Business management - economia e direzione delle imprese english version

Business management

What is a business? A general introduction to business management

Business: production or transformation of goods and services to be sold to make profit.

Management: process of planning, organizing, leading, and controlling a business in order to reach the goals.

An enterprise is an open social system because it has different exchanges with the environment:

• Market needs
• Customers
• Raw material and financial resources
• HR
• Regulations
• Market transactions:
  • Purchasing factors of production
  • Selling production results
  • Purchasing or refund of capital

To analyze a system like this, we need to analyze:

• Company general environment (natural background, cultural background, technological)
• Company specific environment (sectors and markets)

An enterprise operates in a market arena. A theoretical definition of market perfect competition says that prices depend on a balance between what is available in the market and what people demand; no one else is able to influence price.

But many other factors intervene in defining stability for a company. In fact, it has to be stable in terms of:

• Competitiveness stability, competitors
• Economic stability, costs and revenues
• Financial stability, cash in and out
• Equity stability, financed by debts and equity, 50-50 or undercapitalized

These above are the four characteristics of an economic system.

The management process

The management process as we said before consists of:

• Planning, selection of goals in advance, each manager has a different level of planning possibility:
  • First-line managers: they are responsible for workers, they do not supervise other managers, they are junior executives, officers in charge, sub officers.
  • Middle-line managers: more than one level, responsible for other managers, translation of long-term plans to medium and operational plans, they are marketing, financial, personnel managers, senior executive officers.
  • Top managers: they are responsible for everybody in the company.
• Organizing, allocating resources in order to achieve planned goals
• Directing, motivating, leadership
• Controlling:
  • Defining standards
  • Measuring and comparing real data to standards
  • Applying corrective measures

As we said before, a company has to follow certain regulations. First of all, there are some forms of business:

• Sole proprietorship, a single person owns this business, he can employ others but he is the only one responsible for eventual debts.
• Partnership, 2 or more people, each one is responsible
• Corporation, limited liability entity that acts like a single person and who is responsible for liabilities incurred by the business, it has a legal personality that is independent from the other members (both profit or non-profit, board of directors and also state-owned).
• Cooperative, limited liability, but each member has decisional power.

Corporation

Legal entity separated from the persons who hold it. In case of problems, shareholders lose their investments, workers lose their jobs but none of them is responsible for debts. It is treated like a real person with rights and duties, it can exercise rights against individuals, corporations, state, firms, and can be convicted.

Great Britain:

• Corporation Sole
• Corporation Aggregate

Only if registered. USA: Synonymous of company, association (Inc. or Ltd).

Italy:

• S.p.a, società per azioni
• S.r.l, società a responsabilità limitata
• S.a.p.a, società in accomandita per azioni, different shareholders some with and some without limited liability.

Corporations can be different, but they all have some common characteristics:

• Control by a board of directors
• Limited liability
• Separate legal personality
• Transferrable shares

Always talking about regulation, a company can have a different internal organization depending on:

• The country, regulations and cultural issues
• The sector, different sectors, different rules
• Size and aim of the business, a SME, small business is more flexible, while larger ones are corp. or partnerships.
• Limited liability
• Tax advantages
• Disclosure and compliance requirements, information to be made public

Regulation is also present in the use of capital: Legal implication of the role of capital

IPO

• Initial public offering, the first time a company sells its stocks.
• Regulations for going public
• Regulation on internal governance
• Disclosure of information
• USA, SEC, Security and Exchange Commission
• Italy, CONSOB, Commissione Nazionale per le Società e la Borsa, roles:
  • Transparency and correct behavior in securities market
  • Completeness and accuracy of information, according to this point, companies in the stock exchange need to prepare financial statements:
    • Balance sheet
    • Income statement
    • Cash flow statement
    • Statement of retained earnings
    • Notes, integral part
    • Understandable, relevant, reliable, and comparable
  • Users: owners, managers, investors, banks, employees, government, vendors, media.
  • Compliance of regulations

Business management and the macroeconomic scenario

Monetary policy and the relationship between interest rates and levels of investment.

Before making an investment, managers analyze the IRR, internal rate of return, which is a rate of return used to estimate the profitability of an investment. Also called DCFROR, discounted cash flow rate of return, and ROR, rate of return.

On a graph depicting interest rate and investment, it’s clear that the lower the interest rate, the higher the number of investments. Taking for a given a certain level of interest rate, where the IRR curve meets the interest rate curve, that is the most convenient point, or in other words, that is the investment that should be done.

All companies inside the Monetary Union must respect, in terms of monetary policy, 5 rules established in 1990s in the Maastricht Treaty. These principles are known as Euro Convergence Criteria:

• Inflation rate, not higher than 1.5 percentage points of the average of the best 3 countries (the lowest rate).
• Annual government deficit, not higher than 3%.
• Government debt, not higher than 60%.
• Exchange rate, members of the EMS for 2 consecutive years and not having devalued their currency during this period.
• Interest rate, not higher than 2 percentage points of the 3 lowest.

In general, reducing interest rates, which is an expansionary monetary policy, means 2 different things for the US and EU.

• US: to reduce debt and enhance investments.
• EU: inflation was the priority.

How the current macroeconomic scenario impacts on business decision making

Different risks and situations due to the questions related to possible business financial crisis consequences and business models:

• Higher interest rates and spread: More difficulties for financing and decreasing investments.
• Default risk for EU: Risk for joint ventures, mergers, and acquisitions.
• Stagnation and recession: Low export.
• New taxation