pantresrhpismeulisbftyhte15htdayohtfeofuhtr andazectlioarddebogtbioanltCs(DOa;)ndhte

mo.Pnhutcehabitrfelndschoiatyflreiar 20A7S–B20hn8aisf,nahitcdrelioFpetd

companeismeluisbftyhte15hthotfehdtrimonht. anumbeornfewurelsami edaertsnoirgodrearnd

yntahicrtlemakrest.

Financialdisclosure

Exchansegtidelc-ompaneismusm
takenhtiaferniacil Accountingperiods

ercodrspuycblaivalbeilonaquayetrlandannual Fosroelporpeoitrshphits,erpnoitrgpoeidroaftrx

.Theymuesrtpberoas,pievycitulnscheduedl, puprosesurnsmiautnleou.sotheceanldayrear

maetvilrenstu(chasanacqoinutsiodrvuietsr.t) Puyacrtlbdiledcompaneismaysehtoerw
i snciafl
 OceanofPDF.com

.U.S- S P E C I F I C I N F O R MT IAO N

nIdsiaertdnig. Coproarentidsesur,chacesiofr

ORGANIZATIONSANDRESOURCES

andexecuvietcsa,neglybaluyandslheaernsi

htceroimpanebis,untotnhtebasonifonpucbil

Financiaeporting
lr

noifm
roaintF.oerxampeal,CFOcannoutnoladshaers

onhtebasonifegvnaietafnacilewshtahtasnoytet

TheSecuritiesandExchangeCommissionprovides

benerlasendIs.iesraerasolbaerdorfmpitpnigof informationonfinancialreportingrequirementsfor

publiclylistedcompanies.

,andbunsiesaseoniarceftids.m,yli

ww.sec.gov

Ponszcihemes. Thstieparceitwherbyamoney

TheFinancialAccountingStandardsBoardwebsite

managebdrsituetserutnrsotenxsitgnivesotrfm

featureseducationalwebcastsandseminarsforfinance

ufndsacquerdiorfmnewnivesoTtr.heseschemes

andaccountingprofessionals.

genyealcroplseonceaufndurnsouerotfshcapa.tli

ww.afsbo.rg/home

ThemonasitfmousPonszcihemeotdaesthiat

TheAssociationofCharteredAccountantsinthe

ocrhesartedbyufndmanageBrenradrMadnsati,ogrf

UnitedStatesoffersonlinetrainingvideos,whilethe

nihte190sandconituniguhsanlierst208.

AFC Institutemaintainsaglossaryoffinanceand

Pumpanddumps. Thsoicusrwhenaborkearge

investmentterms.

acquersiagrleamounostfcskp,eradsaeflnews
ww.acauso. rg

menaocritshetoscvk’aulea,ndhtenquckyil

ww.cfainstituteg/pages/i
.or ndex .aspx

stpisleointsibeofrhtearfudsuincoverd.

Corporatefraud

Fornurtnnig. Thsoicusrwhenaborkearge

Thosewhowishtoreportcorporatefraudmayapproach

acquersiabolckosfhaernsiapcauitrclompany

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 OceanofPDF.com

How sales and

marketing work

AdvertisingandmarketingintheUnitedStatesareregulatedatthe

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 OceanofPDF.com

.U.S- S P E C I F I C I N F O R MT IAO N

How sales and marketing work

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f r o m b r e a k i n g t h e r u l e s . O n i t s w e b s i t e , t h e F CT

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 OceanofPDF.com

How operations and

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 OceanofPDF.com

.U.S- S P E C I F I C I N F O R MT IAO N

How operations and production work

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 OceanofPDF.com

Index

bold

Page numbers in type indicate Apache Hadoop software 263

main entries. Apple 20, 304, 306, 329

see

appraisal staff evaluation

3-D marketing 207 ASA (average speed of answer) 219

4P3C1E framework (marketing) 242 asset financing 158

5S (workplace organization) 299 asset stripping 152

138–139

7-Eleven 23 assets and inventory

360-degree feedback 84–85 AstraZeneca 335

360-view, customer profile 261 audit trail 105

auditing 105, 113, 114–115

automatic call distributor (ACD) 219

A/B testing (mail marketing) 216

absorption costing 142

see

accounting financial accounting B2B lead generation 237

acid-test ratio 149 back-up plan 33

acquisition of company 31, 41 balance day adjustment 105

116–119

actionable metrics 253 balance sheet

ACW (after-call work) 219 analysis 118–119

adaptive customization 279 current assets 138

ad tracking 214 equation 116

advertising Balanced Scorecard 85, 147, 245

advertising to sales ratio (A/S) 213 bank overdraft 34, 133, 158–159

LTA (above the line) 191 batch costing 143

274–275

banner and pop-up ads 210, 214 batch production

BTL (below the line) 190 bear market 166

214–215

online behavioral targeting 215

212–213 332–333

traditional offline benchmarking

 OceanofPDF.com

H O W B U S I N E S S WO R K S

CEO (chief executive officer) 53, 54, cost per lead (CPL) 237

55, 56, 57 cost per thousand (CPT) 213

chamber of commerce 25 cost per touch (lead conversion) 238

channel margin 189 cost-plus pricing 142

140–141

charitable donations 109 costs, fixed vs. variable

charity 25 costs and pricing strategy 33

chart of accounts 105 COVID-19 pandemic 98, 330

checkout technology 255 credit and creditors 36, 111, 117,

children’s marketing 266–267 119, 156

churn rate 204 Credit Suisse 321

cinema advertising 213 CRM (customer relationship

264–265

Circle K 23 management)

