Mula5a9 MGT131

MGT 131
Business
Good
Eighth Edition Luck
PRIDE / HUGHES / KAPOOR
Name :
Section:
ID :
:::TOPICS:::
CHAPTERS PAGES
Ch.1: EXPLORING THE WORLD OF BUSINESS
Why Study Business 4
Business: A Definition 4
Types of Economic System:
(Exclude Capitalism in USA)
Include Definition of mixed economy with examples 4-6
Types of Competition 6-7
Ch.2: BEING ETHICAL & SOCIALLY RESPONSIBLE
Business Ethics Defined 8
Ethical Issues 8
Factors Affecting Ethical Behavior 8
Encouraging Ethical Behavior – Code of Ethics Only 8
Social Responsibility 8
Two Views of Social Responsibility 8-9
Ch.5: CHOOSING A FORM OF BUSINESS OWNERSHIP
Sole Proprietorships 10
Partnership 10-12
Corporation
(Exclude Domestic, Foreign and Alien Corporation) 12-14
Other Types of Business Ownership
(Excluding S- corporation) 14
Ch.6:SMALL BUSINESS ENTREPRENEURSHIP & FRANCHISES
Small Business: A Profile 15
The Importance of Small Business in our Economy 16
The Pros and Cons of Small Business 16
Developing a Business Plan 16-17
Franchising 17
Ch.7: UNDERSTANDING THE MANAGEMENT PROCESS
What is Management? 18
Basic Management Functions 18-20
Kinds of Managers 20-21
Ch.9: PRODUCING QUALITY GOODS AND SERVICES
What is Production? 22
The Conversion Process 22-23
Where Do New Products and Services come from? 23
Planning For Production 23-26
Ch.10: ATTRACTING AND RETAINING BEST
Human Resources Management: An Overview 27
Human Resources Planning 27-29
Job Analysis 29
Recruiting, Selection, and Orientation 29-31
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Summarized & Organized by Ali Abdullah Salman (BIS)
Ch.13: BUILDING CUSTOMER RELATIONSHIPS THROUGH
EFFECTIVE MARKETING
Definition of Marketing 32
Utility: The Value added by Marketing 32
The Marketing Concept 32-33
Markets and Their Classification 33-34
Developing Marketing Strategies 34-36
Ch.17: ACQUIRING, ORGANIZING AND USING INFORMATION
The Nature of Information 37
Business research 37-38
The Information System (MIS) 38-39
Ch.20: MASTERING FINANCIAL MANAGMENT
What is Financial Management? 40-41
Planning – The Basis of Sound Financial Management 41-42
:::END OF THE TOPICS:::
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Ch.1: EXPLORING THE WORLD OF BUSINESS
Why study business?

1- For help in choosing a career.
2- To be a successful employee.
3- To start your own business.
4- To become a better-informed consumer and investor.
E-Business: is the organized effort of individuals to sell and produce, for a profit, the
products and services that satisfy the society’s needs through the Internet.
Business: A Definition
Business: is the organized effort of individuals to sell and produce, for a profit, the
products and services that satisfy the society’s needs.
To be successful, a business must perform three activities, It must:

1) Be organized. 2) Satisfy needs. 3) Earn profit.
Profit: what remains after all business expenses have been deducted from sales
revenue.
Four resources must combine to start and operate a business:

1-Material: raw materials, buildings, and machinery used in manufacturing processes.
2-Human: people who furnish their labor to the business in return of wages.
3-Financial: the money required to pay employees, purchase materials, and generally
to keep the business operating.
4-Information: resource that tells the managers of the business how effectively the
other resources are used.
Types of business:
1- Manufacturing businesses: process materials into tangible goods
2- Service businesses: produce services, such as haircuts or legal advice.
3- Marketing intermediaries: buy products from manufacturers and then resell them.
Types of Economic System

Economics: is the study of how wealth is created and distributed.
Economic system OR Economy: the way in which people deal with the creation and
distributing of wealth.
Factors of production: the resources used to produce goods and services, and they
are:
1-Natural resources: crude oil, forests, minerals, land, and water.
2-Labor: human resources such as managers and workers.
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3-Capital: money, facilities, equipment, and machines.
4-Entrepreneurship: the willingness to take risks.
Four basic economic questions:

1- What and how much goods and services will be produced?
2- How will these goods and services be produced?
3- For whom will these goods and services be produced?
4- Who owns and controls the major factors of production?
Types of economic system:

1- Capitalism 2- Command Economies.
(1) Capitalism:
Capitalism: An economic system in which individuals own and operate the
majority of business that provide goods and services.
Adam Smith is the father of the capitalism (his book the wealth of nations).
Adam believed that each person should be allowed to work toward his/her own
economic gain without interference from the government.
The French term laissez faire describes Smith’s capitalism and it means “let the
do” (as they see fit).
Four fundamental issues:
1) The creation of wealth is the concern of private individuals, hence
resources must be owned by private individuals.
2) The owners of these resources should be free to determine how to use
them.
3) The economic freedom ensures the existence of competitive markets that
allow both buyers and sellers to enter and exit as they choose.
4) The economic role of government is limited to protecting competition.
Market economy: an economy system in which individuals and businesses decide

what to produce and buy, and the market determines prices and quantities.
Consumers: individuals who purchase goods or services to their own personal use.
(2) Command Economies: an economy system in which the government decides what
to produce, how to produce it, who gets it, and at what price to sell it.
a) Socialism:
The key industries (transportation, utilities, and communications) are owned
and controlled by the government.
What to produce and how to produce it are in accordance with national
goals.
The distribution of goods and services –who gets what- is controlled by the
state.
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Aims of socialist countries:
1) equitable distribution of income.
2) the distribution of social services to all who needs them.
3) the elimination of poverty.
4) elimination of the economic waste.
Examples of socialist countries: Britain, France, Sweden, and India.
b) Communism:
Karl Marks is the father of the communism.
All economic resources are owned by the government.
The basic economic questions are answered through centralized state
planning.
Examples: North Korea and Cuba.
Mixed economy: an economy that exhibits elements of both capitalism and socialism.
Types of Competition
Competition: rivalry among businesses for sales to potential customers.
Types of competition:
1) Pure (perfect) competition.
2) Monopolistic competition.
3) Oligopoly.
4) Monopoly.
(1) Pure Competition: the market situation in which there are many buyers and sellers
of a product, and no single seller is powerful enough to affect the price of that
product.
• Many buyers and sellers.
• Single product.
• Price determined by the market.
• All buyers and sellers know everything about the product.
Supply: the quantity of a product that producers are willing to sell at each of various
price.
Demand: the quantity of product that buyers are willing to purchase at each of
various price.
Market price: the price at which quantity demand is exactly equal to the quantity
supplied.
(2) Monopolistic Competition: A market situation in which there are many buyers
with a relatively large number of sellers.
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• The products are very similar in nature and trying to satisfy the same need.
• Each seller attempts to make its product different from the others.
• The producer has some limited control over the price of the product.
(3) Oligopoly: a market situation (or industry) in which there are few sellers.
• These sellers are quite large, and each seller has considerable control over
price.
• The market actions of each seller can have a strong effect on competitor’s
sales.
• Product differentiation is the major competitive weapon.
(4) Monopoly: a market (or industry) with only one seller that has complete control
over price.
• The firm in a monopoly position considers the demand for its product and
set the price at the most profitable level.
Natural monopoly: an industry that requires a huge investment in capital and within
which any duplication would be wasteful.
Type of Number of
The product The price
competition sellers
No single buyer
or seller in
Pure
Many sellers Single product powerful enough
competition
to affect the
price
The products are
Each producer
Relatively large very similar in
Monopolistic has some limited
number of nature and trying
competition control over the
sellers to satisfy the
price
same needs
Product
Each seller has
differentiation is
considerable
Oligopoly Few sellers the major
control over the
competitive
price
weapon
The seller has
Monopoly One seller complete control
over the price
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Ch.2: BEING ETHICAL & SOCIALLY RESPONSIBLE
Business Ethics Defined

