Topics in BusinessWhat will you be taught during higher education in business?

Welcome to Business 101!

We will cover: Courses and topics you will learn in higher education Give examples of each topic to distinguish the differences Answer questions regarding the courses

Accounting Bookkeeping is a bunch of rules and procedures

Accounting is simply a way of keeping track of whatever you want to keep track of – it’s about measurement

WHAT IS ACCOUNTING?

Balance sheet: a statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period.

Income statement: An income statement is a financial statement that measures a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities.

Fixed Costs: business costs, such as rent, that are constant whatever the quantity of goods or services produced.

Variable Costs: a cost that varies with the level of output.

ZYNGA’S INCOME STATEMENT

Profit = Revenues – Expense Revenues are inflows of resources to a firm

Expenses are outflows of resources

MEASURING PROFITABILITY

Why do we care? Tax Authorities Internal performance measurement External stakeholders (investors and security analysts)

MEASURING PROFITABILITY

In many cases, accounting is not much more than counting. Balancing your checkbook

MEASUREMENT

Accounting is interesting when there are two additional factors: Lack of an obviously correct way to measure or count One person is keeping track on behalf of someone else

Taxes Department head reporting to corporate Division between capital and management

MEASUREMENT

Company Transactions

Accounting Rules

Accountants’ Judgments and Interpretations

Information useful for

decision making

WHAT IS ACCOUNTING?

Marketing

How does marketing relate to entrepreneurship?Social Media and Marketing?

Use the 4 P's to explore potential marketing plans for your product. Product: Features/attributes you will offer, your brand

name, your packaging Price: Compare against your competitors Place: How will it be distributed? (online, stores, etc.) Promotions: Advertising, social media, price discounts if

wanted

Marketing Analysis (The 5 C’s)

Customers Company Competitors Collaborators Context

MarketSegmentation

TargetMarket

Selection

Product andService

Positioning

Product & Service Place/Channels Promotion

Pricing

CustomerAcquisition

CustomerRetention

Profits

CreatingValue

CapturingValue

SustainingValue

Elements of a Marketing Plan

Marketing Mix (The 4 P’s)

Elements of a Marketing Plan Marketing analysis (marketing research)

Customer needs (focus of your assignment) What needs do we seek to satisfy?

Company skills What special skills do we possess to meet those needs?

Competition Who competes with us in meeting those needs?

Collaborators Who should we enlist to help us and how do we motivate them?

Context What social-cultural, technological, political- legal, demographic, economic and

natural factors limit what is possible (marketing environment)?

Types of marketing research used to analyze customer needs Direct observations Experimentation Gathering and analysis of purchase data Survey research

Includes concept testing Focus groups Interviewing

Elements of a Marketing Plan Market segmentation

“I know when our businesses are doing a good job of market segmentation when they can articulate whom we should NOT sell to.”

CEO of MediaONe Group Target marketing

Deciding which segments to pursue Positioning

Creating a competitive advantage in your target segment Offering value propositions

what is being added that the customers will value

Marketing is the process of Creating value for a firm’s chosen customers

Segmenting, targeting, and positioning Marketing mix (The 4 P’s) (focus of your

assignment) Product Promotions Place Price

Acquiring and retaining customers (sustaining value) Generating revenue streams and being profitable

9 Building Blocks of Business

Biggest regrets of entrepreneurs 1. Developing products before getting feedback from potential buyers

(failure to collect marketing research) 2. Failing to listen to potential customers (failure to respond to marketing) 3. Offering discounts 4. Selling to friends and family 5. Failing to seek strategic buyers Conclusions

Most company founders regret waiting too long to start selling Salesmanship is central to the success of any young company Learning to pitch ideas to customers helps you learn how to pitch to investors

Marketing Summary Marketing is one of the key functions that a successful

entrepreneur must master It is extremely important to get customer feedback

(collect marketing research) on your product, not just one time, but MANY times

It is also important to think about the 4 P’s Price Place (distribution) Promotions Product

Management

Management functions within businesses include planning, organization, staffing, and directing a group of one or more people with the purpose of accomplishing a goal or task. Motivation: The factors within or around us that cause us to behave a

certain way in order to achieve a goal.

Levels of Management

Top-level Management: Managers are responsible for controlling and overseeing the entire organization. Ex. Include CEO and President of the company.

Middle Level Management: Managers are responsible for executing organizational which comply with the company’s policies. Act as an intermediary between upper and lower management. Ex. Include General managers, branch managers, and department managers.

Lower Level Management: Managers focus on controlling and directing. Work more directly with the employees they supervise and can be seen as a role model in the work place. Provide basic supervision on day to day tasks.

Finance

Finance describes the study of how money is managed and the actual process of acquiring needed funding for businesses.

Financing, simply put, is the act of bringing money into an organization. Businesses can be financed in a number of ways, each of which features its own advantages, disadvantages and unique features. Common methods of financing a business include taking on debt and taking advantage of credit arrangements, financing through equity investment or earning income through investment products that bear interest or increase in value.

Entrepreneurship

Entrepreneurship has traditionally been defined as the process of designing, launching and running a new business, which typically begins as a small business, such as a startup company, offering a product, process or service for sale or hire.

The way Bill Gates single-handedly revolutionized the way we use home computers is an excellent example of ingenuity and entrepreneurship.

Entrepreneurship can be scary because there is no guarantee that the business will work, and the entrepreneur may end up losing money for the first few years.

