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Business Environment
Chapter 1
McGrawHill/Irwin Copyright2010byTheMcGrawHillCompanies,Inc.Allrightsreserved.
Management Accounting
Financial Accounting: The process of recording,
summarizing and reporting the myriad of transactions
from a business, so as to provide an accurate picture of
its financial position and performance.
Management/Cost Accounting: The process of
identifying, measuring, analyzing, interpreting, and
communicating information for the pursuit of an
organization's goals.
1: Globalization
Increased Competition
New Markets
Variety of Goods
2: Strategy
Game Plan that enables a company to attract
customer by Distinguishing itself from competitors:
So who will be the focal point of the companys
strategy?
The reason why its customer choose it over the
competitor is called Value propositions.
So what will be the essence of the strategy?
Three Categories of value Preposition:
Customer Value Propositions
Customer
Understand and respond to
Intimacy
individual customer needs.
Product
Leadership Offer higher quality products.
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3: Organizational Structure
Decentralization: is the delegation of decision-making authority
throughout an organization.
Organizational Chart: It shows how responsibility is divided among
managers and it shows formal lines of reporting and communication
or chain of command. It also depicts line and staff position
Line Position: a person in line position is directly involved in
achieving the basic objectives of the organization e.g. Faculty
members in universities, Sales person, Store mangers, vice
president operations in retail stores.
Staff Position: a person in staff position is indirectly involved in
achieving the companies basic objectives. E.g. Administrative staff
in the university like DOO, Registrar treasure etc and in retail
business CFO, Personnel Department etc
Organizational Chart
C o r p o r a te O r g a n iz a tio n C h a r t
B o a r d o f D ir e c t o r s
P r e s id e n t
P u r c h a s in g P e rso n n e l V ic e P r e s id e n t C h ie f F in a n c ia l
O p e r a t io n s O f f ic e r
T re a su re r C o n t r o lle r
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4: Process Management
A business process is a series of steps that are
followed in order to carry out some task in a
business.
A value chain consists of the major business
functions that add value to a companys products
and services.
4: Process Management
A business
process is a series of
steps that are followed in order to
carry out some task in
a business.
Product Customer
R&D Design Manufacturing Marketing Distribution Service
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Traditional Push Manufacturing Company
2: Theory of Constraints
3: Six Sigma
4.1 Lean Thinking Model
The lean thinking model is a five step management approach that
organizes resources, such as people and machines, around the flow of
business processes and that pulls units through these processes in
response to customer orders.
The first step is to identify the value to customers in specific
products and services.
The second step is to identify the business process that delivers this
value to customers.
The third step is to organize work arrangements around the flow of
the business process. This is often accomplished by creating what is
known as a manufacturing cell.
The fourth step is to create a pull system where production is not
initiated until a customer has ordered a product. This facet of the lean
thinking model is often called just-in-time production, or JIT for short.
The fifth step is to continuously pursue perfection in the business
process.
4.1 Lean Production
Identify value Identify the
in specific business process
products/services. that delivers value.
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4.2 Theory of Constraints
Only actions 2. Allow the
that strengthen weakest link to
the weakest link set the tempo.
in the chain
improve the
process.
3. Focus on
1. Identify the improving
weakest link. the weakest
link.
4. Recognize that
the weakest link
is no longer so.
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Example
4.3 Six Sigma
A
A process
process improvement
improvement method
method relying
relying on
on customer
customer
feedback
feedback and
and fact-based
fact-based data
data gathering
gathering and
and analysis
analysis
techniques
techniques to
to drive
drive process
process improvement.
improvement.
Refers
Refers to
to aa process
process that
that Sometimes
Sometimes
generates
generates no no more
more associated
associated
than
than 3.4
3.4 defects
defects per
per million
million with
with the
the term
term zero
zero
opportunities.
opportunities. defects.
defects.
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4.3 Six Sigma
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5: Importance of Ethics in Business
Without fundamental trust in the integrity of
Businesses, the economy would operate much less
efficiently.
Example: Dishonesty of fruit shops in Pakistan.
Maintain
Maintain Follow
Follow applicable
applicable
professional
professional Competence laws,
laws, regulations
regulations
competence.
competence. and
and standards.
standards.
Provide
Provide accurate,
accurate, clear,
clear,
concise,
concise, and
and timely
timely decision
decision
support
support information.
information.
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IMA Guidelines for Ethical Behavior
Do
Do not
not disclose
disclose confidential
confidential
information
information unless
unless legally
legally
obligated
obligated to
to do
do so.
so.
Do
Do not
not use
use
confidential
confidential
information
information forfor Confidentiality
Confidentiality
unethical
unethical or
or illegal
illegal
advantage.
advantage.
Ensure
Ensure that
that subordinates
subordinates do
do
not
not disclose
disclose confidential
confidential
information.
information.
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IMA Guidelines for Ethical Behavior
Mitigate
Mitigate conflicts
conflicts of
of
interest
interest and
and advise
advise others
others
of
of potential
potential conflicts.
conflicts.
Avoid
Avoid such
such
conduct
conduct that
that
would
would allow
allow Integrity
carrying
carrying out
out
duties
duties
unethically.
unethically.
give
give up
up those
those activities
activities that
that
might
might discredit
discredit (disgrace)
(disgrace)
the
the profession.
profession.
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IMA Guidelines for Ethical Behavior
Communicate
Communicate information
information
fairly
fairly and
and objectively.
objectively.
Disclose
Disclose delays
delays or
or
deficiencies
deficiencies inin information
information
Credibility
Credibility timeliness,
timeliness, processing,
processing, or or
internal
internal controls.
controls.
Disclose
Disclose all
all relevant
relevant
information
information that
that could
could
influence
influence aa users
users
understanding
understanding of of reports
reports
and
and recommendations.
recommendations.
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6: Corporate Governance
Corporate governance is the system by which a
company is directed and controlled.
Top To pursue
Management objectives of
Stockholders
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The Sarbanes Oxley Act of 2002
The Purpose is to protect the investors. The six key
legislations are:
I: Act requires CEO and CFO to certify in writing that the
companies financial statements and Accompanying
disclosure represents fair results of operations. (also a
threat of possible jail time if not).
II: The act establishes the Public Company Accounting
Oversight Board to provide additional oversight over
the Audit Profession. The act authorizes the board to
conduct investigations, to take disciplinary actions against
Audit Firms, and to enact various standards and rules
concerning preparation of audit reports.
The Sarbanes Oxley Act of 2002
III: Act places the power to Hire, Compensate, and Terminate the
Audit Firm in hands of Internal Audit Committee of the
Independent Board Of Directors.
IV: The Act Prohibit the Auditing firm from providing Non Auditing
services to an Audit Client.
V: Act requires that the company annual report must contain Internal
control report. Internal control are put in place by the
management to provide assurance to investors that financial
disclosures are reliable. It must be accompanied by an opinion of
audit firm whether the firms has maintained effective internal
control over its financial system.
VI: Act establishes severe penalties. e.g up to 20 years in prison for
altering or destroying documents. 10 years in prison for retaliating
whistle blower.
7: Enterprise Risk Management
Once
Once aa company
company identifies
identifies its
its risks,
risks, perhaps
perhaps the
the
most
most common
common riskrisk management
management tactictactic is
is to
to reduce
reduce
risks
risks by
by implementing
implementing specific
specific controls.
controls.
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8: Corporate Social Responsibility
Corporate social responsibility (CSR) is a concept
whereby organizations consider the needs
of all stakeholders when making decisions.
Environmental
Customers Employees Suppliers Communities Stockholders & Human Rights
Advocates
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End of Chapter 1
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