Ethics: the study of right and wrong of the morality of the choices individuals make.
Business Ethics: the application of moral standards to business situations.
Ethical Issues
1- Fairness & Honesty.
2- Organizational Relationships.
3- Conflict of Interest.
4- Communications.
Factors Affecting Ethical Behavior

1- Individuals.
2- Social.
3- Opportunity.
Encouraging Ethical Behavior – Code of Ethics Only

Code of Ethics: a guide to acceptable and ethical behavior as defined by the
organization.
Whistle-Blowing: informing the press or government officials about unethical

practices within one’s organization.
Social Responsibility
Social Responsibility: the recognition that business activities have an impact on
society and the consideration of that impact in business decision making.
Two Views of Social Responsibility

(1) Economic model: the view that society will benefit most when business is left
alone to produce and market profitable products that society needs.
1. Business primary responsibility is to make profit.

2. Resources should be used to maximize profit not to solve societal problems.
3. Social problems are the responsibility of government.
4. Social problems affect society but not the business it self.
(2) Socioeconomic Model: the concept that business should emphasize not only
profits but also the impact of its decisions on society.
1. Business is part of society.

2. Business import resources from society.
3. Helping in social problems create stable environment.
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4. Socially responsible business reduce government interventions.
Comparison Between Economic Model & Socioeconomic Model

Economic primary Emphasis is on: Socioeconomic primary Emphasis is on:
1. Production. 1. Quality of life.
2. Exploitation of natural resources. 2. Conservation of natural resources.
3. Internal, market-based decisions. 3. Market-based decisions, with some
4. Economic return (profit). community controls.
5. Firm’s or manager’s interest. 4. Balance of economic return and social
6. Minor role for government. return.
5. Firm’s and community’s interest.
6. Active government.
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Ch.5: CHOOSING A FORM OF BUSINESS OWNERSHIP
Sole Proprietorships
Sole Proprietorships: a business that is owned (and usually operated) by one person.
Advantages of sole proprietorships:

Ease of start-up:
- Sole proprietorship is the simplest and cheapest way to start a business.
- Start-up requires no contracts, agreements, or other legal documents.
- The sole proprietorship can be established without the service of attorney.
- The sole proprietor pays no special start-up fees or taxes.
Retention of all profits OR Pride of Ownership.
Flexibility:
A sole proprietor is completely free to make decisions about the firm’s
operations. For example, a sole proprietor can switch from retailing to
wholesaling without waiting or asking for anyone’s approval.
Also the sole proprietor can respond to change in market conditions quickly.
Possible tax advantages:
Profits are taxed as personal income of the owner, and the sole proprietor
doesn’t pay the special state and federal income taxes that corporations pay.
Secrecy:
Sole proprietors are the most Secrecy in the information.
Disadvantages of sole proprietorships:

Unlimited liability:
A legal concept that holds a business owner personally responsible for all the
debts of the business.
Lack of continuity:
The sole proprietor is the business. If the owner dies or declared legally
incompetent, the business ceases to exist.
Lack of money:
Lenders are usually unwilling to lend large sums to sole proprietorship. Only
one person can be held responsible for repaying such loans.
Limited management skills.
Difficulty in hiring employees:
The sole proprietor may find it hard to attract competent help.
Partnership
Partnerships: a voluntary association of two or more persons act as co-owners of a
business for profit.
Types of partners:
(1) General Partners: is a person who assumes full or shared responsibility for
operating a business.
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General partnership: a business co-owed by two or more general partners who are
liable for everything the business does.
(2) Limited partners: is person who contributes capital to the business but has no
management responsibility or liability for losses beyond the amount he/she invested
in the partnership.
Limited partnership: a business co-owned by one or more general partners who
manage the business and limited partners who invest money in it.
Master limited partnership (MLP): a business partnership that is owned and managed
like a corporation but taxed like a partnership.
• Units of ownership in MLPs can be sold to investors to raise capital.
• Profits from MLPs are reported as personal income.
The partnership agreement:

It should state:
Who will make the final decisions.
What are the duties of each partner.
The investment each partner will make.
How much profit or loss each partner receives.
What happen if a partner wants to dissolve the partnership or dies.
Advantages of partnership:
Ease of start-up:
The legal requirements are often limited to registering the name of the business
and purchasing necessary licenses or permits.
Availability of capital and credit:
Partnerships have greater assets and stand a better chance to obtaining the
loans they need.
Retention of profits:
All profits belong to the owners of the partnership.
Personal interest:
General partners are very concerned with the operation of the firm.
Combines business skills and knowledge:
Partners often have complementary skills. The weakness of one partner can be
offset by another partner’s strength.
Possible tax advantages:
Partners are taxed only on their incomes from the business.
Disadvantages of partnership:
Unlimited liability:
Each general partner has unlimited liability for all debts of the business.
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Lack of continuity:
Partnership are terminated if any one of the general partners dies, withdraws,
or declared legally incompetent.
Effects of managements disagreements:
When partners begin to disagree about decisions, policies, or ethics, distrust
may build and get worse as time passes.
Frozen investment:
It is easy to invest money in a partnership, but it is difficult to get it out.
*note: The main advantages of a partnership over the sole proprietorship are the
added capital and management expertise of partners.
Corporation
Corporations: an artificial person created by law, with most of the legal rights of a
real person, including rights to start and operate a business.
Stock: the shares of ownership of a corporation.
Stockholder: a person who owns a corporation’s stock.
Close corporation: a corporation whose stock is owned by relatively few people and
is not sold to the general public.
Open corporation: a corporation whose stock is bought and sold on security

exchanges and can be purchased by any individuals.
Incorporation: the process of forming a corporation.
The corporation charter: a contract between the corporation and the state, in which
the state recognize the formation of the artificial person that is the corporation.
And it includes the following formation:
• Firm’s name and address
• Incorporator’s name and address
• Purpose of the corporation
• Maximum amount of stock and types of stock to be issued
• Rights and privileges of stockholders
• Length of time the corporation is to exist
Common stock: stock owned by individuals or firms who may vote on corporate
matters, but whose claims on profit are subordinate to the claims of others.
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Preferred stock: stock owned by individuals or firms who usually do not have voting
rights, but whose claims on profit are paid before those of common stock owners.
Dividend: a distributing of earnings to the stockholders of a corporation.
Proxy: a legal listing issues to be decided at a stockholder’s meeting and enabling

stockholders to transfer their voting rights to other individuals.
*note: The incorporators and original stockholders meet to elect their first board of
directors.
Corporate Structure:
Board of directors: It is the top governing body of a corporation, the members of
which are elected by the stockholders.
Directors are elected by stockholders.
Board members can be chosen from inside the corporation or outside it.
The major responsibilities of the board of directors are to set company goals
and develop general plans (or strategies) to meet those goals.
Corporate officers: the chairman of the board, president, executive vice president,
corporate secretary, treasurer, or any other top executive appointed by the board of
directors.
elect appoints hire