Supply Chain Management

Supply Chain Management is the management of the flow of goods and services. It includes the movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption.

Business Ethics

Business ethics (also corporate ethics) is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.

Overall Business All successful business activities involve the creation of economic

value. Important to appreciate the many ways in which this might occur, especially for entrepreneurs

Distinguish value creation from value appropriation Today focus mainly on the creation part. Appropriation is the subject

of MEC 290, 370, 470, 471, 400K (RIA)

31

Value Creation vs. Value Appropriation

32

Story acquisitionScreenplay

Producer, Director, Talent

Preproduction

Production

Distribution

Theatrical Release

Ancillaries

Value Creation

$Value Appropriation

Strategy/planning

Economics

Organizations Operations Marketing

Finance & Accounting

Costs Incurred Revenue Arrives

33

Value creation I Simplest case − “pure exchange” You have a set of golf clubs in your garage

No desire to play golf Best alternative use of clubs (OC) − sell at iSold It for $25

Neighbor takes up golf: Values used clubs at $200

What economic value will be realized: 1. without selling the clubs to your neighbor? 2. by selling?

Difference is economic value created by exchange Did the sale price affect value created? How about the distribution of

value?

34

Value creation II Another simple case − “pure production” You enjoy gardening:

Seeds from last year’s vegetable garden (OC = 0) Seeds, plus “sweat equity” of $25, generates

vegetables you value at $100 What economic value will be created by

1. tossing the seeds in the trash?2. planting and tending the seeds?

Difference is economic value created by production

Value creation III

• Production & exchange in a noncompetitive market.• BellyBella (http://store.bellybella.com/) purchases gems and specialty

metals on world markets, pays competitive wages for skilled workers, and owns specialized equipment

• Total economic cost of producing its 10k production run of neat new belly button rings: $10M

• There are 10k US customers for “jewelry quality” rings: 5k willing to pay up to $3k, and 5k willing to pay up to $2k. Total willingness to pay, $25M

• How much value will be created? • BellyBella’s economic profit?

35

36

Value creation IV Your software firm specializes in add-ins for Excel Your new process control add-in allow a business to drop $100k annual fee

for maintenance/updates of proprietary software, and replace with your product

Your total cost for producing, shipping, and supporting the add-in is $20k The business will expand its Excel license by 1500 units, at a cost of $50

per license Value created? What is the lowest price you would contemplate charging? The highest?

37

Value creation V Reorganization of sales/service by industry instead of geography has

made sales job more predictable, manageable, and generally easier and less stressful

The company can now offer as much as $5k less compensation and still attract qualified staff from a competitive labor market

Customers unaffected Value creation? Suppose company offers staff $3k less. Impact on value creation?

Value creation VII – Crisis management

To what degree do crises affect:1. the essential features defining the existing business 2. how business functions & assets support existing business

Key questions:1. Since we do not know what the crisis will be, how to minimize its impact on the

essential features?2. How to be ready to adjust functions and assets to support the needs of the post-

crisis business both in the immediate aftermath of the event and longer term? Managing crises challenges understanding of how key features operate, and

how the functions and assets support them − Intimately related to Strategy“scientia potentia est” (Hobbes)

38

Example: B&L, Renu & Fungal Keratitus 11/05 − Hong Kong health officials inform B&L of spike in fungal keratitus

starting 6/05 – related to Renu. Renu pulled from shelves in Hong Kong. 3/06 − US ophthalmologist informs CDC and B&L of similar findings in US,

where Renu was still for sale 4/11/06 − B&L cancels Renu. Stock price falls 14.6% 10/07 − B&L acquired by PE firm Warburg Pincus Was this avoidable? If so, why was it not avoided? Crises amplify the need for honesty and integrity, both to internal and

external audiences. But the crisis also makes this more difficult Does ethical thinking help?

Value creation VIII Can a government stimulus program create value and/or stimulate

economic activity? Example – resurfacing Interstate in Ohio

Drivers get benefit B Workers get paid W, have opportunity cost C Taxpayers fund W Value created: B + (W − C) − W = B − C Stimulus:

New economic activity: B Extra spending by workers: W − C Less spending by taxpayers: − W Stimulus stimulates if and only if it is value creating, i.e., B − C > 0

40

International Business

Globalization: a shift towards a more integrated and interdependent world economy

Globalization of markets | national markets merge into one huge global marketplace

Globalization of production | sourcing of goods and services from around the world to take advantage varying competitive advantages

   

What drives Globalization?

Technological Change Communication costs, information processing costs, and transportation

costs have all decreased Governmental policies that affect the free flow of goods, services, and

capital Reduced tariff rates (ex. NAFTA) Intellectual Property rights

How to do business in a global landscape Rule #1 : Be Respectful! Always attempt to be aware of and respect the culture and customs

of any country you may visit, or any visitors you may have. Understand how you, being of your respective nationality, will be

perceived in that country and prepare yourself. 

Collaberation

Data analysis on leadership effectiveness

Michelle Donovan, left, and Prasad Setty were on the team that led Google's management effectiveness project. 3. Don’t spend enough time communicating

Participation Problem The “80/20” rule “Spectators” ( social loafing) Anyone who is not participating represents experience and

expertise that the group is not tapping into

DysfunctionalTeam

PotentialTeam

REALTEAM

HighPerformanceTeam

A Model of Team Development The Team Performance Curve

Group Development

Performance

WorkingGroup

Adapted from Jon Katzenbach and Douglas Smith