Business LiteracyPLUS

Transcription

1 Business LiteracyPLUS Introduction to key business concepts and resources to increase business literacy and improve effectiveness with business constituencies Micheal Carbon, MBA, APR Co-Chair, Accreditation Commitee, Central Pa. Chapter Last Updated June 2007 To request copies or additional use

2 Objectives and Purpose Familiarize you with content of the seven business literacy KSAs that are identified as subject areas for the accreditation test Provide tools, suggestions for self-study and preparation 2

3 Business Literacy KSAs 1. Business literacy Understands and explains how employers/clients generate revenue and how their operations are conducted. Identifies relevant business drivers and how they impact the business. 2. Environmental scanning Continuously analyzes the business environment that includes the client stakeholders and employer. 3. Industry knowledge Understands and explains the nature of the employer or client industry or industries. Discusses current issues, opportunities, and threats to those industry or industries. 4. Knowledge of current organizational issues Takes into consideration the client's or employer's current internal and external business drivers. Performs strengths/weaknesses/opportunities/threats (SWOT) analyses. Source: 3 continued....

4 Business Literacy KSAs 5. Knowledge of business technology and trends Understands technology trends and how they apply to the business of the client field. 6. Understands all levels of management Recognizes chain of command including senior leadership, middle management, direct line supervisor to the line worker and the distinctions. Analyzes stakeholder needs for purpose of crafting tailored programs. Knows how organizations are horizontally and vertically structured, (e.g., pyramid, flat), and how that affects organizational behavior. Comprehends how organizational structure affects organizational culture and programs. 7. Uses organization's resources Identifies other divisions within a organization that need to be involved in any communication program (e.g., legal in the case of product liability). ABC Company operated in the red for the last two reporting periods XYZ Company operated in the black for the last two reporting periods 4

5 1. Business Literacy How businesses organize

6 What is Business Collection of people and resources organized to provide a product or service to others With the objective of sustaining themselves economically and/or for generating economic profit. 6

7 Types of Business Organizations 1. For Profit 2. Non Profit 3. Not For Profit Microsoft The United Way Highmark, Northwestern Mutual 7

8 Basic Forms of Business Sole Proprietorship Partnerships General Partnerships Limited Liability Partnership Corporations S Corporation C Corporation 8

9 Characteristi cs Sole Proprietorship General Partnership C Corporation S Corporation Limited Liability Company Formation No state filing required Agreement between two or more parties State filing required. State filing required. State filing required. Duration of Existence Dissolved if sole proprietor ceases doing business or dies Dissolves upon death or withdrawal of a partner unless safeguards are specified in a partnership agreement Perpetual Perpetual Dependent on the requirements imposed by state of formation Liability Sole proprietor has unlimited liability Partners have unlimited liability Shareholders are typically not personally liable for the debts of the corp. Shareholders are typically not personally liable for the debts of the corp. Members are typically not personally liable for the debts of the LLC Operational Requirements Management Taxation Pass Through Income/Loss Double Taxation Cost of Creation Relatively few legal requirements Sole proprietor has full control of management and operations. Not a taxable entity. Sole proprietor pays Yes No None Relatively few legal requirements Typically each partner has an equal voice, unless otherwise arranged Not a taxable entity. Each partner pays tax on his share of income and can deduct losses against other sources of income. Yes No None Board of directors, officers, annual meetings, and annual reporting required Managed by the directors, who are elected by the shareholders Taxed at the entity level. If dividends are distributed to shareholders, dividends are also taxed at the individual level No Yes if income is distributed to shareholders State filing fee required Board of directors, officers, annual meetings, and annual reporting required Managed by the directors, who are elected by the shareholders No tax at the entity level. Income/loss is passed through to shareholders Yes No State filing fee required Some formal requirements but less formal than corp. Members have an operating agreement that outlines management If properly structured there is no tax at the entity level. Income/loss is passed through to members. Yes No State filing fee required Raising Capital Often difficult unless individual contributes funds Contributions can be made from partners, and more partners. Shares of stock are sold to raise capital Shares of stock are sold to raise capital Possible to sell interests, though subject to operating agreement restrictions 9

10 How Businesses Operate Businesses of any size formally divide their organizations into sub-units to get work done How a firm organizes will impact Decision making How efficiently and effectively the business operates Market responsiveness Corporate culture Operating success Morale of workforce 10

11 Factors Influencing Organizational Structure Factors Indicators Environment Business Strategy Technology Degree of complexity Degree of dynamism Low cost Differentiation Focused Task interdependence 11

12 Centralized Decision Making Product Product Development Development Advertising Advertising Manufacturing Manufacturing Consolidates key functional decision making within the organization Decision making is top down Represents vertically structured decision making (pyramid) Sales Sales South South America America Sales Sales North North America America Sales Sales Western Western Europe Europe 12

