Summary of the Introduction to Business course (both book and lectures) in the first year in the first and second block of the study International Business Administration at the Erasmus University in Rotterdam.
Chapter 1 (75%) – The concept of Business in Context
Business: organized effort of individuals to produce and provide goods/services to meet the
needs of society. Several types of business activities:
- Innovation - Finance & Accouting
- Operations - Human Resource Management
- Marketing
Business contexts:
- Strategic level: the set of short- & long-term objectives & formulated by the upper
management, giving an overall direction to the organization.
o Budget spent, range of goods/service, number/types of employees &
shape/nature of the organization.
- Organizational level: how the business activities are carried out & divided amongst
the companies’ employees.
o Goals, structure, ownership, size & organizational or corporate culture
- Environmental level: focuses on 5 factors: economy, technology, state, labour &
cultural and institutional differences.
o Political & legal issues, taxes, labour market structures, tech advances, etc.
Called the Business in Context model. All 3 interact/influences each other. Environmental
level contribute to the Globalization.
2 main ways to approach/understand an organization’s structure & sub-systems:
1. The Systems Approach: focuses on the internal environment & sub-systems. Analysed
in terms of inputs, processes & outputs must be in balance to reach an equilibrium
with the environmen.
2. The Contingency Approach: focuses on the external environment, emphasizes the
impact of environmental changes/pressures. Different environments produce
different organizations.
o Contingency planning: managing the risk of something not happening.
Similarities:
- Both deal with organisations working with elements of the environment & their
adaptations.
- Both focus on a limited range of environmental variables & have a deterministic
approach.
- Both ignore the influence of organisations on the environment & behaviour of
management/workforce.
Chapter 2 (75%) – Organizational Aspects of Business
Organizational goals: direct the activities of the organization’s members. Consist of a mission
statement, defines the intentions, & more detailde objectives to guide strategic planning to
meet this mission. Goals shape the organizational culture. The creation of a goal: a highly
political process, involving influence, conflict & comprise between different interest groups.
,Organizational structure: how activities & people are grouped together to most effectively
achieve the organizational goals. Variety of structural forms exist, they are influences by
management strategy, technology, size, environment, interest groups & the firms history.
internal/external influences may cause problems fixed with the appropriate structure.
5 main types of organizational structure:
- Functional structures: organized by functional specialization. Employees perform
related specialised tasks in groups under a single management structure.
o Pros: specialization, logic of custom & practice, clear chain of command.
o Cons: conflicting departmental objectives & management values, lack of
coordination & consumer orientation.
- Multidivisional structure: consists of a number of business units, each focus on
different types of business activity, each producing their own profit. Central
corporate HQ, perform additional services for all the units (R&D, Finance).
- Holding company structure: firms that grow through acquisitions & high degree of
product diversification. May evolve to independent companies controlled by. A
coordinating group.
o Pros: operation of businesses as profit centres, encouragement of
entrepreneurship, reduces upward dependency, economies of scale are
increased by common features centralized.
o Cons: cooperation & interdependence, accounting increasingly complicated,
increasing diversity of operations, management control become complex.
- Project teams: units designed to cope with highly unstable/fast changing
environment. Units are temporary structures created for particular tasks, are not part
of a management hierarchy (technology firms).
o Pros: ability to cope with unstableness & diverse problems & directly
customers, individual expertise.
o Cons: costly duplication of services (not centralized), no functional home,
uncertain when the project is finished.
- Matrix organization: combines project team, functional & divisional. Benefits of
customer orientation, economies of scale & clear focus on product/market.
o Pros: strengths of project & functional, increased flexibility of labour, transfer
expertise where it is needed, dual control via function & project, close to cust.
o Cons: coordination/control is complicated, increasing committees/meetings,
too many bosses, conflicting loyalties to different teams, slow to adapt.
Downsizing: breaking down of large organisations into smaller units with less employees.
Delayering: number of levels of management is reduced.
together they reduce the rigidity of the organizational structure.
7 types of flexibility:
1. Numerical flexibilty: ability to meet changes in demand by rapidly changing the
number of employees.
2. Functional flexibility: when employees are flexible enough to perform a range of jobs
& switch between them as needed.
3. Financial flexibility: flexibility when changes occur in supply/demand of labour.
4. Temporal flexibility: change of time patterns of work & introduction of shift work.
, 5. Geographical flexibility: incorporates transnational teams and more mobile workers.
6. Organizational flexibility: extent to which structure/systems can change.
7. Cognitive flexibility: changing mindset of the workforce.
Ownership: owners determine goals & operations. Larger less evident who’s the owner.
- Sole trader: sole proprietor. Common for entry, it has unlimited liability, more control
& responsibility. All profits go to the owner/proprietor.
- Partnership: unlimited liability, but more finance & expertise. Decision-making is
more complex.
o Limited liability partnerships: registered accounts/individual members are
liable, other members are not.
- Limited companies: all assets belong to the company, no the individuals. 2 types:
o Public limted company (plc): shares for the general public. It has limited
liability. Usually type of larger firms. Shareholders receive dividends.
o Private limited company (ltd): share only for family members. It has limited
liability. Shareholders receive dividends.
Ownership vs. Control – debate: conflicts between the interest of owners/shareholders &
those who manage the organization.
Berle & Means: managerial control is most dominant form during the growth of businesses.
Agency problem: Agent performs a service on behalf of the principal. Result of seperation of
owners & managers lead to conflicts of interest Cost for the principal, invest in
monitoring the agents. Possible solution: involve managers as owners through bonus
payments in thhe form of shares.
4 types of public institutions:
1. Industries that are wholly owned & controlled by the state.
2. Companies whose majority shareholder is the state, and thus controlled by the state.
3. Services to the population (health, education).
4. Other government departments at national & local levels.
Problems with the public sector:
- Goals of public sector lack definition & conflict, extent to which the goal is to operate
in the public’s interest is questionable, under financial constraints, Excessive
intervention, Decision-making is slow & complex long chains of command, rigid
procedures reduce managers’ autonomy, reduce motivation.
Advantges of privatization:
- Increases competition, efficiency, productivity, growth & profits. Increased focus on
customer case & service levels, more flexible pay arrangement & proft sharing
motivation, more people get the opportunity to own shares, public sector deficit for
the state will reduce.
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