BUSINESS ADMINISTRATION 1.

THE CURRENT BUSINESS ENVIRONMENT

THE FIRM
A. WHAT IS A FIRM?
Firm: organizational entity which develops industrial, commercial or service activities,
by transforming and using resources into products and or services, targeted to
customers who acquire those, generating therefore profit.
Elements: resources, value, organization, competitive advantage, members and
employees, partners…
FUNCTIONAL AREAS OF A FIRM
Finance/accounting
 Obtain and manage monetary resources
 Bookkeeping, cash-flow analysis, financial statements…
Human resources
 Hiring, managing, firing employees
 Communication, integration, training, salaries…
Production/sales
 Manufacturing and selling the products/services
 Acquisition of inputs, production routines, quality controls, inventory
management, distribution…
Marketing
 Fostering demand
 Marketing mix (product, price, place, promotion), marketing analysis, sales
forecast…
B. GOALS OF A FIRM
 Environment
 Resources: natural, human, capital, innovation
 Customers: types
 Performance: expected results
 Technology; knowledge, availability, efficiency
The goal of a firm has to do with profit. Therefore,
 For-profit firms: maximize profits and distribute profits among
shareholders
 Non-profit firms: serve the community and reinvest profits for social
cause

Profit= valueoutputs – valueimputs = revenues – costs

 Accounting profit (beneficio neto): it is the net income of the firm, for
example the money left after subtracting costs
 Economic profit: also subtracts de opportunity cost (the profit of the
most valuable forgone alternative (the “next best” alternative)

Sometimes, accounting profit can be positive but economic profit can be

negative (when the opportunity cost is larger than the returns of the chosen
alternative)

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BUSINESS ADMINISTRATION 1. THE CURRENT BUSINESS ENVIRONMENT

EXAMPLE
A business has two options
 Option A: would incur in a cost of 50 and 100 in revenues (ingresos)
 Option B: has a cost of 40 and 80 in revenues

C. STAKEHOLDERS: any group who has a interest on the company

 Suppliers
 Society
 Government
 Creditors
 Share holders (socios): they invest on the company (can be owners or
not)/ part of the owners are normally share holders. Owners are not
always linked to the shares
 Customers
 Owners
 Manager
 Employees
The manager has to find the way to unify the interests of all groups, which have
different interests

D. TYPES OF BUSINESS DECISIONS

 Strategic decisions
o Long term objectives and implications
o Wide scope decisions. Mission, vision, identity…
o Top-level managers
 Tactical decisions
o Medium term objective and implications
o Narrower decisions. How to execute the long term plan? What
resources do we need?
o Low- level/middle-level managers
 Operational decisions
o Short term objectives – day to day operations
o Routine decisions. Which tasks need to be performed? How are
they performed?
o Low-level managers

THE BUSINESS ENVIRONMENT

Business environment: variety of factors that condition the firms development and
activity. Therefore, these factors have and impact on those
CHARACTERISTICS:
 Various
 Dynamic
 Changing
 Unknown

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BUSINESS ADMINISTRATION 1. THE CURRENT BUSINESS ENVIRONMENT

A. FACTORS AFFECTING ALL BUSINESSES IN THE ECONOMY

(entorno general/ macro environment)
 Economic factors: economic growth, unemployment rates, interest rates,
inflation, development…
 Social and cultural factors: education of the population, life-style,
traditions…
 Political and legal factors: trade regulations, minimum wage, competition
law…
 Technological factors: stream engine, internet, social media, machine
learning…
B. FACTORS AFFECTING SPECIFICALLY THE FIRM ITSELF
(entorno específico/ micro environment)
 Suppliers (productores de materias primas (raw materials)): the provide
inputs. Bargaining power – the more suppliers, the better for the firm
 Customers: the acquisition of products or services. Bargaining power vs
types of customers, number of customers, share of total sales…
 Competitors: fight for the same customers. Actual potential competitors
 Intermediaries: they help to promote and sell the product. Distribution
firms, media agencies, financial…
 Public and media: any group or mean which can shape opinion of potential
customers