Stockholders(owners) Board of Directors Officers Employees
Advantages of corporations:
Limited liability:
A feature of corporate ownership that limits each owner’s financial liability to
the amount of money that she/he has paid for the corporation’s stock.
Ease of raising capital:
Corporations can borrow from lending institutions; they can also raise
additional money by selling stock.
Ease of transfer of ownership.
Perpetual life:
The withdrawal, death, or incompetence of a key executive or owner does not
cause the corporation’s termination.
Specialized management:
Corporations are able to recruit skilled, knowledgeable, and talented managers,
because they pay big salaries and are large enough to offer considerable
opportunity for advancement.
Disadvantages of corporations:
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Difficulty and expense of formation:
Charter fees- attorney’s fees- registration costs associated with selling stock.
Government regulation:
- A corporation must meet various government standards before it can sell its
stocks on the public.
- It must file many reports on its business operation and finance with the local
state.
- It must make periodic report to its stockholders.
- Its activities are restricted by law to those spelled out in its charter.
Double taxation:
Corporate profits are taxed twice, once as a corporate income and second as the
personal income.
Lack of secrecy:
Open corporations cannot keep their operations confidential because they are
required to submit detailed reports to the government and to stockholders.
Other Types of Business Ownership
Limited liability company (LLC): a form of business ownership that provides limited-
liability protection and is taxed like a partnership.
Government-Owned Corporation: a corporation owned and operated by a local, state,

or federal government.
Quasi-Government Corporation: a business owned partly by the government and

partly by private citizens or firms.
Not-For-Profit Corporation: a corporation organized to provide a social, educational,

religious, or other service rather than to earn a profit.
Cooperative: an association of individuals or firms whose purpose is to perform some

business function for its members.
Joint Venture: an agreement between two or more groups to form a business entity in
order to achieve a specific goal or to operate for a specific period of time.
Syndicate: a temporary association of individuals or firms organized to perform a

specific task that requires a large amount of capital.
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Ch.6: SMALL BUSINESS, ENTREPRENEURSHIP & FRANCHISES
Small Business: A Profile

Small business: one that is independently owned and operated for profit and is not
dominant in its field.
And it include:
1. Manufacturing.
2. Retailing.
3. Construction.
4. Services… etc.
Industries that attract small businesses:

Distribution industries 33%
- Include: retailing, wholesaling, transportation, and communications.
- 75% of the small distribution firms are retailers (sale of good
directly to consumers). Ex: clothing and jewelry stores,
bookstores, and pet stores.
- 25% of the small distribution firms are wholesalers (purchase
products in large quantity form the manufactures and then resell
them to retailers).
Service industries 48%
- 75% of small service firms provide non financial services as medical and
dental care, hair cutting, restaurant meals, and dry cleaning.
- 8% of small service firms provide financial services such as accounting,
insurance, and real estate.
Production industries 19%
- These industries require relatively large initial investment.
- These industries include: construction, mining, and manufacturing industries.
People in Small business are motivated by:

Personal Factors:
1) Independence.
2) Desire to create a new business.
3) Willingness to accept a challenge.
4) Special expertise.
5) Loss of a job.
Family Motives.
Age Factor.
Knowledge and Ability.
Why small businesses fail?

• Lack of management skills and experience.
• Lack of money and capital.
• Poor planning OR Expansion related problems.
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The Importance of Small Business in our Economy
Providing technical innovation.
Providing employment.
Providing competition.
Filling needs of society and other businesses.
The Pros and Cons of Small Business

Advantages of small business:
• Personal relationship with customers and employees:
Small business owners often become involved in the social, cultural, and
political life of economy. These personal relationships are major competitive
weapon.
• Ability to adapt to change:
The owner of small business doesn’t need anyone’s permission to adapt change.
Beside that the personal relationships wit customers help him to be aware of
changes in people’s needs.
• Simplified record keeping.
• Independence:
Small business owners don’t have to punch in and out, bid for vacation times,
and take orders from superiors.
• Other advantages:
Ability to keep all profits - the ease and low cost of going into business - ability
to keep business information secret.
Disadvantages of small business:

• Risk of failure:
Small businesses run a heavy risk of going out of business.
• Limited potential:
The owner may have technical skill, and have started a business to put this skill
to work. Such a business is unlikely to grow into big business.
• Limited ability to raise capital:
Small businesses have a limited ability to obtain capital. Personal loans from
lending institutions provide only one-fourth of the capital required by small
businesses.
Developing a Business Plan

It is a carefully constructed guide for the person starting a business.
or it is a concise document that investors can examine to see if they would
like to invest.
When constructing a business plan, the business person should keep it: easy
to read, uncluttered, and complete.
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It should answer the four questions banking officials and investors are most
interested in:
1. What exactly is the nature and missions of the new venture?
2. Why is this new enterprise a good idea?
3. What are the business person’s goals?
4. How much will the new venture cost?
Franchising
Franchise: a license to operate an individually owned business as through it were part
of a chain of outlets or stores.
Franchising: the actual granting of a franchise.
Franchisor: an individual or organization granting a franchise.
Franchisee: a person or organization purchasing a franchise.
Types of Franchising Arrangements:

1) A manufacturer authorizes a number of retail stores to sell a certain brand-
name item.
- This franchising arrangement is one of the oldest.
- Ex: Passengers cars and trucks, farm equipment, shoes, and petroleum.
2) A producer licenses distributors to sell a given product to retailers.
- Ex: soft drink industry
3) A franchisor supplies brand names, techniques, or other services instead of a
complete product.
- The primary role of the franchisor is the careful development and control of
marketing strategies.
- Ex: holiday inns, McDonald’s, dairy queen, and KFC.
What can causes the failure of both franchisee and franchisor?

