CH.

Free enterprise: the system of business in which individuals are free to

decide what to produce, how to produce it and at what price to sell it.

Why study business?

1-to become a better-informed consumer and investor.
2-for help in choosing a career.
3-to be a successful employee.
4-to start your own business.

Business: is the organized effort of individuals to sell and produce, for a

profit, the goods 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

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.

Consumers: individuals who purchase goods or services to their own

personal use.

* The ultimate objective of every firm is to satisfy the needs of its

customers.

Profit: what remains after all business expenses have been deducted
from sales revenue.

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or it is the payment that business owners receive from assuming the
considerable risks of ownership.

Risks of ownership:
1- Not being paid
2- Losing whatever the owners have put in the business

Economics: is the study of how wealth is created and distributed.

Factors of production: the resources used to produce goods and

services, and they are:
1-Naturla resources: crude oil, forests, minerals, land, and water.
2-Labor: human resources such as managers and workers.
3-Capital: money, facilities, equipment, and machines.
4-Enreprenuership: 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-Capitlaism 2-Socialism 3-Communisim

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.

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 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.

Command economy: an economy system in which the government

decides what to produce, how to produce it, who gets it, ad at what price
to sell it.
Command economy

Socialism Communism

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.
 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.

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.

Competition: rivalry among businesses for sales to potential customers.

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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 (equilibrium) 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.
• 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.

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 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
Pure Many sellers Single product No single buyer
competition or seller in
powerful
enough to affect
the price
Monopolistic Relatively large The products are Each producer
competition number of very similar in has some
sellers nature and limited control
trying to satisfy over the price
the same needs
Oligopoly Few sellers Product Each seller has
differentiation is considerable
the major control over the
competitive price
weapon
Monopoly One seller The seller has
complete
control over the
price

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 CH.4 Forms of Business Ownership
1-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
 Flexibility
A sole proprietor is completely free to make
decisions about the firm’s operations. Foe 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 not required by federal or state
government to publicly facts about the business.

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

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 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.

2-Partnerships:
A voluntary association of two or more persons act as co-owners of a
business for profit.

Types of partners:
(1) General Partners: a general partner is a person who assumes full or
shared responsibility for operating a business.

General partnership: a business co-owed by two or more general

partners who are liable for everything the business does.

(2) Limited partners: a limited partner 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-owed 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 contribution each partner will make.
 How much profit or loss each partner receives.
 What happen if a partner wants to dissolve the
partnership or dies.

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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.
 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.

* The main advantages of a partnership over the sole

proprietorship are the added capital and management
expertise of partners.

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3-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 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.

Domestic corporation: a corporation is the state in which it is

incorporated.

Foreign corporation: a corporation in any state in which it does

business except the one in which it is incorporated.

Alien corporation: a corporation chartered by a foreign government

and conducting business in t he united states.

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 pf 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.

* The incorporators and original stockholders meet to elect their first

board of directors.

Board of directors:
 It is the top governing body of a corporation, the members
who 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 and treasurer, or many other top
executive appointed by the board of directors.

Stockholders (owners) elect board of directors appoints officers hire employees

Advantages of corporations:
• Limited liability
A feature of corporation ownership that limits each owner’s
financial liability to the amount of money 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

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• 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:
• 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 o 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.

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 CH. 5 Small Business

Small business: one that is independently owned and operated for

profit and is not dominant in its field.

Industries that attract small businesses:

 Distribution industries
- These industries 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
- 75% of small service firms provide nonfinancial
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
- These industries require relatively large initial investment.
- These industries include: construction, mining, and
manufacturing industries.

Why people go into business for themselves? (What are the

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

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Why small businesses fail?
• Lack of management skills and experience
• Lack of money and capital
• Poor planning

The importance of small businesses in our economy:

 Providing technical innovation
 Providing employment
 Providing competition
 Filling needs of society and other businesses

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 recordkeeping
• 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.

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 • 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.

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
businessperson should keep it: easy to read,
uncluttered, and complete.
 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 businessperson’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.

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 - 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.

CH. 6 The Management Process

Management: the process of coordinating people and other resources to

achieve the goals of the organization.

Most organizations make use of four kinds of resources:

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.

The management process (management functions):

1. Planning
2. Organizing
3. Leading and motivating
4. Controlling

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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.

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

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 - 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.

2- Organizing the enterprise

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 is 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

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The steps in control function must be repeated periodically until the
goal is achieved.

Levels of Management
 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
- 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.

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 - 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.

The management skills:

 Technical skills

- A technical skill is a specific skill needed to

accomplish a specialized activity.

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 - First-line managers (and to a lesser extent,
middle managers) need the technical skills.
- Top managers do not rely on technical skills
as heavily as do managers at other levels.
 Conceptual skills
- Conceptual skill is the ability to think in
abstract terms.
- Conceptual skills are useful in a wide range
of situations, including the optimization of
goals.
- Conceptual skills are more crucial for top
managers than for middle or first-line
managers.
 Interpersonal skills
- An interpersonal skill is the ability to deal
effectively with other people.
- Ex. Of interpersonal skills is the ability to
relate to people, understand their needs and
motives, and show genuine compassion.
- Top managers, middle managers, and first-
line managers must possess interpersonal
skills.