Cisco 329 crowd funding 34, 35, 36

cleaning (direct mail) 217 C-suite 56–59

clickstream 215 current assets 117

cloud services 263, 264 current ratio 149

CloudSimple 329 customer

Coca-Cola 293, 306 acquisition cost (CAC) 241

cold calling 211, 218 behavior 194–195, 258, 259

collaborative customization 279 capital 244

communication, art of 92, 178 churn rate 204

Companies Act 54 complaints 240

56–59 254–255

company hierarchy consumer data collection

company shares 164–165 customer relationship management

264–265

comparative claims regulation 266–267 (CRM)

330–331

competitive product positioning 182 customer returns

competitor analysis 33 data regulation 266–267

266–267

compliance regulation decision simplicity 204

consolidated financial statements 107 expectations, and quality 308

see

consumer customer feedback surveys 109, 240–241, 265

220–221

content marketing lifetime value

V) (CL
243

280–281

continuous production loyalty programs 240–241, 255, 260,

contract costing 143 261

 OceanofPDF.com

INDEX

DMAIC (define, measure, analyze,

improve, control) 321

doing business as (DBA) 16

donations 133 F45 Training 23

dotted-line reporting 73 face-to-face marketing 200, 205, 221,

double-entry bookkeeping 104, 131 260

due diligence 41, 43 Facebook 287

factoring 34, 135, 159

factors of production 271

fast-moving consumer goods

(FMCGs) 181

154–175

earn-out 48 finance and capital sources

EBITDA to sales ratio 148 finance leases 159

112–129

eco-innovation 305 financial accounting

104–105

economic life 124 accounting cycle

286–287

economies of scale accounts payable and receivable 135,

see

mergers mergers 148

economy pricing 186 accounts receivable turnover

effective capacity 315 ratio 148

efficiency 148, 150, 326–327 conventions 31

EFQMGlobalAward 309 international standards 102

electronic waste (e-waste) 331 KPIs 146

see also

TLE (extract, load, transform) 256 cash flow; cost accounting

216–217

email direct mail marketing financial forecasts 33

102–111

regulation 266–267 financial management

employee costs 115 financial performance measurement

92–93 144–153

employee relations

148–149

employment laws 80 financial ratios

endorsements regulation 266–267 financial report types 102

102–129

Enel SpA 161 financial reporting

204–205 571–471

engagement marketing laiogcnkanistiradnergaf

106–111

Enron 153 financial statements

108–109

enterprise portal 30 deconstructing

 OceanofPDF.com

H O W B U S I N E S S WO R K S

316–317

Hummel 193 inventory

282–283 138–139

hybrid processes inventory and assets

hygiene and safety

, food industr y inventory turnover ratio 148

318–319 investment returns 120, 121

investors 35

invoice discounting 158–159

ISO 9000 309

252–253

IT and marketing

IKEA 18, 330

immediate capacity 315

220–231

inbound marketing

incremental budget 137

increments 282 Jaguar Land Rover 329

38–39

incubators Jan-Pro 23

indirect costs 142 JCPenney 330

indirect taxes 108 job costing 143

272–273

Industrial and Commercial Bank of job production

China 161 John Lewis 93

influence markets 208 JPMorgan Chase & Co 153

246–267 290–291

information management just-in-time production

infrastructure assets 118–119

initial public offering (IPO) 160–163

304–305

innovation and invention

Instagram 234

298–299

instant messaging 76, 99–98 kaizen improvement system

intangible assets Kanban cards 288, 291

128–9

onaim
nzotdietoprl key account management (KAM) 209

inventory 139 key performance indicators (KPIs)

146–147

intangible capital 244

integrated marketing KFC 23

communication 190

integration, vertical vs.

