MBA Student Handbook
Niall Lothian and John Small
What do profit and loss accounts and balance sheets tell you? They are valuable sources of insight into the financial strength of competitors but you have to know what you arelooking for; in fact, many managers are unaware of the financial position of their ownorganisations. How much should you charge for your products? To decide this you have toknow how much they cost and this is notoriously difficult to determine. An understandingof financial and management accounting techniques, and their strengths and weaknesses, isessential for effective decision making.
It is often wrongly concluded that economics is irrelevant to running a business. In fact,economic factors affect businesses and decision making at three levels. At the macro level,factors such as the business cycle, interest rates and exchange rates directly affect productdemand and cost of production. At the market level, the type of competition determinesprofitability and business strategy. At the company level, efficiency principles have a directbearing on business success, principles such as marginal analysis, opportunity cost and profitmaximisation. If you ignore economic principles, you will be unable to figure out likelychanges in market conditions, you will be unable to understand competitive forces and youwill have little idea of how to allocate resources efficiently.
Different investment projects generate different cash flows and different levels of risk. Theproblem is that choices have to be made among competing uses for funds becausebusinesses typically face constraints on the availability of capital. Financial tools make itpossible to reduce a bewildering array of cash flows spread over a variety of time periodsto a single set of numbers: the net present values. These tools enable the efficiencyprinciples of economics to be applied in a rigorous manner. Financial concepts also providethe link between company operations and capital markets: it is impossible to understandthe behaviour of the stock market without a grasp of the principles of financial analysis,quality trade-offs to be made and project management tools and techniques are essential inkeeping change processes on track. The fact is that most managers are unaware that manyof the dynamic processes at work in the organisation are actually projects and aretherefore subject to many nasty surprises when things do not turn out as they expected;the application of rigorous project management techniques will not solve all problems butthey will clarify the process of achieving what you set out to achieve.
John Mullins, Orville Walker and the late Harper Boyd
Why do consumers purchase one product rather than another? You have to confront theissue of why consumers would purchase your product rather than a competitors’. Factorssuch as market positioning, branding, consumer loyalty and segmentation determine thesuccess or failure of products in highly competitive markets. Furthermore, it is extremelydifficult to manage products successfully in competitive markets. The marketing processinvolves market analysis and the development and implementation of a marketingprogramme. To be a successful marketer you need to understand not only the factors,which influence buying behaviour but be able to bring products to market in an effectivemanner.