________________________________________

CH. 8 Producing Quality Goods & Services

Operations management: all activities managers engage in to produce

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.

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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.

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
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 goods is different form 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.

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Three major activities involved in operations management:
1) Product development
2) Planning for production
3) Operations control

Where do new products 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

1.Design planning
- It is 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
- A product line is a group of similar products
that differ only in relatively minor
characteristics.

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 - 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 is 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.
- A labor-intensive technology is a process in
which people must do most of the work.
- A capital-intensive capacity is a process in
which machines and equipment do most of
the work.

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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.
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
Plant layout is 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.

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 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.

The steps of operational planning include:

 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.

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 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 Human Resources
Management

Human resources management (HRM): it is all the activities involved

in acquiring, maintaining, and developing organization’s human
resources.

i. 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

ii. 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.

iii. 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.

Human resources management 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.

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 • 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

It is 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 2) skills inventory

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.

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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:

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 t he firm. Attrition may be a very slowly process.
c) Early retirement
People who are within t he 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
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

A job description is 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

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A job specification is 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
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.
- 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

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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.

• 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.

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• 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.12 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 ability if a good or service to satisfy the human need.

There are four kinds of utility:

1. Form utility
It is the utility created by converting production inputs into
finished products.
2. Place utility
It is the utility created by making a product available at a location
where customers wish to purchase it.
3. Time utility
It is the utility created by making a product available when
customer wish to purchase it.
4. Possession utility
It is 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.

Marketing concept: A business philosophy that involves the entire

organization in the process of satisfying customers’ needs while
achieving the organizations’ goals.

Evolution of the marketing concept:

1- production orientation (from the industrial revolution – 1920)
- business effort was directed mainly toward
the production of goods.

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 - 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.
- 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.

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.

Market:
A group of individuals or organizations, or both, that need products and
have the ability, willingness, and authority to purchase such products.

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Markets are 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.
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.

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.

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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.

 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.

 Market segmentation approach

Marker segment: a group of individuals or organizations
within a market that share one or common characteristic.

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 direct a single marketing mix at a
single marker segment.
• Differentiated market segmentation
The organization focus multiple marketing mixes on
multiple market segments.

 A business firm controls four important elements of

marketing. These are the product itself, the price of

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 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.

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.
 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 plan.
 Legal and regulatory forces

Laws that protect consumers and competition, and government

regulations that affect the market.
 Technological forces

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 Marketing plan:
A written document that specifies an organization’s resources,
objectives, strategy, and implementation and control efforts to be
used in marketing a specific product.

The marketing plan:

1- describes the firm’s current position and
situation
2- establishes marketing goals and objectives
3- specifies how the organization will attempt to
achieves these objectives.

the marketing plan can be:

1- Short-range: for one year or less
2- medium-range : covers two to five years
3- long-range: covers periods of more than five years

Ch. 16 Business Research, Management Information & Computers

 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.

 Businesspeople 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.

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* 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.

Kinds of Business research:

1- secondary research
The original research done by someone else.
2- primary research
a- qualitative research
b- quantitative research
 Qualitative Research
A process that involves the descriptive or subjective reporting of
information discovered by a researcher.

Qualitative research is conducted on one of three ways:

(1) Observation
the act of nothing or recording something, such as the
facial expressions of shoppers in a retail store.
(2) Interviews
a conversation conducted by a researcher with an
individual to elicit responses and information.
(3) Focus group
a conversation conducted by a researcher with a small
group of people to elicit responses and information.

 Quantitative Research
A process that involves collection of numerical data for analysis
through a survey, experiment, or content analysis.

(1) survey
A research method that relies on asking the same question to a
large number of people to elicit responses and information.
(2) experiment

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 A research method that involves the use of two or more
groups of people to determine how people in each group react
to different research variables.
(3) content analysis
A research method that involves measuring particular items in
a written 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 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.

In many forms the MIS is combined with a marketing information

system.

Managers’ Information Requirements

The specific type of information managers need depend on t heir are
of management and level within the firm.

 Financial managers are most concerned their firm’s finances.

They study its debts and receivables, cash flow, future capital-
ization 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,

40
 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.

Ch. 19 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 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.

Q: What causes cash-flow problems?

Extension of credit – Unanticipated emergencies

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 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.
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.

_________________________

Financial plan:
A plan for obtaining and using the money needed to
implement an organization’s goals.

The steps of financial planning:

i. Establishing organizational goal and
objectives
ii. Budgeting for financial needs
iii. Identify sources of funds

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Financial planners must make sure that financing needs are
realistic and that sufficient is available to meet those needs.

• Establishing Organizational Goals and

Objectives
- Goals and objectives must be specific and
measurable so they can be translated into
dollar costs and financial planning can
proceed.
- Goals and objectives must be realistic.
Otherwise, they my be impossible to finance
to achieve.
• Budgeting for Financial Needs
Budget: a financial statement that projects income
and/or expenditures over a specified future period.

- From the budgets, the financial manager

determines what funding will be needed and
where it may be obtained.
- The budgeting process begins with the
construction of budgets for sales and various
types of expenses for individual departments.
- 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.
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.

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 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.

• 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

It is the 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

It is 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.

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 This is accomplished through a system of monitoring
and evaluating the firm’ needs.

Good luck
Wiaam

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