Comm 1800: Exam 2: Business Functions

leverages technology to support + enhance business processes

IT department

manages company’s financial resources to support business objectives

finance department

records + reports financial transactions of business

accounting department

ensures business operates within lawful + regulatory framework

legal department

transforms inputs into final products/services by comparing feedback against previously established standards to determine if corrective action is needed

operations department

develops + maintains company’s human capital

human resources department

maintains relationships with customers post purchase

customer service department

coordinates flow of resources throughout business

supply chain management department

creates new products/services to meet future market needs

Research and development department

communicates business’s value proposition to potential customers

marketing department

understanding customer needs + market dynamics by gathering + analyzing customer + market data

market research

communicating product benefits + brand values to target audience by informing, persuading, aligning messaging to attract + retain customers

advertising and promotion

developing + maintaining positive brand image + customer loyalty by establishing brand positioning, ensuring consistent messaging across channels, managing reputation to build brand equity

brand management

developing approaches to engage customers + close sales by creating awareness, developing customer relationships, structuring sales funnel strategies, analyzing sales data to refine approaches and improve conversion rates

sales strategy

customer’s perception of value associated with company’s brand

associations with brand name

brand equity

space where buyers + sellers engage in exchange of goods/services

market

dividing broad market into subgroups of consumers with similar needs, characteristics or behaviors

market segmentation

group of people identified by company as most likely potential customers for offering due to shared characteristics

target market

ways/means to reach target market (ex. social media)

channels

clear statement that communicates benefits + value of product/service

value proposition

answers why a customer should buy this from brand

unique value proposition (UVP)

how company wants products/brand to be perceived by consumers relative to competitors

brand positioning

core elements that marketers use to create + execute marketing strategies: Product, Price, Place/distribution and Promotion

marketing mix (4Ps)

targets whole market with one offer —> ignores segments, typically used for products everyone needs (ex. water, toilet paper)

mass marketing strategy

targets different segments with separate offers for each (ex. marketing shampoo by hair need/type)

differentiated marketing (segmented)

focus on one or very few segments/niches (ex. Luxury brands)

niche marketing (concentrated)

local/individual marketing (ex. Facebook ad targeting specific area codes, amazon product recs based on browsing history)

micromarketing (customized)

surveys, website cookies, observations (counts), A/B testing

quantitative market research

interviews, focus groups, observations, open-ended surveys used to understand contextual insights behind data

qualitative market research

technique used to examine user experience by testing 2 versions of content (with single variable changed) to inform decision making

A/B testing (split testing)

using current and historical data to identify trends + relationships (answers: what happened?)

descriptive data

using historical data to predict future trends (answers: what will happen?)

predictive data

using historical data, defined objectives + criteria and multiple what-if scenarios (answers: what should we do?)

prescriptive data

how well the offering satisfies a demand in the market (solution)

product

how well pricing suits perceived value, production costs + customer’s willingness to pay (appropriate)

price

where offerings are sold + advertised in relation to target customers (convenience)

place

how firm raises awareness + incentivizes purchase of offering (communication)

promotion

investors, government, lenders, competitors, etc. who asses firm’s financial health to make decisions about dealings with company (loans, taxes, competitive positioning, etc)

external users of accounting

managers, owners and employees who need to make decisions about business operations

internal users of accounting

financial statements for external reporting, historical perspective, emphasis on precision and verifiability, must follow standard rules, regulations and prescribed formats

financial accounting

reports to help plan, control and direct activities in organization (for internal users), future looking perspective, emphasis on timeliness and relevance for planning + control, no rules, regulations or prescribed formats

managerial accounting

assets = liabilities + equity

accounting equation

all resources owned by company (ex. land, buildings, equipment, cash, inventory, accounts receivable, patents)

assets

all obligations owned by company including debts, taxes, wages to be paid by company, accounts payable

liabilities

residual value claimable by owners or shareholders including capital contributions, common or preffered stock, retained earnings

equity

money invested by owners

capital contributions

profits not paid in dividends/to owners —> profits reinvested

retained earnings

ensures both sides of accounting equation balance by using opposite impact (+/- on same side of equation) and same impact (±/± on different sides of equation)

double entry bookkeeping

snapshot of company’s financial position at specific point in time, showing assets, liabilities + equity

balance sheet

summary of company’s financial performance over specific period, showing revenues, expenses + net profit/loss

