Appunti di Management

Management

The Firm

“A firm is a relevant legal entity, responding to motivating interests, consisting of various resources that are

organized and guided, which carries out a finalized activity.” (c.f. Vallini, 1990, p. 44)

Why do firm exists?

A firm exists for 2 reasons:

I. Needs satisfaction: “ a necessity, a feeling of discomfort resulting from the total or partial absence of

something that gives us well-being”

II. Specialization and division of labour: efficacy and effectiveness.

What does a firm do?

The technical-economic functions of a firm are:

 Production: good or service or both

 Adaptation: space and time ( Netflix, amazon…)

 Financial (providing money)

Where does a firm operate?

Firms exchange goods/provide services and operate in markets. There are three ways according to which

firms operates in the market:

I. B2B: Business to business 

II. B2C: business to consumer firms that sell to consumers



III. C2C; Consumers to consumers Vinted is an example since it connects consumers.

The supply chain (≠ value chain).

In rough terms we can define the supply chain as the bundle of production phases that brings from the raw

material to the customer. It is the whole-life of a specific product.

   

Raw materials intermediate productsfinal product point of sale customer final user.

*They are not always the same. Ex: I bought the milk for my son so I am the customer and my son is the

final user.

The textile supply chain. Clusters and districts

Clusters

Clusters are geographic concentration of interconnected companies and institutions in a particular field.

Clusters encompass an array of linked industries and other entities important to competition. They include,

for example, suppliers of specialized inputs such as components, machinery, and services, and providers of

specialized infrastructure. Clusters also often extend downstream to channels and customers and laterally to

manufacturers of complementary products and to companies in industries related by skills, technologies, or

common inputs. Finally, many clusters include governmental and other institutions — such as universities,

standards -setting agencies, think tanks, vocational training providers, and trade associations —that provide

specialized training, education, information, research, and technical support.” (Porter, 1990)

Is a special dimension

Examples of clusters.



-Michael Porter the Californian wine cluster.

At the core there are Growers and vineyards

-Clusters can be also across country (ex. Medicon valley, that embraces Denmark and Sweden)

-National clusters made of several actors: alisei (Italy)

Districts

In Italy beyond clusters we find districts.

The term districts come from Alfred Marshall.

According to Marshall (1870) for certain types of production, there were two efficient manufacturing

systems:

1. The established method based on large vertically integrated units

2. Production based on the concentration of many small factories specializing in different phases of

production process and located in the same geographic area.

-Growing industries were agglomerations of small firms strongly connected to international markets.

-Importance of physical continguity of firms.

Examples of districts: Sassuolo (ceramic tiles), Prato (textile)

In Italy we have more small and medium firms.

Difference between clusters and districts

They have some points in contact: a) same geographical area, b) companies that operate in a specific

geographical area.

 Size of the firms. Districts cover very small geographical area. In Italy industrial districts are related

to a city or small areas, in fact we have mainly small and medium firms, and this has some

implications from the managerial pint of view:

-Firms tend to choose suppliers that are near them for the fact of the specialization of labour

in that area. They choose also the sellers of that specific product.

-Consider competitors but from another point of view. Create a relationship with the

colleagues, communicate and absorb their knowledge.

In Italy we assist to a phenomenon called “nanismo imprenditoriale”

In small companies there is no company structure since everyone is engaged to do everything while

in large firms everyone has his own activity.

In clusters we tend to identify bigger firms than in districts.

 Manufacturing firms. Clusters focus on high-tech industries while districts focus on manufacturing

 Social components. In terms of closer relationship in order to transmit information and acknowledge

and in the sense that you can trust orders. (consider the fact of competitors said before). The social

components in clusters are more diluted.

Why is geographical agglomeration important?

 Productivity

 Better access to employees and suppliers

 Specialized information

 Complementarities Types of firms

There are several types of firms and they can be classified in different manners. Usually they are classified

according their:

 Legal form

 Sectors of economic activities

 Size & performance

 Performance & time

(There are more ways but we focus on these)

We need classification to help define problems, and provide and understand why certain strategies appear in

a bunch of companies rather in others.

1.Legal form

The legal and organizational form used could be influenced by: the context, people, legal and tax

consequences, cultural and social norms

We have 3 basic forms:

I. Sole proprietorships.

II. Partnerships:

III. Corporations

Two special forms:

I. Franchise

II. Cooperative

Sole proprietorship:

Owned by a single individual. The owner decides everything.

o Simplest type of business to start

o The owner keeps profit, but she has unlimited liability for business debts

o Life and equity.

o

Partnership:

2 or more owners are involved

o There are different types of partnerships:

o  General partnership: all the partners share gains and losses and all have unlimited liability

for all partnerships debts.