To rapid expansion, inadequate capital or management skills and other problems.
Advantages & Disadvantages of Franchising:

Advantages Disadvantages
- To Franchisor: - To Franchisor:
1) fast distribution. NONE
2) more sales and profits. - To Franchisee:
- To Franchisee: 1) pay for the franchisor.
1) to start a business with limited 2) must work hard.
capital. 3) franchisor competitive.
2) advertisement tools and facilities are
available.
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Ch.7: UNDERSTANDING THE MANAGEMENT PROCESS
What is Management?
Management: the process of coordinating people and other resources to achieve the
goals of the organization.
Main Resources of Management:

1) Material resources:
The tangible, physical resources an organization uses.
Ex. - steel, glass, fiberglass are material resources for General Motors.
- books, classrooms, desks, and computers are material resources
for a college or university.
- Beds and operating room equipment are material resources for a
clinic.
2) Human resources:
Perhaps the most important resources of any organization are its human resources
(people).
3) Financial resources:
The funds the organization uses to meet its obligations to investors and creditors.
4) Information:
A business that does not adapt to change (change in economy, consumer markets,
technology, politics) will probably not survive. And to adapt to change a business
must know what is changing and how it is changing.
Basic Management Functions

The Management Process (Management Functions):
1. Planning
2. Organizing
3. Leading and motivating
4. Controlling
1. Planning:
Planning is Establishing organizational goals and deciding how to accomplish
them.
a) Establishing goals and objectives
b) Establishing plans to accomplish goals and objectives
Mission: a statement of the basic purpose that makes an organization different

from others.
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Strategic planning: the process of establishing an organization’s major goals
and objectives and allocating the resources to achieve them.
a) Establishing goals and objectives:

Goal: an end result that the organization is expected to achieve over a one to
ten years period.
Objective: a specific statement detailing what the organization intends to
accomplish over a shorter period of time.
Goals and objectives can deal with variety of factors such as:
Sales, company growth, costs, customer satisfaction, and employee moral.
Optimization: a balancing process conflicting goals.
b) Establishing plans to accomplish goals and objectives:

Plan: an outline of the actions by which the organization intends to accomplish
its goals and objectives.
There are several types of plans:

Strategy
- An organization’s broadest set of plans, developed as a
guide for major policy setting and decision making.
- It is set by the board of directors and top managers.
- The strategy designed to achieve the long-term goals of
the organization.
- It defines what business the company is in or wants to
be in.
Tactical plan
- It is a smaller-scale plan developed to implement a
strategy.
- It covers a one to three years period.
- Tactical plans may be updated periodically as
conditions and experience dictate.
- Tactical plans can be changed more easily than
strategies because of their more limited scope.
Operational plan
- It is a type of plan designed to implement tactical
plans.
- It established for one year or less.
- It deals with how to accomplish the organization’s
specific objectives.
Contingency plan
It is a plan that outlines alternative courses of action that may be taken
if the organization’s other plans are disrupted or become ineffective.
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2. Organizing the enterprise:
Organizing: The grouping of recourses and activities to accomplish some end
results in an efficient and effective manner.
3. Leading and Motivating (Directing):

Leading: the process of influencing people to work toward a common goal.
Motivating: the process of providing reasons for people to work in the best
interests of the organization.
Directing: the combined processes of leading and motivating.
* The leading and motivating function in concerned with the human resources
within the organization.
4. Controlling and ongoing activities:

Controlling: the process of evaluating and regulating ongoing activities to
ensure that goals are achieved.
The control function includes three steps:

a) Setting standards
b) Measuring actual performance
c) Taking corrective action
The steps in control function must be repeated periodically until the goal is
achieved.
Kinds of Managers
Top managers:
- A top manager is an upper-level executive who guides and control
overall fortunes of the organization.
- Top managers constitute a small group.
- They are responsible for developing the organization’s mission and
they also determine the firm’s strategy.
- Ex. Of top managers: president, vice president, chief executive
officer, and chief operating officer.
Middle managers:
- A middle manager is a manager who implements the strategy and
major policies developed by top managers.
- Middle management comprises the largest group of managers in
most organizations.
- They develop tactical plans and operational plans.
- They coordinate and supervise the activities of first line managers.
- Ex. Of middle managers: division manager, department head, plant
manager, and operations manager.
First-line managers:
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- A first line manager is a manager who coordinates and supervises
the activities of operating employees.
- They spend most of their time working with and motivating their
employees, answering questions, and solving day-to-day problems.
- Ex. of first line managers: office manager, supervisor, and
foreman.
Areas of management:
• Financial managers:
- A financial manager is a manager who is primarily responsible for
the organization’s financial resources.
- Specific areas within financial management are accounting and
investment.
- Many of the CEOs (chief executive officer) and presidents are
people who get their basic training as financial managers.
• Operations managers:
- An operations manager is manager who manages the systems that
convert resources into goods and services.
- Operations management has been equated with manufacturing.
- Operations management has produced a large percentage of
today’s company CEOs and presidents.
• Marketing managers:
- A marketing manager is responsible for facilitating the exchange of
products between the organization and its customer or clients.
- Specifics areas within marketing are marketing research,
advertising, promotion, sales, and distribution.
- A sizable number of today’s company presidents have risen from
the ranks of marketing management.
• Human resources managers:
- A human resources manager is charged with managing the
organization’s human resources programs.
- The human resources manager:
1) Engages in human resources planning.
2) Designs systems for hiring.
3) Training.
4) Evaluating the performance of employees.
5) Ensures that the organization follows government regulations.
• Administrative managers:
An administrative manager (general manager) is a manager who is not
associated with any specific functional area but who provides overall
administrative guidance and leadership.
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Ch.9: PRODUCING QUALITY GOODS AND SERVICES
What is Production?
Operations management: all activities managers engage in to produce goods and
services.
Operations manager: person who manages the systems that convert resources in to
goods and services.
The most successful firms have focused on:

1- Reducing production costs.
2- Replacing outdated equipment with art manufacturing equipment.
3- Using computer-aided and flexible manufacturing systems.
4- Improving control procedure.
Analytic process: a process in operation management in which raw materials are

broken into different component parts.
Synthetic process: a process in operations management in which raw materials or

components are combined to create a finished product.
Today’s successful operations managers must:

1. Be able to motivate and lead people.
2. Understand how technology can make a manufacturer more productive and
efficient.
3. Appreciate the control processes that help lower production costs and improve
quality.
4. Understand the relationship between the customer, the marketing of a product,
and the production of a product.
The Conversion Process

Utility: the ability of a good or service to satisfy a human need.
Types of utility:
Form, place, time, and possession
Form utility: utility created by converting raw materials, labor, and other resources
into finished products.
Conversion process vary in terms of:

1- Focus:
The focus of a conversion process is the resource or resources that comprise
the major or most important input.
2- Magnitude:
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The magnitude of a conversion process is the degree to which the resources are
physically changed by the conversion.
3- Number of production processes:
- larger firms that make a variety of products use multiple production process.
- smaller firms use one production process or very few production processes.
Service economy: an economy in which more effort is devoted to the production of

services than to the production of goods.
The production of services is different from the production of manufactured goods in

the following:
1) Services consumed immediately and cannot be stored.
2) Services are provided when and where the customer desires the service.
3) Services are usually labor intensive.
4) Services are tangible, and it is more difficult to evaluate the customer
satisfaction.
Three major activities involved in operations management:

1) Product development.
2) Planning for production.
3) Operations control.
Where Do New Products and Services come from?