13 Decentralized Decision Making Sales Sales North North America America Product Product Development Development Advertising Advertising Manufacturing Manufacturing Decentralized decision making distributes decision making across organizational units Sales Sales South South America America Sales Sales Western Western Europe Europe Product Product Development Development Product Product Development Development Advertising Advertising Advertising Advertising Manufacturing Manufacturing Manufacturing Manufacturing Often required if firm significantly diversifies its product offering Diverse geographic markets can also prompt this model Represents horizontally structured decision making (flat) 13

14 Pros and Cons of Each Model Arguments for Centralized Decision Making Centralized decision making can facilitate coordination Helps ensure decisions are consistent with organizational objectives and across operating units By concentrating power and authority in single mgmt team, easier to bring about needed organizational change Avoids duplication of activities Arguments Against Centralized Decision Making Can create distance from market and customer needs Hampers customization required by regional markets Outside of P/L business unit so less ownership or stake in outcome Need attribution 14

15 Pros and Cons of Each Model Arguments for Horizontal Decision Making Arguments Against Horizontal Decision making Promotes flexibility and greater market responsiveness Increases control over specific markets or products Focuses accountability and ownership Creates greater sense of autonomy within operating unit Can create silos within organizations Harder to maintain product and policy uniformity Can duplicate functions or services 15

16 Horizontal and Vertical Integration Horizontal / vertical organizational structures are not be confused with an organization s decision to vertically or horizontally integrate newly acquired assets. Horizontal integration describe a company s decision to acquire capabilities that complement its current core competencies. Example: 1. Standard Oil acquires 40 refineries 2. The auto industry acquires an SUV manufacturer Vertical integration describes the degree to which a firm owns/acquires its upstream suppliers or its downstream supply chain components. Example: Computer manufacturer purchases silicon chip company 16

17 Roles CEO Senior Management Middle Management Line Workers Articulates strategic vision, establishes mission and vision of corporation Establishes corporate culture Responsible to Board of Directors for results of corporation Participates with CEO in strategic planning to carry out CEO mission and vision Runs a major division of the corporation (Marketing, HR, Finance); directs development of strategic and tactical plans for the division Oversees and ensures implementation of strategic plan for his/her specific division Implements strategic and tactical plans Responsible for managing professional and/or line staff in daily operation of the business Implements control systems and performance metrics to effectively operate business Directly responsible for motivation and enthusiasm of staff Responsible for implementing day to day operations of the firm Most often production-oriented Progressive organizations involve line staff in planning and quality improvement

18 Line Vs. Staff Functions Line Functions: Include product and profit producing functions: Include manufacturing, sales, marketing Line Functions Staff Functions Product and profit producing functions Sales Marketing Product Development Manufacturing Advise and assist line functions and line executives Human Resources Finance and Legal Public Relations Interdependence Effective Public Relations, Cutlip, Center and Broom, 8 th Edition 18

19 What is Organizational Culture? Organizational culture is not easily quantified, but readily recognized or felt within organizations Organizational culture represents a complex pattern of beliefs, expectations, ideas, values and attitudes shared by members of the organization. Represented by: routine behaviors, organizational rituals or ceremonies, the norms shared by teams throughout the organization, spoken or unspoken values, spoken or unspoken rules of the fame for getting along and/or succeeding in the organization. 19

20 2. Business Literacy What drives businesses

21 Internal Business Drivers Firms are influenced by internal business drivers as well as external drivers. Internal Drivers: Workforce, core competencies, corporate culture, systems capabilities/limitations SWOT Analysis is the tool to help firms to objectively assess the impact of internal, external drivers 21

22 External Business Drivers Competitive Forces Economic Forces Promotion Political Forces Distribution Customers Price Socio-Cultural Forces Marketing Mix Product Legal and Regulatory Forces Technological Forces Sales and marketing are the primary methods of revenue generation; customers are the focal point of all marketing 22

23 SWOT Analysis Perceived Strengths 1. Good value for the membership fee 2. Established customer base 3. Neutral to positive image 4. Strong community presence 5. Membership is diverse 6. Recognize the need for growth 7. Lebanon 2000 funding 8. HACC presence Opportunities 1. Potential for additional funding 2. Opportunity to increase revenue 3. Leverage existing members to increase membership 4. Pro bono membership exchange 5. Business expo members only Perceived Weaknesses 1. Lack of focus 2. Lack of clear identity 3. No support staff 4. No strong organizational structure 5. Too many committees 6. Strong competitor Threats 1. Lebanon Chamber of Commerce 2. No perceived need to join CLA 3. Economic downturn 23

24 3. Business Literacy Financial reporting Revenue generation

25 Financial Reporting Literacy To be effective, PR professionals must increase their understanding and comfort with basic financial statements and methods that companies use to measure and report their progress. The more familiar you become with fundamental financial reporting methods, the more valuable you will become to your firm or client. 25

