Synthesis Of Business Functions


Published on

Synthesis of Business Functions

Published in: Education
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Synthesis Of Business Functions

  1. 1. Synthesis of Business Functions
  2. 2. Learning Goals <ul><li>Explain how a firm’s value is determined </li></ul><ul><li>Summarize the key business decisions and explain how they affect the firm’s value </li></ul><ul><li>Illustrate how one particular firm (IBM) recently made several key business decisions to increase its value </li></ul>
  3. 3. Synthesis of Business Functions
  4. 4. Valuation of a Business <ul><li>Firm’s value is equal to the present value of its future cash flows </li></ul><ul><ul><li>Cash inflows come from sales </li></ul></ul><ul><ul><li>Cash outflows result from payment of expenses or taxes </li></ul></ul><ul><ul><li>Firm’s value is highly influenced by its expected future earnings </li></ul></ul>
  5. 5. business online
  6. 6. Management Decisions and Firm Value <ul><li>Strategic planning </li></ul><ul><ul><li>Capitalize on opportunities that increase revenue or reduce production costs </li></ul></ul><ul><li>Organizational structure </li></ul><ul><ul><li>Try to attain low level of operating expenses </li></ul></ul><ul><li>Production process </li></ul><ul><ul><li>Plant site location to minimize costs </li></ul></ul><ul><ul><li>Design and layout to reduce costs </li></ul></ul><ul><ul><li>Quality to improve customer satisfaction and firm’s reputation </li></ul></ul><ul><ul><li>Use technology to improve efficiency </li></ul></ul>
  7. 7. Management Decisions and Firm Value <ul><li>Motivating employees </li></ul><ul><ul><li>Increase employee satisfaction </li></ul></ul><ul><ul><li>Align compensation with performance </li></ul></ul><ul><ul><li>Provide job security </li></ul></ul><ul><ul><li>Provide flexible work schedule </li></ul></ul><ul><ul><li>Utilize employee involvement programs </li></ul></ul><ul><li>Managing employees </li></ul><ul><ul><li>Proper recruiting and screening of new hires </li></ul></ul><ul><ul><li>Develop employees’ skills </li></ul></ul><ul><ul><li>Establish proper performance evaluation procedures </li></ul></ul>
  8. 8. Marketing Decisions and Firm Value <ul><li>Product strategies </li></ul><ul><ul><li>Target appropriate market </li></ul></ul><ul><ul><li>Differentiate products from competitors </li></ul></ul><ul><li>Pricing strategies </li></ul><ul><ul><li>Proper pricing can increase future cash flow </li></ul></ul><ul><li>Distribution strategies </li></ul><ul><ul><li>Influence the number of customers reached by firm’s products </li></ul></ul><ul><li>Promotion strategies </li></ul><ul><ul><li>Increase acceptance of products through special deals, advertising, and publicity </li></ul></ul>
  9. 9. Small Business Survey What Are the Major Concerns of Small Businesses?
  10. 10. Business Decisions and Firm Value <ul><li>Financial management decisions </li></ul><ul><ul><li>Financing strategies help firm obtain the amount and type of financing they desire. </li></ul></ul><ul><ul><li>Proper financing strategies can enable firm to obtain funds at a low cost. </li></ul></ul><ul><ul><li>Firms use investing strategies to allocate funds across business operations. </li></ul></ul><ul><ul><li>The present value of a project’s cash flows must exceed the initial outlay in order for a project to be feasible. </li></ul></ul>
  11. 11. Summary of Key Business Functions Exhibit 20.1
  12. 12. Relationships Among Business Strategies <ul><li>Organizational structure and production </li></ul><ul><ul><li>Structure depends on product mix </li></ul></ul><ul><li>Pricing and production strategies </li></ul><ul><ul><li>Pricing strategy dictates level of production needed, which influences plant site, design, and layout </li></ul></ul><ul><li>Pricing and distribution strategies </li></ul><ul><ul><li>Pricing strategy dictates exclusivity and intensity of distribution </li></ul></ul>