46–47

horizontal
 OceanofPDF.com

INDEX

192–193

market research net assets 117, 118

194–195

market segmentation net profit margin ratio 149

market share 42 Net Promoter Score (NPS) 293

74–75

market value of equity 150 network structure

market value to book value ratio 245 networking 83, 201

196–209 302–303

marketing approaches new product development

252–253

marketing and IT newspaper marketing 201, 213

178–195 198–199

marketing mix niche marketing

266–267

marketing regulations Nike 20–21

marketing technologist 253 Nintendo 15

Mars 18 Nonghyup 24

MarTech conference 253 lnaotinem

tnazr eivnoa)gOgGnN5ro2(on

278–279 24–25

mass customization not-for-profit organizations

198–199

mass marketing NTT Docomo 161

matrix guardian 77

72–73

matrix structure

McDonald’s 20, 23, 293

media engagement 221

328–329

members (shareholders) 16 offshoring

merge/purge software 217 Ohlson O score 151

42–43

mergers and acquisitions OLAP (online analytical processing)

integration, vertical vs. cubes 249, 257

46–47

horizontal oligopoly 109

Mer rill
ynchL 71 TLO P tool (online transaction

metadata 231 processing) 256

microfranchising 22 Om Engineering Works 29

micropreneur 30 omni-channel customer 261

214–215

mid cap listed company 163 online advertising 211,

millennials 194 260

mobile technology 215, 255 online value chain 325

MOFU (middle of funnel operating profit 114–115

marketing) 220 operations 33, 121, 147

Mondelez 44 ordinary shares 165

 OceanofPDF.com

H O W B U S I N E S S WO R K S

180–181

levels referral markets 209

184–185 208–209

life cycle relationship marketing

182–183

positioning remote working 64, 66, 74, 80, 92,

310–311 98–99

product-process matrix

190–191

promotion remuneration 109

samples 201 reporting line, altering 67

professional corporation (PC) 16 reporting structure 18, 19, 69

profit, corporate failure signs 151 research and development costs 115

114–115

profit and loss statement residual value 124

profit margin 143 retail space optimization 221

profit maximization 60 retailers, selling through 188–189

profitability ratios 148 retained earnings 150

profits, retained 157, 168 retained profits 157

project accounting 103 return on equity (ROE) ratio 148

94–95

project management retur n on marketing investment (ROMI)

294–295 242–243

time-based management

tools 94, 295 reverse merger 45

190–191 330–331

promotion of product reverse supply chain

86–87

prospective costs 141 rewards and motivation

psychological pricing 187 REWE Group 24

18–19

public companies 17, rights issue shares 165

public issue shares 165 robot.txt 231

public limited company (plc) 16 ROI (return on investment) 242

public relations 191 RSS (rich site summary) 226

push/pull strategy 189, 220, 222

PwC 18, 145

salaries and wages 115, 132, 152

sales

318–319

quality control and fraud 152, 153

308–309

quality management KPIs 146

292–293

total quality management pipeline 238

 OceanofPDF.com

INDEX

solvency ratios 149 swap ratio 43

Sony 72, 304 sweepstakes and contests

spam use regulation 266–267 regulation 266–267

span of control 58 SWOT analysis 33

special offers regulation 266–267 synergy 47

spin-offs 44, 45

splog 225

sponsorship 210

spreadsheets 249

84–85

staff evaluation Taco Bell 23

pom
refance–managemenyclt tangible/fixed assets 117–119, 124,

64 125, 133, 138–139, 153

staff position 58 task culture 65

stagging 165 TataGroup 122

60–63

stakeholders tax accounting 114–115, 120

and corporate social responsibility tax payments 108, 111, 114, 119, 120,

(CSR) 335 133, 169

76–77

and financial statements 110–111 team-based structure

and share value 62 team-building leadership 90–91

Standard Oil 15 technology

, mass customization

278–279

State Farm 24

218–219

star schema data 248 telemarketing

Starbucks 72, 208, 335 regulation 266–267

start-up pivot 28 terabyte 263

26–39

start-ups TERM (technology-enabled relationship

concept development 28–29 management) 264

34–37

funding term loan 34, 158

see

incubators business accelerators ticker symbols 19

294–295

and incubators time-based management

types 30–31 TOFU (top of funnel marketing)

statistics 111, 251 220

292–293

“sticky” customers 204 total quality management

308–309

stock exchange listing 160–161, 162 quality management

 OceanofPDF.com

H O W B U S I N E S S WO R K S

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Campaign Monitor; but oWn’t aWit for Them and Expect a Cost

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Direct Mail Campaigns?,” Data & Marketing January 6, 2020; p.281: State of the Global

Association, May 21, 2021; p.221: Not Paper Industry 2018 , Environmental Paper

Another State of Marketing Report , HubSpot, Network; p.284: Global Innovation Index

2021; p.223: chart and stat: State of Inbound , INSEAD/Cornell University/World

2020

2018 , HubSpot; p.225: “40% of the web uses Intellectual Property Organization (WIPO);

WordPress,” W3Techs, February 10, 2021; p.287: “Netflix’s (NASDAQ:NFLX) Scale Is

p.226: “1 Billion People Listen to Podcasts The KeyoTIts Profitability

,” Michael Paige,

Every Week,” Pikkal, 2021; p.229: Index SimplyWall St, Nasdaq.com, March 17, 2021;

XVII: Accelerate , sproutsocial.com, 2021; p.289: “Detailed sales, production, and

p.230: “WeAnalyzed 5 million Google Search export results,” Toyota Motor Corporation;