C. GLOBALIZATION

Globalization: is the process of interaction and integration among people,

companies, and governments worldwide
Impact
 Reduction of barriers to international trade:
o Legal barriers: import tariffs, import quotas, regulation obstacles
o Economic barriers: transport and communication costs
o Trade agreements: NAFTA (USA, Canada, Mexico; 1989), ASEAN
(Malaysia, Philippines, Singapore, Thailand; 1967)
o Expansion of the market… but increased competition
o Recent trend against globalization in some developed countries,
protectionist measures
Consequences
 Production: more and potential better suppliers available, wider market,
new regions to share products
 Finance: financial deregulation has increased competition for funds
 Organization: delocalization of the production, outsourcing, increased
competition – need for more flexible organizational design

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BUSINESS ADMINISTRATION 1. THE CURRENT BUSINESS ENVIRONMENT

 Marketing: increased competition – lower prices, more quality products,

tougher to choose a market segment, more difficult to differentiate from
competitors
 Resources: availability, easy to access, democratization

D. DIGITALIZATION
Digitalization: it is the process of implementing new information and
communication technologies to reduce costs related to storing, processing,
transmitting and analyzing information and improve efficiency
Impact
 Increased storage capacity and processing speed
 Cheaper, easier, and faster transmission of information
 Development of mobile devices and internet
Consequences
 Production: economies of scale, no need for actual stores, big data…
 Finance: easier to make financial decisions, blockchain technology,
cryptocurrencies
 Organization: cheaper and faster communication of information
(videoconferences, messages…) – decentralization and more flexible
structures
 Marketing: new ways to advertise (social media) and new distribution
channels (e-commerce)
 Resources: amount of information available, employee management
E. DIVERSITIY
Diversity: it is the ser of personal traits, values, visions, cultures,
organizational knowledge, methodologies and knowledge that define each of us
and therefore make us unique in our relationship with other people and social
groups
Diversity management challenges
 Discover and enhance corporate talent
 Learn about the diversity of all the company´s stakeholders
 Immigration
 Women in the labor market
 Cultural changes
Consequences
 Production: the best talent will produce the best product and services –
innovation, quality and differentiation
 Finance: happy people produce cheaper and better
 Organization: team work, collaboration, enrichment, variety of points of
view
 Marketing: innovation, creativity
 Resources: hiring management, policy, tolerance issues

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BUSINESS ADMINISTRATION 1. THE CURRENT BUSINESS ENVIRONMENT

F. SUSTAINABILITY
Sustainability: it is the capacity of quality producing, causing little of no
damage to society (including employees) or the environment and therefore
able to continue for a long time

Sustainability management challenges

 Social welfare: physical and mental well-being, care for the community
development
 Environmental impact: climate change, pollution, contamination…
Consequences
 Production: costs and development of good manufacturing practices and
processers
 Finance: evaluation of financial resources management
 Organization: awareness and education
 Marketing: transparency, honesty
 Resources: selection of people and care plans

EXAMPLES – EXERCISE
 GLOBALIZATION: it is the process of interaction and integration among people,
companies, and governments worldwide – covid
 DIGITALIZATION: it is the process of implementing new information and
communication technologies to reduce costs related to storing, processing,
transmitting, and analyzing information and improve efficiency – e-commerce
 DIVERSITY: it is the set of personal traits, values, visions, cultures,
organizational knowledge, methodologies and knowledge that define each of
us and therefore make us unique in our relationship with other people and
social groups – google
 SUSTAINABILITY: it is the capacity of quality producing, causing little or no
damage to society (including employees) or the environment and therefore
able to continue for a long time – Denmark

CORPORATE SOCIAL RESPONSIBILITY

A. INTRODUCTION
 According to the view proposed by the classical economic theory, the
aim or the firm is to create PROFIT
 To maximize the difference between the value of outputs and the value
of inputs (example: maximize profits)
o Who is in charge of defining profit, how much profit should be
generated? MANAGEMENT
o Who is involved in the generation of profit? FIRM
o Who is this profit for, what is the purpose? SHAREHOLDERS

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BUSINESS ADMINISTRATION 1. THE CURRENT BUSINESS ENVIRONMENT


Shareholders: owners of
the firm
 Board of directors:
elected by shareholders
to currently govern the
firm, the owners
could be part of this
or not
 Board of officers

