MTP S2-26

Management tools and principles Business in action chapter 1 to 18 (less 3 13 and 14)

Gross domestic product (GDP)

The total value of all goods and services produced within a country's borders. It excludes outputs from overseas operations of domestic companies.

Business

A profit-seeking organization that provides goods and/or services to satisfy customers' needs and creates value by transforming inputs into outputs.

For-profit organizations

Organizations that provide goods and/or services with a profit and “asset building” motive.

Not-for-profit organizations

Organizations that provide goods and services without having a profit motive; these are also called nonprofit organizations.

!!! This does not mean that they do not make a profit.

Goods-producing businesses

Businesses that create value by producing/making goods, usually tangible.

Goods-producing businesses are often capital-intensive businesses.

Service businesses

Create value by performing activities that deliver some benefit to customers.

è Service businesses tend to be labor-intensive businesses.

Revenue (aka income)

The money a company earns through the sale of goods and services.

Profit

The money left over after deducting all the costs involved in doing business.

In very general terms: Profit = Revenue (money income) - Expenses (money outcome)

!!! Profit =/= Cash

Business Model

A concise description of how a business generates or intend to generate revenue and creates and exchanges value.

→ Source of innovations

Competitive advantage

The aspect of a product or company that makes it more appealing to its target customers.

Management

The process of coordinating and overseeing the activities of a business to achieve its goals.

Social environment

The trends and forces in society at large (demographics, education level, purchasing power...). It can affect demand, composition of the workforce, and the “appropriate” way of doing business.

Stakeholders

Individuals or groups affected by a company's decisions and activities.

!!! Stakeholders =/= Shareholders

Technological environment

The forces resulting from the practical application of science to innovations, products, and processes (medical advancements, availability of technology...).

Economic environment

The conditions and forces that affect the cost and availability of goods, services, and labor, shaping the behavior of buyers and sellers.

Legal and regulatory environment

The laws and regulations at local, state, national and international levels that govern business activities.

Market environment

The target customers, influences on their behavior, and competitors with similar products.

Manufacturing, production, and operations

The functional area that defines how a company makes or does what it offers.

Marketing

Understand and identify opportunities in the market, develop the products to address those opportunities, create brand and promotion strategies, set prices and distribution channels.

The sales function develops relationships with potential customers and persuades customers, transaction by transaction, to buy the company’s goods and services.

Research and development (R&D)

The functional area responsible for conceiving and designing new products.

Information technology (IT)

The systems that promote communication and information usage within a company and/or that allow companies to offer new services to their customers.

Finance and Accounting

Getting the funds it needs to operate, monitoring and controlling how those funds are spent, keep records for managers and outside audiences (investors, tax).

Human resources (HR)

The functional area responsible for recruiting, hiring, developing, and supporting employees.

Barrier to entry

Any resource or capability a company must have before it can start competing in a market.

→ There is a high barrier to entry for capital-intensive businesses because they require large amounts of equipment to get started and to operate.

→ Barriers to entry can also include government testing and approval, tightly controlled markets, strict licensing procedures, limited supplies of raw materials, and the need for highly skilled employees.

Professionalism

The quality of performing at a high level and conducting oneself with purpose and pride.

Scarcity

A condition where productive resources have a finite supply, leading to competition and trade-offs.

Opportunity cost

The value of the most appealing alternative not chosen when making a decision.

Economic system

The policies and rules that define a society's economic structure and resource allocation.

It can varies between planned and free market economy.

Demand

The quantity of a product or service that buyers are willing and able to purchase at different prices.

→ demand curve

Supply

The quantity of a product or service that sellers are willing and able to sell at different prices.

→ supply curve

Equilibrium point

The point at which quantity supplied equals quantity demanded in a market.

Competition

Rivalry among businesses for the same customers.

Monopoly

A market situation where one company dominates and can control prices. It can be pure monopoly that happens naturally, or regulated monopoly created by the government.

Business cycles

Fluctuations in the rate of economic growth over several years, including periods of recession and expansion.

Unemployment rate

The portion of the labor force (everyone over 16 who has or is looking for a job) currently without a job.

Inflation

A condition where prices rise steadily throughout the economy.

Deflation

A condition where prices fall steadily throughout the economy.

Government's role in a free-market system

Protecting stakeholders, fostering competition, encouraging innovation, and stabilizing the economy.

Monetary policy

Government actions to regulate the nation's money supply, usually carried out by the central bank.

Fiscal policy

Strategy for the use of government revenue collection and spending to influence the business cycle.

Economic indicators

Statistics that measure the performance of the economy, such as GDP and inflation.

→ Leading Indicators – Show Future Predictions.
→ Lagging Indicators – Show Confirmation of past events.

Money

A generally accepted means of payment for goods and services, serving as a medium of exchange, unit of accounting, store of value, and standard of deferred payment.

Money supply

The amount of money in circulation at a given time.

Cryptocurrency

Currency represented by digital tokens: Bitcoin, Ethereum, Solana.

It appeals to many people because of its anonymity and because its value can't be manipulated by central banks in the same way fiat currencies can.

Central banks

Institutions that regulate banks and implement monetary and fiscal policies.

Ex: Federal Reserve: Central bank of the U.S.; European Central Bank (ECB); Bank of China; Bank of England, others.

Fiat money

Official currencies issued and maintained by government decree. Fiat currencies only have value because the government maintains that value; there is no utility to fiat money in itself.

Ex: EUR, USD, Pesos, Cordobas, Yuan, Yens.

M1 and M2

Categories of money supply.

