Business Administration - parte 1

Business system and environment

The common goal of businesses is to deliver goods and services to satisfy human needs. According to the Maslow pyramid, human needs are divided into: basic needs, like food, water, warmth, rest, security, and safety; psychological needs, like intimate relationships, friends, prestige, and feeling of accomplishment; and self-fulfillment needs, like achieving one’s full potential, including creative activities.

The main goal of a business entity is to satisfy human needs while adding value using economic systems. You can add value through a business model, a concise description of how a business intends to generate revenue, revenue that a company brings in through the sale of goods and services, and profit, the value left over after all the costs involved in doing business have been deducted from the revenue.

Open system inputs and outputs

In an open system, the input factors are: knowledge, capital (money and fiscal assets), workforce, and environmental effects (raw materials). These factors pass through the business entity and become outputs, like goods, services, and intangibles. Inputs include: knowledge, the collective experience and wisdom of an organization; human resources, people who work in or for an organization and the talents they bring; natural resources, land, water, minerals, and other things useful in their natural state; and capital, factories, tools, machinery, systems, and money. All these inputs are part of the entrepreneurship, innovation, initiative, and willingness to take on risk.

The visible outputs are: goods (examples: Alrosa, Ford, P&G), adding value by making “things,” most of which are tangible, and services (example: KPMG), adding value by performing activities that deliver some benefit to customers. Some organizations provide goods and services without having a profit focus; they are called non-profit organizations.

Types of business systems

A business entity has four different types of systems: open system, a two-face relationship with the market/environment; economic system, use of scarce resources (finite supplies of inputs) to provide value to outputs; social system, managed by people to satisfy human’s needs; dynamic system, adapts continuously to environmental changes.

Environmental forces

It is necessary to understand the influence of environmental forces on the market and the business. First, understanding what are the general and specific forces: general forces could impact a business in general and could be natural & physical, cultural, technological, social, political & legal, economic, while specific forces could impact the specific places where the business operates, such as market and industrial practices.

In legal forces, there are the regulations, relying more on laws and policies than on market forces to govern economic activity, and deregulation, removing regulations to allow the market to prevent excesses and correct itself over time.

Economic systems

Economic forces could be communism, socialism, and capitalism. In this case, we move from a public/government ownership of productive resources, centralized economic planning and control to a private ownership of productive resources, emphasizing free market economic principles. In the end, market forces are: demand, buyers’ willingness and ability to purchase products at various price points; supply, a specific quantity of a product that the seller is able and willing to provide at various prices; and the demand curve, a graph of the quantities of a product that buyers will purchase at various prices.

The purpose of the business

In America, there are more free markets than in Europe because of the U.S. economy and expanded opportunities for all Americans through sound public policies. With globalization, there is no more difference between America’s markets and Europe one.

Entrepreneurship and small business management

• Entrepreneurship — risk-taking behavior that results in new opportunities
• Classic entrepreneur — pursues opportunities others view as problems
• Serial entrepreneur — starts and runs business and nonprofit over and over again
• First-mover entrepreneur — first to exploit a niche or enter a market

People set up their own company for more control over the future, because they are tired of working for someone else, have passion for new product ideas, are pursuing business goals that are important to them on a personal level, and have the inability to find attractive employment anywhere else.

To be a successful entrepreneur there are three important elements to take into consideration:

• BRAIN — control your destiny, curious to learn, learn from mistakes and view failure as a chance to grow, highly adaptable with markets and willing to take sensible risks but are not “gamblers”;
• HEART — passion to succeed, measure success in strictly financial terms, confidence and optimism, relate well with diverse personalities and talent for inspiring others;
• ARMS — willing to work hard for a sustained period of time, extremely disciplined, willing to make sacrifices in other areas of their lives.

Trends in entrepreneurship

• Female and minority entrepreneurs are growing in numbers
• Necessity-based entrepreneurship
• People set up a business because no other employment opportunities exist

Social entrepreneurship

Unique form of ethical entrepreneurship that seeks new ways to solve pressing social problems.

Business stages

• Birth stage: establishing the firm, getting customers, finding money — fighting for existence and survival
• Breakthrough stage: working on finances, becoming profitable, growing — coping with growth and takeoff
• Maturity stage: refining the strategy, continuing growth, managing for success — investing wisely and staying flexible

Case study: Tiger

Lennart Lajboschitz founded Flying Tiger Copenhagen in 1995. Currently, there are 883 shops all over the world selling cheap but very appealing objects such as toys, personal hygiene items, and stationary. The chain makes revenues of over 5 billion Euros. Lajboschitz left school at 16 to go traveling, getting by various little jobs. His and his wife’s first shop, called Zebra, started out by repairing umbrellas. His ethic is ‘We realized that we could give people who don’t have so much money something that is more valuable, something that is better quality, something that they will like.’

Family-owned small businesses

• Account for 93% of new jobs created in Europe
• Provide 96% of the countries’ employment
• Feuds result when family members disagree over how the business is run
• Possible succession problems (who will run the business after the current head leaves, succession plan outlines leadership transitions and financial matters)

Small Medium Business (SME)

• A company that is independently owned and operated, is not dominant in its field, and employs fewer than 250 people (although this number varies by industry and geographical area)
• Annual turnover not exceeding 50 million euro
• And/or an annual balance sheet total not exceeding 43 million euro

Forms of ownership

Partnership

Corporation

A legal entity that exists separately from its owners, who always have limited liability, and associates (shareholders) can only bring capital into the company and profit is shared proportionally to the amount of the capital invested.

Benefit corporation: Corporate form for businesses whose stated goals are to combine making a profit with benefiting society and the environment, originally introduced in the US in 2010, exist in Italy since 2016. Some of these corporations have a B Corp certification, provided by BLab.

Franchise

A business arrangement in which one company (the franchisee) obtains the rights to sell the products and use various elements of the business system of another company (the franchisor).