1) Research and development
2) Product extension and refinement
Research and development (R&D): a set of activities intended to identify new ideas
that have the potential to result in new goods and services.
There are three general types of R&D:

1- basic research:
• Aimed at uncovering new knowledge.
• Its goal is scientific advancement, without potential use.
2- applied research:
• Discovering new knowledge with some potential use.
3- development and implementation:
• Using new or existing knowledge to use in producing goods and services.
Planning For Production

Planning for production involves three major phases:
1. Design planning.
2. Facilities planning and site selection.
3. Operational planning.
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1. Design planning:
- Design planning: the development of a plan for converting a product idea into
an actual product.
- It involves decisions about: product line, required capacity, and use of
technology.
Product line
- Product line: a group of similar products that differ only in relatively minor
characteristics.
- During this stage, management must determine how many different product
variations there will be.
- Important issues in deciding on the product line are:
1) Balance customer preferences and production requirement
2) Identify the most effective combination of product alternative.
- Marketing managers play an important role in making product-line decisions.
- Product design: the process of creating a set of specifications from which a
product can be produced.
Required capacity
- Capacity: is the amount of products or services that an organization can
produce in a given time.
- Operations managers must determine the required capacity.
- Determining the required capacity in turn determines the size of the production
facility.
- If the facility is built with to much capacity, valuable resources will be wasted.
If the facility offers insufficient capacity, additional capacity may have to bee
added later.
Use of technology
- Management must determine the degree to which automation will be used to
produce goods or services.
- Hence management must choose between a labor-intensive technology and a
capital-intensive technology.
- Labor-intensive technology: is a process in which people must do most of the
work.
- Capital-intensive capacity: is a process in which machines and equipment do
most of the work.
2. Facilities Planning and Site Selection:

- Managers must decide whether they will build a new plant or refurbish an
existing factory.
- A business will choose to produce a new product in an existing factory if:
1) The existing factory has enough capacity to handle customer demand for
both the new product and established product.
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2) The cost of refurbishing an existing factory is less than build a new one.
- In determining where to locate production facilities, management must
consider a number of variables:
• Geographic location of suppliers of parts and raw materials.
• Locations of major customers.
• Transportation costs to deliver finished product to customers.
• The cost of land and construction required to build a new production
facility.
• Local and state taxes.
• The amount of financial support offered by local and state government.
Human resources:
At this stage, human resources and operations managers work closely together.
Human resources manager have to recruit employees with appropriate the skills.
Plant layout: the arrangement of machinery, equipment, and personnel within a

production facility.
Three general types of layout are used:

1) Process layout:
- It used when different operations are required for working in different parts
of a product.
- The plant is arranged so that each operation is performed in its own
particular area.
- Once the operation in one area is completed, the work process is moved to
another area.
- Ex. Of process layout: auto repair shop.
2) Product layout:
- It used when all products undergo the same operations in the same
sequence.
- Work stations are arranged to match the sequence of operations.
- Ex. Of product layout: assembly line.
3) Fixed-position layout:
- It used when very large product is produced.
- Aircraft manufacturers and shipbuilders apply this method because of the
difficulty of moving a large product like an airplane or ship.
- The product remains stationary while people and machines are moved as
needed to assemble the product.
3. Operational Planning:
Operational planning focuses on the use of production facilities and resources.
The objective of operational planning is to decide the amount of products or
services each facility will produce during a specific period of time.
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Four steps are required:
Step 1: Selecting a planning horizon:
- A planning horizon is the period during which a plan will be effect.

- A common planning horizon for production plans is one year.
- Before each year is up, management must plan for the next.
- Firms that operate in a rapidly changing business environment may select a
short planning horizon.
Step 2: Estimating market demand:

The quantity demanded must be estimated for the time period covered by the
planning horizon.
Step 3: Comparing market demand with capacity:

- Market demand and facility’s capacity to satisfy the demand must be
compared.
- One of three outcomes may result: demand exceeds capacity, or capacity
exceeds demand, or capacity and demand equal.
- If they are equal, the facility should be operated at full capacity. But if market
demand and capacity are not equal, adjustment may be necessary.
Step 4: Adjusting products or services to meet demand:

What happens when the market demand exceeds the capacity?
The firm may do one of the following:
- Operating the facility over-time with existing personnel or by starting a new
shift work.
- Subcontract a portion of the work to another producers.
- If the excess demand is permanent, the firm may expand the current facility
or build another one.
- Ignore the excess demand.
What happens when the capacity exceeds the market demand?

The firm may do one of the following:
- Laid off workers and part of the facility shut down.
- Operate the facility on shorter-than-normal workweek.
- Shift the excess capacity to the production of other goods or services.
- Selling unused capacity.
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Ch.10: ATTRACTING AND RETAINING BEST
Human Resources Management: An Overview

Human resources management (HRM): all the activities involved in acquiring,
maintaining, and developing organization’s human resources.
Acquisition:
Getting people to work for the organization.
- Human resources planning: determining the firm’s future resources needs.
- Job analysis: determining the exact nature of the position to be field.
- Recruiting: attracting people to apply for positions in the firm.
- Selection: choosing and hiring the most qualified applicants.
- Orientation: acquainting new employees with the firm.
Maintaining:
Motivating employees to remain with the firm and to work effectively.
- Employee relations: increasing employee job satisfaction.
- Compensation: rewarding employee effort through monetary payments.
- Benefits: providing rewards to ensure employee well-being.
Development:
- Training and development: teaching employees new skills, new jobs, and
more effective ways of doing their present jobs.
- Performance appraisal: assessing employees’ current and potential
performance levels.
HRM is a shared responsibility of line managers and staff HRM specialists:

• Human resources planning and job analysis: done by staff specialist, with input
from line managers.
• Recruiting and selection: handled by staff experts, and line managers in hiring
decisions.
• Orientation: orientation programs are devised by staff specialist, and the
orientation itself carried out by both staff specialist and line managers.
• Compensation systems (and benefits): developed and administered by the
HRM staff.
• Training and development: it is the joint responsibility of staff specialist and
line managers.
• Performance appraisal: it is the job of the line manager, although the HRM
staff personnel design the firm’s appraisal system.
* In very small organizations, the owner is usually both a line manager and the staff
HRM specialist.
Human Resources Planning

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Human resources planning: the development of strategies to meet a firm’s future
human resources needs.
1. Forecasting Human Resources Demand:

• Planners should base forecast of the demand for human resources on as much
relevant information as they can gather.
• The firm’s strategic plan will provide information about future business
ventures, new products, and projected expansion or contractions of particular
product lines.
• HRM staff uses all this information to determine both number of employees
the firm will require and their qualifications. planners use a wide range of
methods to forecast specific personnel needs.
2. Forecasting Human Resources Supply:

• The forecast of the supply of human resources must take into account both the
present work force and any changes or movements that may occur within it.
• When forecasting supply, planners should analyze the organization’s existing
employees to determine who can retrained to perform required tasks.
• Two useful techniques for forecasting human resources supply are :
1) Replacement chart: a list of key personal and their possible replacements
within a firm.
2) Skills inventory: a computerized data bank containing information on the
skills and experience of all present employees.
A replacement chart is a list of key personnel and their possible replacements

within the firm.
The chart is maintained to ensure that top managers positions can be failed
fairly quickly in the event of unexpected death, resignation, or retirement.
A skills inventory is a computerized data bank containing information on the
skills and experience of all present employees.
It is used to search for candidates to fill new or newly available positions. A
skills inventory is useful when a assessing whether a company can do a
specific project.
3. Matching Supply With Demand:

Once they have forecasts of both the demand for personnel and the firm’s
supply of personnel, planners can devise a courses of action for matching the
two.
* When demand is predicted to be greater than supply, plans must be made to
recruit and select new employees. The timing of these actions depends on the
types of positions to be failed.
* When supply is predicted to be greater than demand, the firm must take steps
to reduce the size of its work force. Several methods are available:
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a) Laid off:
Dismiss the employees from the work force until they are needed again.
b) Attrition:
It is the normal reduction in the work force that occurs when employees leave
the firm. Attrition may be a very slowly process.
c) Early retirement:
People who are within the a few years of retirement are permitted to retire
early with full benefits.
d) Firing:
This is the last resort, and because of it its negative impact, this method is
generally used only when absolutely necessary.
Job Analysis
Job Analysis: It is a systematic procedure for studying jobs to determine their various
elements and requirements.
The job analysis for a particular position consists of two parts:

1. A job description
2. A job specification
Job description: a list of the elements that make up a particular job.

Job analysis must includes:
1. duties the job holders must perform
2. conditions under which the job must be performed
3. responsibilities
4. the tools and equipments that must be used on the job
Job specification: a list of the qualifications required to perform a particular job.

