Book 1.1 Introduction to Business

Transcription

1 Book 1.1 Introduction to Business What is a business? Business is hard to define for the very reason that there is so much of it around us, in all sorts of different shapes and sizes, but businesses have three factors in common: people, objectives and structure. Some common characteristics of businesses: They consist of a number of people. They will have some income and costs. They will need different types of resources to produce different types of goods and services. They are likely to need to co-ordinate a number of different activities undertaken by individuals. Types of businesses: 1- The private sector: Private individuals and firms that are owned by private individuals (not controlled by the government). It include Sole Traders, Private Limited Companies (Ltd), Partnerships and Public Limited Companies (PLC). 2- The public sector: Made up of central government, local government, and businesses that are owned by government (controlled and operated by the government). Public sector Local authorities, schools, governmental departments, armed forces Private sector Sole traders, partnerships, producer and consumer co-operatives Not for profit Voluntary organisations, clubs and societies, pressure groups, religious organisations For profit Railways, airlines, nationalised industries Author; Dr. Helal Afify ~~ Editor; Omar Abu Jbara Page 1

2 Similarities and differences between businesses (Morgan s metaphors, 1986): One of the famous academic theories, by Garith Morgan, uses metaphors to illuminate and extend our thinking regarding the question, what is a business. The metaphor has guided the attention towards issues of the organisation's survival, relations to the environment, and organisational effectiveness. Why do we use Metaphors? Metaphor implies a way of thinking and a way of seeing that pervade how we understand our world generally; To help understand one element of experience in terms of another. The images of organization offered by the following eight metaphors: 1. Machine: Businesses are often designed and operated as if they are machines, with highly visible structures and procedures. They offer continuity and security, but tend to fit people into jobs rather than allow much creativity. 2. Organism: Seeing the business as behaving in similar ways to our own biological mechanisms. The businesses structures and its procedures are less fixed. 3. Brain: Realizing it has to be able to respond to change and also capable of rational thinking and intelligent change. 4. Culture: Business culture made of values, believes, norms, essentials and principles. 5. Political system: The social relations between individuals and groups in a business that involve authority and power. 6. Psychic prison: Some businesses may be constrained by themselves. Survival is a high priority in organizations. 7. Flux and transformation: The constant change shaping our lives. Promotes a deeper understanding for everything around us. 8. Vehicle for domination: Businesses can be dominant. Domination is the result of an asymmetrical distribution of power. Author; Dr. Helal Afify ~~ Editor; Omar Abu Jbara Page 2

3 Book 1.2 The external environment A business exists within an external environment consisting of the actions of other players who are outside the business. A Key Success Factor (KSF) for any type of business is an accurate understanding of the external environment can be defined and analyzed using the STEEP model (STEEP is an acronym for Sociological, Technological, Economic, Environmental and Political factors). A STEEP analysis (sometimes called a STEP or PEST analysis) looks at the external business environment. STEEP stands of five factors: 1- Sociological factor: It include demographic changes in the age and structures of populations, patterns of work, gender roles, patterns of consumptions and ways in which culture of population or country changes and develops. Examples: Cultural background of citizens, Ideological characteristics, Income gaps among social segments, Percentage of population in economic and social segments, and Birth and death rates. 2- Technological factor: It includes information technology (IT) for business management and ICT) which influence on: Lowering the barriers of time and place. Creates new industries. Depends of many individual jobs and internal service functions on ICT systems. Examples: Patents held, Research and Development (R&D) budgets, New developments in technology transfer, Productivity improvements through automation, and Pace of technological change. 3- Economic factor: It includes economic growth, interest rates, inflation, energy prices, exchange rates and levels of employment. Examples: Income distribution levels and bands, Small business lending levels, Unemployment levels, and Balance of payments. 4- Environmental factor: It includes the impact of businesses activities on the natural so that businesses need to consider a number of environmental factors. Examples: Global climate change, Air and water quality, Pollution levels, Recycling capacity, Substitutability of raw materials, and Level of environmental regulation. 5- Political factor: It includes legislations, trading relationships government, the level and nature of public services financial policy, levels of taxation and potential elections. If a country is politically unstable, it is likely to be or to become economically unstable. Examples: Policies of political parties, Activism of regulatory agencies, Presence of property protection laws, Ability to influence political decision making, Voting rates and trends, and Nature of power and decision-making structures. Author; Dr. Helal Afify ~~ Editor; Omar Abu Jbara Page 3