income statement

summary of company’s cash inflows/outflows over period categorized into operating, investing and financing activities

statement of cash flows

statement outlining changes in equity section of balance sheet, including retained earnings, stock issued + dividends paid

owner’s equity

costs directly associated with production of goods such as raw materials, machinery operation, manufacturing wages

cost of goods sold (COGS)

costs indirectly associated with production including marketing, salaries of non-production staff, office supplies, rent, utilities

selling, general & administrative (SG&A)

ability of company to meet short term financial obligations without disturbing normal revenue generating activities: how quickly firm can convert assents to pay liabilities (greater better, over 1 preferred)

liquidity ratio

ability of company to generate profits from assets, revenue and equity: how well company converts resources —> profits

profitability ratio

ability of company to meet long term obligations + sustain operation over long run: firm’s capacity to continue/grow operations

.4 ratio considered less risky —> less reliance on debt

leverage/solvency ratio

ability of company to use assets to generate revenue + manage operations: how efficient company is at using resources (higher ratio = better)

efficiency/turnover ratio

ability of company to create value for shareholders: how well company’s performance is valued by market

earnings/market value ratio

Gross profit (total revenue - COGS) / total revenue

gross profit margin

net profit [total revenue - (COGS + SG&A + other expenses)] / total revenue

net profit margin

current assets / current liabilities

liquidity ratios

COGS / average inventory

efficiency ratio

total liabilities / total assets

leverage ratio

company’s particular mix of debt and equity to finance its operations

capital structure

reflects where business is in cycle: startups usually need more equity, mature firms have more stable cash flows —> debt more accessible

lifecycle’s impact on capital structure decisions

firms might choose debt/equity ratio similar to comparable firms in same business

industry’s impact on capital structure decisions

firms have preference of financing used and work down preference list rather than picking financing mix directly (usually retained earnings —> debt —> equity in order of most to least preferred)

financing habits’ impact on capital structure decisions

involves evaluating potential investments and long term projects (usually large expenditures) to allocate resources efficiently, generate adequate returns + support strategic objectives

capital budgeting

money is worth more now than in future

time value of money

value of current sum of money in future, given certain interest rate

future value

current value of future sum of money, given certain rate of return

present value

FV = PV + (PV x r x n)

simple interest

FV = PV(1+r)^n

compound interest

today’s value —> future value

compounding

future value —> today’s value

discounting

compares sum of PVs of cash inflows with outflows from investment to determine profitability

net present value

∑ FV / (1+r)^n

net present value (NPV)

governs operation of entire organization

determine + optimize how value is created + delivered

managerial processes

support operational + managerial processes to help make value delivery possible

supporting processes

key activities that make up value chain

core processes/heart of company

responsible for matching supply + demand

operational processes

responsible for designing, planning, managing + improving processes that convert materials + labor —> goods/services as efficiently as possible

operations management

coordinates all activities involved in producing + delivering product/service

broader scope than operations management + more strategic, creating value along entire chain, not just internal processes

supply chain management

chain of activities that transforms inputs —> outputs that customers value

value chain

systematic approach to mapping, evaluating, and optimizing workflows + procedures within organization by mapping out steps of business process, analyzing efficiency of current process, and redesigning/improving processes to meet objectives

process design and analysis

diagrams sequence of activities required for task to identify critical path and identify how to optimize efficiently

critical path analysis

longest path/step in process

optimize critical path before moving to improve other steps

critical path

measures quantity of goods/services produced with given resources

= output / input

productivity

getting more output with same/less input

increased productivity

how well resources used to produce output

= actual output / effective capacity

efficiency

maximum output company can sustainably produce under normal working conditions, presenting realistic production capability rather than theoretical max

effective capacity

inventory strategy companies employ to increase efficiency + reduce waste by receiving goods only as needed in production process —> reduce inventory costs

just in time (JIT)

strategy to produce more with fewer resources by eliminating non essential, non value added activities + minimizing essential, non value adding activities

goals: zero inventory, defects, breakdowns, set up times, lead times and waste

lean manufacturing

design, implementation, support and management of information systems

information technology

systems that help manage information to support decision making in organization involving storage, retrieval, transmission and manipulation of data

information systems

physical components used by humans to communicate with computers

hardware

set of instructions that guide hardware to perform tasks

software

interconnected electronic devices that communicate + share resources with each other

networks

collection of raw facts such as measurements, observations or events

has some inherent meaning but limited by lack of context

data