 Limited partnerships: (general partners, i.e. run the business and have unlimited liability +

limited partners, i.e. not participate in the business and have limited liability linked to his/her

contribution to the partnership).

Lot of differences in the definitions of partnerships across Europe.

o

Corporations:

A business created as distinct legal entity composed of 1 or more entities of individuals. It has its own

o life

Legal person distinct from the owner. Separation between ownership and management.

o More complex procedures: article of incorporation, memorandum of association.

o Shares. There is someone who owns the majority of shares that has the final decision.

o

Franchise:

A franchise agreement is an arrangement whereby someone with a good idea for a business (the

o franchisor) sells the rights to use the business name and sell a product or service (the franchise) to

others (the franchisees) in a given territory.

It can be formed as a sole proprietorship, a partnership or a corporation.

o Benefits:

o 1. Management and marketing assistance

2. Financial advice and assistance

3. Still, personal ownership.

Constraints:

1.More rules to follow

2.Large startup costs

3.Shred profit (royalties)

Ex. Calzedonia, Intimissimi…

o

Cooperatives:

A cooperative (co-op) is owned and controlled by the people who use it as producers, workers,

o consumers with similar needs who pool their resources for mutual gain.

They are diffused in the agriculture.

o

2.Sectors of economic activities

Table with a specific letter or a number that refers to a specific category. The classification is helpful to

identify the average profitability for companies in each category and analyse the strategies used in each of

them to order which are the best and which the worst.

Ateco code identify the company that worked in the same category.

Firms belong to sectors in order to identify them in a better why according to their role/activity.

1. Primary sector, 2. Secondary sector (Industrial), 3. Tertiary Sector (Service).

Usually ISTAT used to make some analyses based on the sectors.

3.Size & performance.

Companies are divided in:

Large

o Medium-size

o Small

o Micro

o

4.Performance &Time

Unicorns are start-up business with a stock market value (or estimated value) of at least 1 dollar billion.

Gazelles are high growth companies, particularly those that have increased their revenues by 20% or more

annually over a period of four or more years.

Both presents very high stock value. Birth of a business



What a firm is? “ A firm is a legal entity, responding to motivating interest, consisting of various

resources that are organized and guided, which carries out a finalized activity ”.(Vallini, 1990)

Assumptions and conditions underlying the birth of firm.

We have 3 assumptions:

1. Interests +

2. Resources +

3. Demand +

Interest and resources must be joined with the presence of a demand, so there must be someone that looking

for buying the product. These 3 assumptions are necessary but are NOT SUFFICIENT per se, there must be

the 2 conditions:

4. Genetic asset (entrepreneurial idea + risk capital)

5. Capabilities

1. Interest

a) profit-oriented interest: a first type of interest that belong to the profit-oriented interest is of an

economic financial type. Ex: individual entrepreneur, business that creates another business (non-related

fields)

b) profit-oriented interest: technical economic (looking for indirect profits to be made through

goods/services at lower costs or more quality). Firms that are not satisfied by their suppliers, create other

new suppliers that satisfy their needs, with a lower price or a higher quality with respect to what we

found on the market. Ex: cooperatives (lower costs, better quality), new business that are instrumental to

the business’ activities.

c) non-profit-oriented (or economic-social) interests: in several occasions firms tend to create

foundations that are focused on cultural promotions, training for youth or other social problems/issues.

These are companies that have no dividends at the end of the year, BUT reinvest money not for profit

reasons. Ex: “secondary work” in agriculture, and strategies finalized to improve reputation and

corporate image. Attention: charity is different from non-profit businesses.

B-corporation is a certified firm while “società benefit” are new legal forms for which a business during the

definition of his mission statement and the creation of the firm introduces a profit-oriented interest and also a

socially related goal. Increasingly company are understanding that they are important not only in making

business and profit but also that is fundamental the field in which they operate since they have a social

responsibility. Moreover, consumers pay more attention to firms that are interested and involved in the

wellness and sustainability.

2. Resources

a. Employees

b. Machinery

c. Row materials

d. Computers and information technology

e. Patents

f. Financial

We should distinguish between:

-tangible and intangible resources:

tangible are usually physical objects, something that you can touch.

intangible is related to resources that you can’t touch, namely the acquisition of patents for

example.

Both tangible and intangible resources have value and can be bought and sold, however it is easier to

establish the value of a tangible resource.

-Long-term and short-term resources:

short-term: resources that remain in a business only just for a period of time. They do not face any

depreciation.

long-term: resources: remain forever.

3. Demand

There are 3 types of demand:

 

Effective demand: quality and quantity are defined focus on market share.

 Emergent demand: already defined, but not fully satisfied in terms of quality and quantity.