26 Three Key Financial Statements 1. Balance Sheet 2. Income Statement 3. Statement of Cash Flows Useful resources: 26

27 Source: Balance Sheet Wal-Mart All numbers in millions

28 Income Statement Wal-Mart All numbers in thousands Period Ending 31-Jan Jan Jan-05 Total Revenue 348,650, ,654, ,989,000 Cost of Revenue 264,152, ,391, ,793,000 Gross Profit 84,498,000 75,263,000 68,196,000 Operating Expenses Research Development Selling General and Administrative 64,001,000 56,733,000 51,105,000 Non Recurring Others Total Operating Expenses 64,001,000 56,733,000 51,105,000 Operating Income or Loss 20,497,000 18,530,000 17,091,000 Income from Continuing Operations Total Other Income/Expenses Net 280, , ,000 EBIT 20,777,000 18,778,000 17,292,000 Interest Expense 1,809,000 1,420,000 1,187,000 Income before Tax 18,968,000 17,358,000 16,105,000 Income Tax Expense 6,365,000 5,803,000 5,589,000 Minority Interest (425,000) (324,000) (249,000) Net Income from Continuing Ops 12,178,000 11,231,000 10,267,000 Non-recurring Events Discontinued Operations (894,000) - - Net Income $ 11,284, $ 11,231, $ 10,267,000.00

29 Cash Flow Wal-Mart All numbers in thousands Period Ending 31-Jan Jan Jan-05 Net Income $ 11,284, $ 11,231, $ 10,267, Operating Activities, Cash Flows Provided By or Used In Depreciation 5,459,000 4,717,000 4,405,000 Adj. to Net Income 2,022, , ,000 Changes in Accounts Receivables (214,000) (456,000) (304,000) Changes in Liabilities 2,932,000 3,383,000 2,670,000 Changes in Inventory (1,274,000) (1,733,000) (2,635,000) Changes in Other Operating Activities (45,000) - - Total Cash Flow From Operating Activities 20,164,000 17,633,000 15,044,000 Investing Activities, Cash Flows Provided By or Used In Capital Expenditures (15,666,000) (14,563,000) (12,893,000) Investments Other Cashflows from Investing Activities 1,203, , ,000 Total Cash Flow From Investing Activities (14,463,000) (14,183,000) (12,351,000) Financing Activities, Cash Flows Provided By or Used In Dividends Paid (2,802,000) (2,511,000) (2,214,000) Sale Purchase of Stock (1,718,000) (3,580,000) (4,549,000) Net Borrowings (92,000) 4,018,000 4,041,000 Other Cash Flows from Financing Activities (227,000) (349,000) 113,000 Total Cash Flows from Financing Activities (4,839,000) (2,422,000) (2,609,000) Effect of Exchange Rates 97,000 (102,000) 205,000 Change in Cash and Cash Equivalents $ 959,000 $ 926,000 $ 289,000

30 A Perspective on Sarbanes-Oxley Financial Reporting Literacy The Sarbanes-Oxley Act, among other requirements, expands the range and depth of financial statements and other disclosure requirements of many publicly held companies and substantially shortens the period for making certain SEC filings. Know and understand how SOX affects your organization and/or the organizations with which you do business. 30

31 4. Business Literacy Stakeholders

32 Stakeholder Analysis Perhaps the most pressing problems for stakeholder theory is to specify in more detail the rights and responsibilities that each stakeholder group has and to suggest how the conflicting rights and responsibilities among stakeholders can be resolved. Thomas Beauchamp, Norma Bowie, Ethical Theory and Business, Sixth Edition 32

33 Competing Views of Stakeholders Milton Friedman: The purpose of a corporation is to maximize shareholder wealth. Thus, the only stakeholder are the owners of the corporation the shareholders Robert Freeman: Stakeholders are those groups who have a stake or claim to the firm. Suppliers, customers, employees, stockholders, the local community as well as management. Source: The Social Responsibility of Business is to Increase Profits, New York Times Magazine, Sept. 13, Source: The Politics of Stakeholder Theory, Business Ethics Quarterly 4, 1994, pg

34 5. Business Literacy Wrap Up Resourcs

35 Resources APR Study Guide Extract Business Literacy section excerpted with permission by Universal Accreditation Board Practice exam For answer key, me at Emphasis added to ensure I receive your . 35

36 Other Resources Wall Street Journal knowledge.wharton.upenn.edu/ Business journals in your area e.g. Central Penn Business Journal in Central Pa. Identify business leaders in your region; invite them to talk at your chapter meetings 36

37 Special thanks to Amy Schreffler, Pam Mackewicz and Craig Flemmens for their assistance.