It includes the skills, abilities, education, and experience the jobholder must have.
The job analysis is not only the basis of recruiting and selecting new employees, it
is also used in other areas of human resources management.
Recruiting, Selection, and Orientation

• Recruiting: It is the process of attracting qualified job applicants.
- because it is a vital link in a costly process, recruiting needs to
be systematic rather than haphazard process.
- One goal of recruiters is to attract the right number of
applicants.
External recruiting:
It is the attempt to attract job applicants from outside the organization.
- among the means available for external recruiting are: internet
web sites, newspaper advertising, recruiting on college
campuses, using employment agencies.
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- it is best to match the recruiting means with kind of applicants
being sought.
- The primary advantage of external recruiting is that it enables
the firm to bring in people with new perspectives and varied
business backgrounds.
- A disadvantage of external recruiting is that it is often
expensive, especially if private employment agencies must be
used.
Internal recruiting:
Considering present employees as applicants for available positions.
- Current employees may be considered for promotion to higher-
level position, or also may be transfer from one position to
another at the same level.
- Promoting internally provides strong motivation for current
employees and helps the firm retain quality personnel.
- The primary disadvantage of internal recruiting is that
promoting a current employee leaves another position to be
filled.
- Internal recruiting may be impossible in many situations. For
example when there is no qualified employee to fill the new
position, or the firm may be growing rapidly.
• Selection: The process of gathering information about applicants for a position

and then using that information to choose the most appropriate applicant.
- In selection the idea is not to hire the person with the most
qualifications but to choose the applicant with the
qualifications that are most appropriate for the job.
- Selection made by one or more line managers. HRM personnel
usually help the selection process.
- Common means of obtaining information about applicants
qualifications are:
Employment applications
- An employment application is useful in collecting information on a
candidate’s education, work experience, and personal history.
- The data obtained form applications are used to: identify applicants who are
worthy of further scrutiny, and to familiarize interviewers with t heir
backgrounds.
- A resume is a one or tow page summary of the candidate’s background and
qualifications. It may include a description of the type of job the applicant is
seeking.
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Employment tests
- Tests administered to job candidates focus on aptitudes, skills, abilities, or
knowledge relevant to the job that are to be performed.
- Such tests indicate how well the applicants will do on the job.
Interviews
- It is the most widely used selection technique.
- Job candidates are usually interviewed by al least one member of the HRM
staff and buy the person for whom they will be working. Candidates for
higher-level jobs may also meet with a department head.
- Interviews provide an opportunity for the applicant and the firm to know
more about each other.
- Interviewers can pose problems to test the candidates abilities. They can
probe employment history more deeply.
- Interviewing may the be the stage at which discrimination enters the
selection process.
- In a structured interview, the interviewer asks only a prepared set of job-
related questions.
References
- A candidate is asked to furnish the names of references people who can
verify background information and provide personal evaluations of the
candidate.
- Applicants tend to list only references who are likely to say good things
about them. That’s why personal evaluation obtained form references may
not be of much value.
Assessment centers
- It is used to select current employees for promotion to higher level
management positions.
- A group of employees sent to the center for two or three days , and
participate in activities designed to simulate the management environment
and predict managerial effectiveness.
- Although this technique is gaining popularity, the expense involved limits
its use to larger organizations.
• Orientation: It is the process of acquainting new employees with an organization.
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Ch.13: BUILDING CUSTOMER RELATIONSHIPS THROUGH
EFFECTIVE MARKETING
Definition of Marketing
Marketing: the process of planning and executing the conception, pricing, promotion,
and distribution of ideas, goods, and services to create exchange that satisfy
individual and organizational objectives.
Utility: The Value added by Marketing

Utility: the ability of a good or service to satisfy the human need.
There are four kinds of utility:

1. Form utility: the utility created by converting production inputs into finished
products.
2. Place utility: the utility created by making a product available at a location
where customers wish to purchase it.
3. Time utility: the utility created by making a product available when customer
wish to purchase it.
4. Possession utility: the utility created by transferring title (or ownership) of a
product to the buyer.
Marketing may indirectly influence form utility, it only adds value in the form
utility.
Place, time, and possession utility are directly created by marketing.
Place, time, and possession utility have real value in terms of both money and
convenience.
The Marketing Concept

Marketing concept: a business philosophy that involves the entire organization in the
process of satisfying customers’ needs while achieving the organizations’ goals.
(1) Evolution of the marketing concept:

1- production orientation (from the industrial revolution – 1920)
- business effort was directed mainly toward the production of
goods.
- Consumer demand for manufactured products was so great.
- Business emphasis was placed on increased output and
production efficiency.
2- sales orientation (1920 –1950)

producers had to direct their efforts toward selling goods rather than just
producing goods that consumers readily bought.
This new sales orientation was characterized by increased advertising,
enlarged sales forces, and high pressure selling technique.
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Manufacturers produced the goods they expected consumers to want.
3- customer orientation ( 1950 – today)

Business people recognized that their enterprises involved not only
producing and selling products, but also satisfying customers’ needs.
The organization had to first determine what customers need and then
develop goods and services to fill those particular needs.
Relationship marketing: developing mutually beneficial, long-term partnership

with customer to enhance customer satisfaction to simulate long-term customer
loyalty.
(2) Implementing the marketing concept:

To implement the marketing concept, a firm must:
1. Obtain information about its present and potential customers.
2. Use this information to pinpoint the specific needs and potential customers
toward which it will direct its marketing activities.
3. Mobilize its marketing resources to provide, price, promote, and distribute a
product.
4. Obtain marketing information regarding the effectiveness of its efforts.
Markets and Their Classification

Market: a group of individuals or organizations, or both, that need products and have
the ability, willingness, and authority to purchase such products.
Markets are broadly classified as consumer or industrial markets.
1) Consumer markets:
Purchasers and/or individual household members who intend to consume or
benefit from the purchased products and who do not buy products to make
profits.
2) Industrial markets (business to business market):

