MOTIVES & FUNCTIONS OF A BUSINESS

INTRODUCTION TO BUSINESS
JEFF MADURA
CHAPTER 1
 THE BUSINESS ENVIRONMENT

♦ Success dependent on the business environment.

♦ Monitor the environment by entrepreneurs and managers.
♦ Anticipate the demand for its products.
♦ Evaluate the cost of products.

1–2
 BUSINESS ENVIRONMENT

 The business environment can be segmented into the following parts:

 Social environment
 Industry environment
 Economic environment
 Global environnent

1–3
 SOCIAL ENVIRONMENT

Includes social forces like customs and traditions, values, social trends, society’s expectations from business.
Demographics: characteristics of the human population or specific segments of the population.
Customer preferences: changes in customer preferences over time can also affect the demand for the products produced.

1–4
INDUSTRY ENVIRONMENT

 Sum of factors and processes that function in the company surroundings.

 Represents the conditions within the firm’s industry to which the firm is exposed.
 Set of factors that directly influences a firm, competitive actions and competitive responses.
 For example, the demand for cell phones is very high. However, industries that have a high demand
for their products also tend to have substantial competition because many firms enter in the industry.

1–5
 ECONOMIC ENVIRONMENT

Economic environment refers to all the forces and fares which directly influence the economy
of your country.
When the economy is strong, employment is high, and compensation paid to employees is also
high.
When the economy is weak, firms tend to lay off some of their employees and cannot afford to
pay high wages.

1–6
 GLOBAL ENVIRONMENT

 Diversified and centralized international market.

 Global environment may affect all firms directly or indirectly.
 Large multinational corporations are carrying out the production of goods, distribution of raw
materials, servicing and marketing activities.

1–7
BUSINESS DECISIONS

1–8
 KEY TYPES OF BUSINESS ENVIRONMENT

Management is the means by which employees and other resources (such as machinery)
are used by the firm.
Marketing is the means by which products (or services) are developed, priced, distributed,
and promoted to customers.
Finance means by which firms obtain and use funds for their business operations.
Accounting is the summary and analysis of the firm’s financial condition.
Information systems include information technology, people, and procedures that provide
appropriate information so that the firm’s employees can make business decisions.

1–9
COMMON BUSINESS DECISIONS

 Management Decisions

 What equipment is needed?

 How many employees should be hired?

 How can employees be motivated to perform well?

1–10
COMMON BUSINESS DECISIONS

 Marketing Decisions

 What price should be charged?

 Should the product be changed to be more appealing to customers?

 Should the firm use advertising or some other strategy to promote its product?

1–11
COMMON BUSINESS DECISIONS

 Finance Decisions

 Should financial support come from the sale of stock or from borrowing money or some combination?

 Should the firm attempt to obtain borrowed funds for a short-term or long-term period?

 Should the firm invest funds in a new business project?

1–12
HOW BUSINESS DECISIONS AFFECT PERFORMANCE

 A firm’s performance is commonly measured by its earnings (or profits).

 Management decisions affect the amount of production expenses incurred.
 Marketing decisions affect the firm’s revenue.
 Finance decisions influence the amount of interest expense incurred.
 As the management, marketing, and finance decisions affect either a firm’s revenue or expenses, they affect the
earnings and therefore the performance of the firm.