 Latent demand: not known how many consumers and not known the quality of the consumers

4.Gentic Asset

The genetic asset comprises:

a) The entrepreneurial idea:

I. Which need I want to satisfy?

II. Which are the potential clients?

III. Which is the product technology?

b) The risk capital: capital that the entrepreneur puts at the disposal of the company.

5.Capabilities

Those way trough which the company is able to extract value from

 Supply

 Transformation: company that are more efficient to use certain type of resources that others.

 Sales: there might be companies that are very good at doing sales

 Financial: there can be companies that are very good at doing investments, in the financial fields.

The Constituent Structure of the firm

We have 3 types of structures:

A. Ownership structure: heart of the business since the owner/owners are those who dictate what the

business should do in the future.

It consists of subject (physical or legal persons with a public or private nature) who own the risk



capital logic of the firm.

B. Entrepreneurial structure: the head of the company.

It constitutes the top-decision maker. Ownership and management do not necessarily coincide,

especially where the ownership is diffused there could be different types of CEO and managers.

The difference between A and B is important when we talk about control. Ex: principal agent problem

(interest of the manager against the interests of the owner) that happens especially in family businesses. In

small firm entrepreneurial and ownership tend to overlap.

C. Operational structure: harms of the business, basically the practical part. It is governed by the

entrepreneurial structure and consists of all those resources needed to make the value chain

functioning.

They are called “Assetti costitutivi”

A. The ownership structure

4 main functions:

1. Generating function: these subjects have an INTEREST/NEED that they intend to satisfy throughout

the firm

2. Capitalization function: providing capital. Risk capital and/or self-financing and/or new shareholders

 company form (e.g. in Italy s.r.l. vs. s.s.) that influences the risk capita

Different types of investment depend on the type of firm we want to start.

3. Strategic orientation: the field of activities in which the business is operating, how it operates

(principles), and why it operates namely the goals of the business.

4. Entrepreneurial structure choice (managers)

Everything start from the ownership structure that characterised and is requested by each single owner.

Source of capital

Equity vs debt financing:

Debt: obtaining borrowed funds for the company

o Equity: obtaining funds for the company in exchange of ownership.

o

They have different types of implications: consider the implication in case of equity or debt.

Internal vs external funds:

Personal (the self)

— Family and friends

— Suppliers and trade credit (example. Extended payments terms)

— Profits

— Going public

— Banks

— EU programs

— Crowdfunding

— Private investors (angels)

— Venture capital.

—

All of this could change depending on length of time, cost and control (who does it take the control)

With the introduction of equity, the proportions of shares could change according to what partners owned the

majority of shares.

B. Entrepreneurial structure.

The manager has to deal with both levels, the owner and the top decision. The manager is the subject who is

responsible for running the firm. He/she is responsible for supervising the use of an organization’s resources

to meet its goals.

The manager has 4 main functions that can be seen as the means through which realizing the interest of the

owner(s): Planning, organizing, leading and controlling.

A. Planning process:

Deciding which goals the organization will pursue

Deciding what strategies to adopt to attain those goals

Deciding how to allocate organizational resources

B. Organizing process: Tway the business is organized and divided.

Structuring working relationships so organizational members interact and cooperate to achieve

organizational goals Managers deciding how best to organize resources, particularly human

resources. Manager has influence in mitigating conflicts and on how to reorganize resources.

Organizational structure: formal system of task and relationships

C. Leading process:

 Articulating a clear vision and energizing and enabling organizational members so they

understand the part they play in achieving organizational goals.

-An organization’s vision is a short, succinct, and inspiring statement of the organization’s future

state.

 Involves managers using their power, personality, influence, persuasion, and communication

skills to coordinate people and groups. It makes the difference how some more charismatic

managers lead the business

 Vision ≠ mission

Elements of a Vision:

1. Clarity: easily understood and focused

2. Consistency: holds constant over a time period, but is adjustable as conditions warrant

3. Uniqueness: special to this enterprise

4. Purpose: provides reason for being and others to care

Ex: Walmart’s Vision:

“Be the destination for customers to save money, no matter how they want to shop.” (since 2017)

“To be the best retailer in the hearts and minds of consumers and employees.” (before 2017)

D. Controlling process

 Evaluating how well an organization is achieving its goals and taking action to maintain or

improve performance

 Managers monitor performance of individuals, departments, and the organization as a whole

to determine if they are meeting performance standards

 Identification of Key Performance Indicators (KPIs)

What is looking for?

The management aims to achieve organizational goals effectively and efficiently

ORGANIZATIONAL PERFORMANCE: is a measure of how efficiently and effectively managers use

available resources to satisfy customers and achieve organizational goals.

Efficiency: A measure of how well or how productively resources are used to achieve a goal

Effectiveness: A measure of the appropria