These markets purchase specific kinds of products to use in making other
products, for resale or for day-to-day operations.
a) Producers markets:
Individuals and business organizations that buy certain products to use in the
manufacture of other products.
b) Reseller markets:
Intermediaries such as wholesalers and retailers that buy finished products and
sell them for a profit.
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c) Governmental markets:
Federal, state, country, and local government. They buy goods and services to
maintain internal operations and to provide citizens with such products as
highways, education, water, and national defense.
d) Institutional markets:
Churches, not-for-profit private schools and hospitals, civil clubs, fraternities
and sororities, charitable organizations.
Developing Marketing Strategies

Marketing strategy: a plan that will enable an organization to make the best use of its
resources and advantages to meet its objectives.
A marketing strategy consist of:

1. The selection and analysis of a target market.
2. The creation and maintenance of an appropriate marketing mix.
Marketing mix: a combination of product, price, distribution, and promotion

developed to satisfy a particular target market.
Target market: a group of individuals or organizations, or both, for which firm

develops and maintains a marketing mix.
When selecting a target market, marketing managers take either the undifferentiated
approach or the market segmentation approach.
1. Undifferentiated approach: directing a single marketing mix at the entire market

for a particular product.
This approach assumes that individuals customers in the target market have
similar needs, and therefore the organization can satisfy most customers with a
single marketing mix.
This marketing mix consist of one type of product with little or no variation, one
price, one promotional program, and one distribution system to reach all
customers in target market.
Product that marketed with the undifferentiated approach include staple food
items, such as sugar and salts.
2. Market segmentation approach:

Marker segment: a group of individuals or organizations within a market that
share one or common characteristic.
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Market segmentation: the process of dividing a market into segments and directing
a marketing mix at a particular segment or segments rather than at the total
market.
There are two types of marketing segmentation approach:

Concentrated market segmentation
The organization directs a single marketing mix at a single marker segment.
Differentiated market segmentation

The organization focuses multiple marketing mixes on multiple market segments.
Creating a Marketing Mix:

A business firm controls four important elements of marketing. These are the
product itself, the price of the product, the means of distribution, and the
promotion of the product.
A firm can vary its marketing mix by changing any one or more of these
ingredients to reach its target market.
The product ingredient of the marketing mix includes decision about the
product’s design, brand name, packaging, warranties.
The pricing ingredient concern with both base prices and discounts of various
kinds.
The distribution ingredient transportation, storage, and the selection of

intermediaries.
The promotion ingredient focuses on providing information to target markets.

The major forms of promotion are advertising, personal selling, sales promotion,
and public relations.
The ingredients of the marketing mix are controllable elements.
Marketing Strategy and the Marketing Environment:

The marketing environment includes a number of uncontrollable elements. The forces
that make up the external marketing environment are:
• Economic forces:
The effects of economics conditions on customers’ ability and willingness to buy.
• Sociocultural forces:
Influences and society and its culture that result in change in attitudes, beliefs,
customs, and lifestyles.
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• Political forces:
Influences that arise through the actions of elected and appointed officials.
• Competitive forces:
The actions of competitors, who are in t he process of implementing their own
marketing plans.
• Legal and regulatory forces:

Laws that protect consumers and competition, and government regulations that
affect marketing.
• Technological forces:
Technological changes that, on the one hand, can create new marketing
opportunities or, on the other, can cause products to become obsolete almost
overnight.
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Ch.17: ACQUIRING, ORGANIZING AND USING INFORMATION
The Nature of Information

• The more information that a manager has, the less risk there us that a decision will
be incorrect.
• Information produces knowledge and empowers managers and employees to make

better decisions.
• Without correct and timely information, individual performance will be

undermined so will the performance of the entire organization.
• Business people use information rules to shorten the time spent analyzing choices.
• Information rules emerges when business research confirms the same results each
time it studies the same or a similar circumstances.
Data: numerical or verbal description that usually result from some sort of
measurement.
Ex. Wage level, amount of profit, retail prices.
* Data can be nonnumerical. A description of individual as a “tall, athletic person”

would qualify as data.
Information: data presented in a form useful for a specific purpose.
Database: a single collection of data stored in one place that can be used by people
through-out an organization to make decisions.
* The organization must establish a procedures for gathering, updating, and

processing facts in the database.
Business research
1- secondary research:
The original research done by someone else.
2- primary research:
a- Qualitative research: a process that involves the descriptive or subjective
reporting of information discovered by a researcher.
b- Quantitative research: a process that involves collection of numerical data

for analysis through a survey, experiment, or content analysis.
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A number of different methods can be used to conduct Qualitative & Quantitative:
Qualitative Research Methods Quantitative Research Methods
1- Observation: 1- survey:
the act of nothing or recording a research method that relies on asking
something, such as the facial expressions the same question to a large number of
of shoppers in a retail store. people to elicit responses and
information.
2- Interviews: 2- experiment:
a conversation conducted by a researcher a research method that involves the use of
with an individual to elicit responses and two or more groups of people to
information. determine how people in each group react
to different research variables.
3- Focus group: 3- content analysis:
a conversation conducted by a researcher a research method that involves
with a small group of people to elicit measuring particular items in a written
responses and information. publication, television program or radio
program.
Which research method to choose ?

The decision about which research method or methods to use is often based on a
combination of factors, including limitations on time and money, and the need or
concern for accuracy and validity.
Managers rely on the results of proven research methods until those methods no
longer work well.
The Information System (MIS)

Management information system (MIS): a system that provides managers with the
information they need to perform their jobs as effectively as possible.
The purpose of an MIS is to distribute timely and useful information from both
internal and external sources to the decision makers who need it.
Information technology officer: a manger at the executive level who is responsible

for ensuring that a firm has the equipment necessary to provide the information the
firm’s employees and managers need to make effective decisions.
In many forms the MIS is combined with a marketing information system.
Managers’ Information Requirements

The specific type of information managers need depend on their are of management
and level within the firm.
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Financial managers: are most concerned their firm’s finances. They study its
debts and receivables, cash flow, future capitalization needs, financial ratios,
present state of the economy, interest rates.
Operations managers: are concerned with present and future sales levels and
with availability of the resources required to meet sales forecast. The need to
know the cost of producing their firm’s goods and services, including inventory
costs.
Marketing managers: need to have information about their firm’s product mix
and the products offered by competitors. They have to have information
concerning target markets, current and projected market share, and development
within channels of distribution.
Human resources management: concern with anything that pertains to their

firm’s employees. Examples include wage levels and benefits packages both
within their firm and in firms that compete for valuable employees.
Administrative managers: are concerned with the coordination of

information, material, human, and financial resources. Administrators must
ensure that all employees have access to the information they need to do their
jobs, and that the information is used in a manner consistent.
* a management information system MIS must be tailored to the needs of the

organization.
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Ch.20: MASTERING FINANCIAL MANAGEMENT
What is Financial Management?

Financial management: all the activities concerned with obtaining money and using it
effectively.
Short-Term Financing: Money that will be used for one year or less or one
operating cycle of the business.
The operating cycle of the business may be longer than one year and is the
amount time between the purchase of raw materials and the sale of finished
products to wholesalers, retailers, or consumers.
There are many short-term needs, but cash flow and current inventory needs
are two of which financing in often required.
Cash Flow: is the movement of money into and out of an organization.
What causes cash-flow problems?