  13. 13. Relationships Among Business Strategies <ul><li>Pricing and promotion strategies </li></ul><ul><ul><li>Pricing strategy determines the kinds of promotions that will be effective </li></ul></ul><ul><ul><li>Pricing strategy also influences how much money will be allocated to promotions </li></ul></ul><ul><li>Pricing and financing strategies </li></ul><ul><ul><li>Pricing influences production volume and amount of funds required to finance operations </li></ul></ul><ul><li>Accounting and information systems </li></ul><ul><ul><li>Needed to make proper business decisions </li></ul></ul>
  14. 14. Common Sequence of Business Functions Exhibit 20.2
  15. 15. IBM’s Business Strategies <ul><li>Provide shareholder value </li></ul><ul><ul><li>42 percent increase in stock price </li></ul></ul><ul><li>Mission and strategic plan </li></ul><ul><ul><li>Lead in the creation, development, and manufacture of most advanced information technologies </li></ul></ul><ul><ul><li>Services software and OEM technology will drive growth in revenues and earnings </li></ul></ul><ul><li>Social responsibilities </li></ul><ul><ul><li>Focus on education and the environment </li></ul></ul>
  16. 16. IBM’s Business Strategies <ul><li>Assessment of Industry </li></ul><ul><ul><li>Future in information technology services </li></ul></ul><ul><li>Foreign market penetration </li></ul><ul><ul><li>$24 billion business with 20% annual growth </li></ul></ul><ul><li>Management strategies </li></ul><ul><ul><li>Recent downsizing and reorganizing to focus on e-commerce (organizational structure) </li></ul></ul><ul><ul><li>Consolidated work done by data centers and reduced office space worldwide (design and layout) </li></ul></ul><ul><ul><li>Use flexible production processes </li></ul></ul><ul><ul><li>Enhanced customer service (TQM) </li></ul></ul><ul><ul><li>Devote substantial resources to training and rewarding employees </li></ul></ul>
  17. 17. IBM’s Business Strategies <ul><li>Marketing strategies </li></ul><ul><ul><li>Product strategies focus on developing new and revising existing products </li></ul></ul><ul><ul><li>Pricing strategy focuses on reducing prices to increase volume </li></ul></ul><ul><ul><li>Distribution strategy focuses on delivering some products directly to customers </li></ul></ul><ul><li>Finance strategies </li></ul><ul><ul><li>Obtain financing in the countries where they conduct business </li></ul></ul><ul><li>Business investment strategies </li></ul><ul><ul><li>Capital expenditures and stock repurchase </li></ul></ul>
  18. 18. Change in IBM’s Revenue, Expenses, and Earnings Exhibit 20.3 Note: Figures are in millions of dollars.
  19. 19. Change in IBM’s Liquidity and Efficiency Exhibit 20.4 Note: Figures are in millions of dollars.
  20. 20. Conclusions About IBM <ul><li>Comparing 1992 to 2001 results </li></ul><ul><ul><li>Revenue higher in 2001 </li></ul></ul><ul><ul><li>Operating expenses lower in 2001 </li></ul></ul><ul><ul><li>Earnings before interest and taxes higher in 2001 </li></ul></ul><ul><ul><li>Liquidity improved in 2001 </li></ul></ul><ul><ul><li>Efficiency improved in 2001 </li></ul></ul>
  21. 21. Chapter Summary <ul><li>Firm’s value is equal to the present value of its expected future cash flows </li></ul><ul><li>Management, marketing and finance decisions can enhance a firm’s value </li></ul><ul><li>IBM increased its value by </li></ul><ul><ul><li>Downsizing to reduce cash outflows </li></ul></ul><ul><ul><li>Revising product and pricing strategies to increase or maintain cash inflows </li></ul></ul><ul><ul><li>Funding new investments to capitalize on new opportunities </li></ul></ul>