(Management): elected by the BoD, in which the right tasks are assigned
 Apart from shareholders, the firm should take into account other
groups of interest when defining its goals and its actions. These are the
stakeholders
 According to the organization theory, different groups are affected by
(and share the risks of) the decisions taken by managers:
o Because they have invested some financial value into the firm
o Because their wealth depends on the firm´s results
 Therefore, sus groups have proper interests in participating in the firm´s
actions
 WHAT IS CSR: beyond the statutory obligation to comply with
legislation, organizations voluntarily take further steps by taking
responsibility for the impact of their actions on the society at large

o IMPACT
 Economic dimension: profitability, liquidity, productivity
 Social dimension: workers motivation and satisfaction,
better working conditions, employment creation

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BUSINESS ADMINISTRATION 1. THE CURRENT BUSINESS ENVIRONMENT

 Environmental dimension: saving resources, pollution

 DEFINITION: a variety of practices that imply following a set of

principles related to ethics – behavior.

B. TOWARD SHAREHOLDERES: any group of interest on which a

company can cause any impact
 Key aspects about shareholders (these aspects are financial)
o Investment: amount of money someone decides to put in a
company to gain profit (return)
o Dividends: the money you get from the investment, the
managers decide how much they are going to give to the
investors
o Capital gain: how much the company has increased its value
from the capital (the possessions that the company has) point of
view. The capital increases when the company acts correctly
o Return: how much money you have earned
o Liquidity: the money you have at an exact moment
o Information: information about the company to help to decide
where to invest
o Reputation: the bran image, how good companies act
C. TOWARD CUSTOMERS
 Key aspects about customers
o Product: Quality, design, safety, functionality
o Services (themselves or related to products)
o Price
o Place
o Image
o Availability
o CRM: Customer Relationship Management
o Information
o Customer care
o Warranty

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BUSINESS ADMINISTRATION 1. THE CURRENT BUSINESS ENVIRONMENT

o Aftersales

o Treatment, loyalty, reliability, ethics, functionality, innovation

and technology, feasibility, sustainability, convenience…

D. TOWARDS LENDERS: people who lend money to the company (loans:

préstamos)
 Key aspects as a lender
o Risk: when you make a decision, you take a risk
o Transparency: if company is transparent enough
o Compliance (cumplimiento): has to do with the laws, does the
company comply correctly
o To comply with obligations:
o Payments: does the company pay correctly (the timing is
important
o Liquidity: the cash itself
o Financial and economic status: is the company financial and
economically safe
E. ENVIRONMENTAL RESPONSIBILITY
 Aspects involved as regards environmental responsibility
o Providers selection
o Production methodology
o Pollution
o Logistics
o Waste management
o Safety
o Transparency
o Compliance
o Community
o Social responsibility
o Government regulation
F. FINAL CONSIDERATIONS
 How is CSR defined, developed and communicated?
o Policy
 How to define CSR?
o Taking into account the different interests of stakeholders
 How is CSR measured?
o The value of the firm
G. CSR POLICY
 It is the document which contains the main guidelines as regards all
aspects about the company behavior towards the stakeholders
 It includes and describes principles, fundamentals, priorities and
responsible (people)

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BUSINESS ADMINISTRATION 1. THE CURRENT BUSINESS ENVIRONMENT

 The CSR policy needs to be developed through procedures, which will

describe rules and concrete activities to be implemented by the
different areas of the company, firm or corporation
 Some independent organizations help firms to assess their stakeholders
´ wealth and comply with CSR

H. CSR DEFINITION
 Activity, interest of various stakeholders, strategy, objectives
I. CSR COMMUNICATION
 Internally – employees, shareholders
o Active participation in definition and election of projects
o Reporting
o Training
 Externally – clients, lenders, society
o Advertising
o Reporting
o Sponsoring and supporting activities
J. CSR MEASUREMENT
 Internally
o Internal auditory
o Research
o Surveys
o Complaint office
 Externally: social, economical
o Brand value
o Internal auditory
o Research
o Surveys
o Complaint office
o Public recognition: certificates and awards

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