Extension of credit – Unanticipated emergencies
Speculative Production: the time lag between the actual production of goods
and when the goods are sold.
Long-Term Financing: Money that will be used for longer than one year.
Long term financing is needed to:

1- start a new business.
2- business expansions and mergers.
3- product development.
4- marketing.
5- replacement of equipment that has become obsolete.
Proper financial management can ensure that:

• Financing priorities are established in line with organizational goals and
objectives.
• Spending is planned and controlled in accordance with established priorities.
• Sufficient financing in available when its needed.
• Excess that cash invested in certificates of deposit (CDs), government securities,
or conservative, marketable securities.
* Banks, insurance companies, and investment firms have a need for workers who
can manage and analyze financial data. So do businesses involved in manufacturing,
services, and marketing.
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Colleges and universities, not-for-profit organizations, and government entities also
need finance workers.
People in finance must have certain traits and skills. They must:
1. Be responsible and honest because they are working with other people money.
2. Have a strong background in accounting and mathematics.
3. Know how to use computer to analyze data.
4. Be an expert at both written and oral communication.
Planning – The Basis of Sound Financial Management

Financial plan: a plan for obtaining and using the money needed to implement an
organization’s goals.
The steps of financial planning:

1. Establishing organizational goal and objectives.
2. Budgeting for financial needs.
3. Identify sources of funds.
Financial planners must make sure that financing needs are realistic and that
sufficient is available to meet those needs.
1. Establishing Organizational Goals and Objectives:

2) Goals and objectives must be specific and measurable so they can be
translated into dollar costs and financial planning can proceed.
3) Goals and objectives must be realistic. Otherwise, they my be impossible to
finance to achieve.
2. Budgeting for Financial Needs:

Budget: a financial statement that projects income and/or expenditures over a
specified future period.
1. From the budgets, the financial manager determines what funding will be
needed and where it may be obtained.
2. The budgeting process begins with the construction of budgets for sales and
various types of expenses for individual departments.
3. Budgeting accuracy is improved when budgets are constructed for separate
departments and for shorter period of time.
Cash budget: a financial statement that projects cash receipts and expenditures
over a specified period.
In the traditional approach of budgeting each new budget is based on the dollar
amounts contained in the budget for the preceding year.
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The problem of this approach is that it leaves room for padding budget items to
protect the interest of the budgeter or his/her department.
This problem is eliminated through zero-base budget.
Zero-base budget: a budgeting approach in which every expense in every

budget must be justified.
Capital budget: a financial statement that estimates a firm’s expenditures for

major assets and its long-term financing needs.
Capital budget is used to develop a plan for long-term financing needs.
3. Identify Sources of Funds:

The four primary sources of funds are:
sales revenue, equity capital, debit capital, and proceeds from the sales of
assets.
(1) Sales revenue:

future sales revenue provides the greatest part of firm’s financing.
One of the primary reasons for financial planning is to provide management
with adequate lead time to solve cash-flow problems.
(2) Equity capital: money received from the owners or from the sale of shares
of ownership in the business.
Equity capital is used almost exclusively for long-term financing.
(3) Debit capital: borrowed money obtained through loans of various types.
Debit capital may be borrowed for either short-term or long-term use.
(4) Proceeds from the sales of assets:

A firm acquires asset because it needs them for it business operations.
Therefore, selling assets is a drastic step.
But it may be reasonable as a last sort when neither equity capital nor debit
capital can be found.
Assets also may be sold when they are no longer needed.
Once the needed funds have been obtained, the financial manager is
responsible for ensuring that they are properly used.
This is accomplished through a system of monitoring and evaluating the firm’s
needs.
42

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MGT 131

:::END OF THE TOPICS:::

 Why study business?

To be successful, a business must perform three activities, It must:

Four resources must combine to start and operate a business:

 Types of Economic System

Four basic economic questions:

Types of economic system:

Market economy: an economy system in which individuals and businesses decide

 Business Ethics Defined

Business Ethics: the application of moral standards to business situations.

 Factors Affecting Ethical Behavior

 Encouraging Ethical Behavior – Code of Ethics Only

Whistle-Blowing: informing the press or government officials about unethical

 Two Views of Social Responsibility

1. Business primary responsibility is to make profit.

1. Business is part of society.

Comparison Between Economic Model & Socioeconomic Model

Advantages of sole proprietorships:

Disadvantages of sole proprietorships:

The partnership agreement:

Stock: the shares of ownership of a corporation.

Stockholder: a person who owns a corporation’s stock.

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

Incorporation: the process of forming a corporation.

Dividend: a distributing of earnings to the stockholders of a corporation.

Proxy: a legal listing issues to be decided at a stockholder’s meeting and enabling

elect appoints hire

 Other Types of Business Ownership

Government-Owned Corporation: a corporation owned and operated by a local, state,

Quasi-Government Corporation: a business owned partly by the government and

Not-For-Profit Corporation: a corporation organized to provide a social, educational,

Cooperative: an association of individuals or firms whose purpose is to perform some

Syndicate: a temporary association of individuals or firms organized to perform a

 Small Business: A Profile

Industries that attract small businesses:

People in Small business are motivated by:

Why small businesses fail?

 The Pros and Cons of Small Business

Disadvantages of small business:

 Developing a Business Plan

Franchising: the actual granting of a franchise.

Franchisor: an individual or organization granting a franchise.

Franchisee: a person or organization purchasing a franchise.

Types of Franchising Arrangements:

What can causes the failure of both franchisee and franchisor?

Advantages & Disadvantages of Franchising:

Main Resources of Management:

 Basic Management Functions

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

a) Establishing goals and objectives:

b) Establishing plans to accomplish goals and objectives:

There are several types of plans:

3. Leading and Motivating (Directing):

4. Controlling and ongoing activities:

The control function includes three steps:

The most successful firms have focused on:

Analytic process: a process in operation management in which raw materials are

Synthetic process: a process in operations management in which raw materials or

Today’s successful operations managers must:

 The Conversion Process

Conversion process vary in terms of:

Service economy: an economy in which more effort is devoted to the production of

Why study business?

Types of Economic System

Business Ethics Defined

Factors Affecting Ethical Behavior

Encouraging Ethical Behavior – Code of Ethics Only

Two Views of Social Responsibility

Other Types of Business Ownership

Small Business: A Profile

The Pros and Cons of Small Business

Developing a Business Plan

Basic Management Functions

The Conversion Process

Where Do New Products and Services come from?

Planning For Production

Plant layout: the arrangement of machinery, equipment, and personnel within a

Step 2: Estimating market demand:

Step 3: Comparing market demand with capacity:

Step 4: Adjusting products or services to meet demand:

What happens when the capacity exceeds the market demand?

Human Resources Management: An Overview

Human Resources Planning

Recruiting, Selection, and Orientation

Utility: The Value added by Marketing

The Marketing Concept

Markets and Their Classification

Developing Marketing Strategies

Differentiated market segmentation

The distribution ingredient transportation, storage, and the selection of

The promotion ingredient focuses on providing information to target markets.

The ingredients of the marketing mix are controllable elements.

The Nature of Information

The Information System (MIS)

Human resources management: concern with anything that pertains to their

Administrative managers: are concerned with the coordination of

What is Financial Management?