4 Stakeholders: Stakeholders are groups of people who have an interest in a business. They can be seen as being either external (e.g. creditors, customers, suppliers, government, community), or internal (e.g. shareholders owners, managers, staff or employees). A stakeholders for - profit business: Expectations Stakeholders Primary Secondary Owners Financial return Capital growth Employees Pay Work satisfaction, training, social integration Customers Supply of goods/services Quality Creditors Credit worthiness Security Suppliers Payment Long-term relationships Community Safety and security Contribution to the community Government Compliance Improved competitiveness Why the concept of stakeholder is important? The concept of stakeholder is important for two rezones: 1- It emphasizes those stakeholders groups have different interests, and hence lead to the conflict of interests. 2- It illustrates the relationships between businesses and their external environments (as explained through the STEEP model). SWOT Analysis: Another important tool is the SWOT analysis as this helps managers to look at both the external circumstances, the possible Opportunities (O) and Threats (T) that the firm faces and the internal factors, Strengths (S) that the firm can build upon and Weaknesses (W), which the firm need to understand. Strengths: What do we do well? - A resource or team that can be used effectively to achieve objectives now or in the future. They are within the organization s control. Weaknesses: What is wrong now? - Lacking of resource or attribute that an organisation needs to perform better than its competitors in the external environment. They are within the organization s control. Opportunities: What possibilities exist? - Chances in the external environment or marketplace that an organization may pursue to obtain benefits. It s the reason for an organisation to exist and develop. Threats: What can go wrong? - Threats have the potential to damage an organization s performance in the marketplace. Threats often arise from competitors or factors that are outside the control of the organization. Author; Dr. Helal Afify ~~ Editor; Omar Abu Jbara Page 4

5 Book 1.3 Business structures Why are we studying business structures? 1- A structure gives a business an identity and provides continuity. 2- A structure provides a framework for the allocation of roles and responsibilities. - There is no best model for structure. Different types of structure: - A business might be structured in various ways: 1- By function: functional structures might work best when departments need regular communication with each other. However, a disadvantage may be that functions and the people who work in them may become rather insular. 2- By product or service: can help to achieve better responsiveness to customer needs, although it might mean professional or functional expertise becomes fragmented. 3- By geography: this type has advantages for large international business because there are likely to be differences between the markets it serves. There are also likely to be language and cultural differences. However, structuring by location may be problematic in terms of communication and information flows, and support functions such as finance and ICT may have to be duplicated. Formal and informal structures: 1- The formal structure: Organizations have a formal structure which is the way that the organisation is organized by those with responsibility for managing the organisation. They create the formal structures that enable the organisation to meet its stated objectives. Often these formal structures will be set out on paper in the form of organisational charts. 2- The informal structure: Is more about the relationships between individuals. This can be complicated because it involves the human elements such as respect, motivation and commitment. This informal structure may be different from that which is set out on paper. Informal structures develop because people find new ways of doing things which they find easier and save them time and it is easier to work with informal structures. Author; Dr. Helal Afify ~~ Editor; Omar Abu Jbara Page 5

6 Dimensions of structures: The main dimensions of business structure that may be helpful in identifying the type of structure within a business, and the reasons for it (Pugh and Hickson, 1968), as shown in the following table: Dimensions of structures Specialization Features The extent to which specialized tasks and roles are allocated to individuals who work in the business. Standardisation The extent to which a business has standard procedures Formalization The extent to which rules, procedures, instructions and so on are written down, or formalized. Centralization The extent to which decision making and authority are located at the top of the hierarchical structure and/or at the centre of the business if there is more than one site. Configuration The shape of the role structure, whether the chain of command is short or long. The Advantages from Structures: - Enabling participation - Providing a framework - Establishing an identity - Continuity and change The Disadvantages from Structures: - They can be difficult to change. - There is no 'one size fits all' model. Author; Dr. Helal Afify ~~ Editor; Omar Abu Jbara Page 6

7 Book 1.4 Business cultures What is culture? Culture is implicit in people's minds, it refers to the ideas, meanings and values people hold in common its pattern of beliefs and expectations shared by the organizational members. Cultural attitudes as five dimensions: 1- Power Distance: the extent to which power is distributed equally within a society and the degree that society accepts this distribution. A high power distance culture prefers hierarchical bureaucracies, strong leaders, a tendency for the centralization of power to make decisions, inequalities within society, and a high regard for authority. A low power distance culture tends to favor personal responsibility and autonomy. 2- Individualism versus Collectivism: the degree to which individuals base their actions on self-interest versus the interests of the group. In an individual culture, free will is highly valued. In a collective culture, personal needs are less important than the group's needs. This dimension influences the role government is expected to play in markets. 3- Masculinity versus Femininity: - This refers to the degree to which gender roles are distinct and adhered to within a society. - A measure of a society's goal orientation. A masculine culture emphasises status derived from wages and position; a feminine culture emphasises human relations and quality of life. 4- Uncertainty Avoidance: - This concerns the extent to which the members of a society feel threatened by uncertain and unknown situations. - A high uncertainty culture allows individuals to cope better with risk and innovation; a low uncertainty culture emphasises a higher level of standardisation and greater job security (in other words, high uncertainty avoidance scores mean that there is a fear of ambiguous situations, a preference for being busy and being precise and punctual). 5- Confucian versus Dynamism: the degree to which a society does or does not value long-term commitments and respect for tradition. Long-term traditions and commitments hamper institutional change. Factors influencing culture: 1- The influence of a dominant leader. 2- The history and tradition of the business. 3- The types of technology used by the business. 4- The type of industry or sector and the nature of competition. 5- The type of information and control systems used. 6- The customers of the business & The Company expectations. 7- How the business is organized and resourced. Author; Dr. Helal Afify ~~ Editor; Omar Abu Jbara Page 7