M1 consists of cash held by the public and money deposited in a variety of checking accounts (Money spendable now)

M2 consists of M1 plus savings accounts, balances in retail money-market, mutual funds, and short-time deposits (Money that could be spendable fairly soon)

Consumer price index (CPI)

Monthly statistic that measures changes in the prices of consumer goods and services.

Producer price index (PPI)

Statistical measure of price trends at the producer and wholesaler levels.

Federal funds rate

The interest rate that member banks charge each other to borrow money overnight from the funds they keep in their Federal Reserve accounts.

Discount rate

The interest rate that member banks pay when they borrow funds from the central bank.

Prime rate

The interest rate a bank charges its best loan customers.

Federal Deposit Insurance Corporation (FDIC)

Protects money in customer accounts and manages the transition of assets when a bank fails.

National Credit Union Administration (NCUA)

Provides regulatory supervision and account protection for credit unions.

Investment banks

Firms that offer a variety of services related to initial public stock offerings (IPOs), mergers and acquisitions (M&A), and other investment matters.

Commercial banks

Banks that accept deposits, offer checking and savings accounts, and provide loans. This label is often applied to banks that serve businesses only, rather than consumers.

Private banking

Services for wealthy individuals and families, such as managing investments and setting up trust funds.

Fintech

Technological innovations that improve financial services, including AI, cloud computing, and mobile apps.

Economic globalization

The increasing integration and interdependence of national economies.

Balance of trade

The total value of a nation's exports minus the total value of its imports over a time period.

Foreign exchange

The conversion of one currency into an equivalent amount of another currency.

Free trade

International trade unencumbered by restrictive measures. It produces winners and losers, but the winners gain more than the losers lose, so the net effect is positive.

Protectionism

Government policies aimed at shielding a country's industries from foreign competition.

World Trade Organization (WTO)

Permanent forum for negotiating, implementing, and monitoring international trade and for mediating trade disputes among the 160 member countries.

International Monetary Fund (IMF)

Monitors global financial developments, provides technical advice and training, provides short-term loans to countries that are unable to meet their financial obligations, and work to alleviate poverty in developing economies. 188 member countries.

World Bank

UN agency involved in funding projects aimed at addressing poverty, health, and education in developing countries.

Multinational corporations (MNCs)

Companies with operations in more than one country.

Culture

A shared system of symbols, beliefs, attitudes, values, expectations, and norms for behavior.

Tax haven

A country with favorable banking laws and low tax rates that allows companies to shield income from higher tax rates.

Multidomestic strategy

A decentralized approach to international expansion in which a company creates highly independent operating units in each new country.

Global strategy

A highly centralized approach to international expansion, with headquarters in the home country making all major decisions.

Transnational strategy

(also known as “Glocal” (Global local)

A hybrid approach that attempts to reap the benefits of international scale while being responsive to local market dynamics.

Scientific management

An approach that uses the scientific method to find the most efficient way to perform a job. (Frederick W. Taylor, the husband-wife team of Frank and Lillian Gilbreth)

General administrative theory

An approach that focuses on describing what managers do and what constitutes good management practice.

Bureaucracy

A form of organization characterized by division of labor, a clearly defined hierarchy, detailed rules and regulations, and impersonal relationships.

Organizational behavior (OB)

The study of the actions of people at work. Considers that people were the most important asset of the organization and should be managed accordingly.

Hawthorne Studies

A series of studies during the 1920s and 1930s that provided new insights into individual and group behavior.

Quantitative approach

The use of quantitative techniques to improve decision making. It involves applying statistics, optimization models, information models, computer simulations, and other quantitative techniques to management activities.

Total quality management (TQM)

A philosophy of management that is driven by continuous improvement and responsiveness to customer needs and expectations.

System

A set of interrelated and interdependent parts arranged in a manner that produces a unified whole.

Closed system

A system that is not influenced by or does not interact with its environment.

Open system

A system that interacts with its environment.

Contingency approach (situational approach)

A management approach that recognizes organizations as different and requiring different ways of managing based on the situations they face.

Sole proprietorship

A business owned by a single person where the person and the business are the same entity.

Unlimited liability

A legal condition where any damages or debts incurred by a business are the owner's personal responsibility.

Partnership

An unincorporated company owned by two or more people.

→ general or limited partnership

General partnership

A partnership where all partners have joint authority to make decisions and joint liability for the firm's financial obligations.

Limited partnership

A partnership where one or more persons act as general partners with unlimited liability, and the remaining owners are limited partners with limited liability.

Limited liability

A legal condition where the maximum amount each owner is liable for is equal to their investment in the business.

Corporation

A legal entity that has the power to own property and conduct business, distinct from any individual person.

Shareholders

Investors who purchase shares of stock in a corporation.

Private corporation

A corporation where all the stock is owned by a only few individuals or companies and is not available for purchase by the public.

Public corporation

A corporation where stock is sold to anyone who has the means to buy it.

S corporation

A type of corporation that combines the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership.

Limited liability company (LLC)

A structure that combines limited liability with the pass-through taxation benefits of a partnership, with no restrictions on the number of shareholders or their participation in management.

Corporate governance

Policies, procedures, relationships, and systems in place to oversee the successful and legal operation of a company.

Also refers to the responsibilities and performance of the board of directors specifically.

Proxy

A document that authorizes another person to vote on behalf of a shareholder in a corporation.

Shareholder activism

Activities undertaken by shareholders to influence executive decision making in areas ranging from strategic planning to social responsibility.

Board of Directors

group of professionals elected by the shareholders as their representatives, with responsibility for the overall direction of the company and the selection of top executives. The Chairman oversees the Board of Directors.

Corporate officers

The top executives who run a corporation, hired by the Board of Directors.