8 Book 1.5 Business ethics Ethics are system of values and principles that guide our behavior, when we have ethics it will show us how to deal with the right and wrong actions that arise in any work environment. Ethics importance: 1. Ethical behavior has an actual value. 2. Business need to conform to the expectations of key stakeholders. 3. Business depends on society, so it must respond to the needs of society. 4. Business can only operate effectively if certain norms are respected. 5. Business exercises considerable power over the lives of people Ethics related to business: Ethical issues pervade all types of business in many different ways (three levels): 1- Relationship at a macro level: In this level business ethics considers the overall framework within which business operates (as discussed before in STEEP model). 2- Relationship at the social and environmental level: In this level Ethical considerations at this level relate to the impact of business activities on people, and the natural environment. 3- Relationship at the personal of business people: In this level business ethics considers the personal conduct of individuals in business. We ask how we should behave towards other people Responsibilities of business: 1- Building shareholder value: 1- Business managers have to maximize profits in order to maximize the wealth of owners. 2- Building long-term shareholder value: Business need support the relationships with stakeholders to be profitable in the long term. 3- Respecting the rights of a range of stakeholders (multi-stakeholder approach): Businesses have a responsibility to a wide range of stakeholders (such as employees; customers; suppliers; local communities; and shareholders). 4- Shaping the society: 1- Maximizing profits is socially inefficient when costs are not paid. For example, pollution, no taxes, poorly educated workforce. 2- A business should consider the positive and negative impact that it may have on society and should respond accordingly. Author; Dr. Helal Afify ~~ Editor; Omar Abu Jbara Page 8

9 Book 1.6 An introduction to business functions Human resource management (HRM): Is responsible for all the activities concerned with the employment of the people within a business. (Staffing, Job design Recruitment, selection, Motivation, Training and development, dismissal & Discipline) Marketing: Is the term given to the activities that occur at the interface between the business and its customers, It is not just selling and advertising; It s the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return, The four Ps of marketing ; Product,Place,Promotion & Price. Accounting and finance: This function is responsible for communicating appropriate financial information to internal and external stakeholders, Managerial accounting: Concerned with providing information to managers - that is, to those who are inside an organization and who direct and control its operations. (Planning and budgeting. Management, operational control) Financial accounting: Concerned with providing information to shareholders - that is, to those who are outside an organization. (External reporting & Encouraging competition). Operations: The activities that produce the goods and/or deliver the services required by its customers. Operation management objective is making sure that the processes work effectively and efficiently. This function is often seen as a transformation process, changing inputs into outputs. (Design; planning; Scheduling; Processing) Information management (IM): The range of processes by which information is handled by individuals and organisations. The combined result of these processes is to make the work of the organisation more effective. (Iinternal & external communication and information systems & increasing use of ICT by customers). Author; Dr. Helal Afify ~~ Editor; Omar Abu Jbara Page 9

10 Book 1.7 Small business and entrepreneurship The benefits of small business: 1- Plays a major role in creating employment. 2- Offering specialized services to customers. 3- Flexible in their responds to customer demands. 4- Assist in regional and local growth and rejuvenation. 5- Able to innovate in ways that larger ones would find difficult. Motives for starting up a small business: Push factor. Pull factor. Management buy-out. Purchase of a franchise. Perceived opportunity and availability of assistance. Individual s prior experience. Minority ethnic group. Low level of formal education. Exposure to role models. The risks involved: 1- The risk of personal loss is a barrier; 2- Income may be low in early stages of the business; 3- Lack of knowledge about the opportunities and support for entering the new business; 4- Lack of role models within the society or family. Entrepreneurship: People who create new products, processes, services and markets. Entrepreneurs often develop new ways of working and doing business. Characteristics of an entrepreneur (McClelland, 1961): 1- Drive to excel; 2- Tendency to be a risk taker; 3- Ability to cope with and tolerate ambiguous situations; 4- Need for personal autonomy; 5- Ability to open to and spot opportunities as they arise; 6- High belief in themselves. Author; Dr. Helal Afify ~~ Editor; Omar Abu Jbara Page 10