Task 7 – The need of understanding the accounting statements in order to grow the business.

1. How to read and understand balance sheets and income statements?

Balance sheet:

The balance sheet presents a company’s financial position in a specified date, and it states the company’s assets, liabilities and the owner’s/stakeholders’ equity.

It allows to see what a company owns as well as what it owes to other parties as of the date indicated in the heading.

This information can interest banks, current investors, potential investors, company management, suppliers, some customers, competitors, government agencies, and labor unions.

For example, the banker who needs to determine whether or not a company qualifies for additional credit or loans will need it.

To understand the balance sheet:

1. Know the Types of Assets
2. Learn the Different Liabilities
3. Know what is Shareholders’ Equity
4. Analyse the balance sheet with ratios

 

Assets = Liabilities + Owner’s Equity

Owner’s equity and liabilities can be thought of as a source of the company’s assets. They can also be thought of as a claim against a company’s assets. For example, a company’s balance sheet reports assets of $100,000 and Accounts Payable of $40,000 and owner’s equity of $60,000. The source of the company’s assets are creditors/suppliers for $40,000 and the owners for $60,000. The creditors/suppliers have a claim against the company’s assets and the owner can claim what remains after the Accounts Payable have been paid.

Assets: things that the company owns.

Non-current assets:

– land, buildings, equipment, furniture, fixtures, delivery trucks, automobiles, etc.

-Intangible assets- Some examples of intangible assets include copyrights, patents, goodwill, trade names, trademarks, mail lists, etc.

*Trade names and trademarks that were developed by a company (as opposed to buying them from another company at a significant cost) may not appear on the balance sheet, even though they might be a company’s most valuable asset

Current assets:

Cash and other resources that are expected to turn to cash or to be used up within one year of the balance sheet date. (or one operating cycle.) Current assets are presented in the order of liquidity, i.e., cash, temporary investments, accounts receivable, inventory, supplies, prepaid insurance.

Liabilities: obligations of the company, for example

-Unearned revenues: a liability account that reports amounts received in advance of providing goods or services. When the goods or services are provided, this account balance is decreased and a revenue account is increased

– accounts payable: this current liability account will show the amount a company owes for items or services purchased on credit and for which there was not a promissory note. This account is often referred to as trade payables (as opposed to notes payable, interest payable, etc.)

Owner’s equity:

Shareholders’ equity is the initial amount of money invested into a business. If, at the end of the fiscal year, a company decides to reinvest its net earnings into the company (after taxes), these retained earnings will be transferred from the income statement onto the balance sheet and into the shareholder’s equity account. This account represents a company’s total net worth

 

Income statement

Basically, the income statement shows how much money the company generated (revenue), how much it spent (expenses) and the difference between the two (profit) over a certain time period (operating year).

The income statement is important because it shows the profitability of a company during the time interval specified in its heading.

Keep in mind that the income statement shows revenues, expenses, gains, and losses; it does not show cash receipts (money you receive) nor cash disbursements (money you pay out).

Net Sales: These terms refer to the value of a company’s sales of goods and services to its customers. Even though a company’s bottom line (its net income) gets most of the attention from investors, the top line is where the revenue or income process begins. Also, in the long run, profit margins on a company’s existing products tend to eventually reach a maximum that is difficult on which to improve. Thus, companies typically can grow no faster than their revenues.

Cost of Sales (cost of goods/products sold (COGS), and cost of services): For a manufacturer, cost of sales is the expense incurred for labor, raw materials, and manufacturing overhead used in the production of goods. While it may be stated separately, depreciation expense belongs in the cost of sales. For wholesalers and retailers, the cost of sales is essentially the purchase cost of merchandise used for resale. For service-related businesses, cost of sales represents the cost of services rendered or cost of revenues. (To learn more about sales, read Measuring Company Efficiency, Inventory Valuation For Investors: FIFO And LIFO and Great Expectations: Forecasting Sales Growth.)

Gross Profit (gross income or gross margin): A company’s gross profit does more than simply represent the difference between net sales and the cost of sales. Gross profit provides the resources to cover all of the company’s other expenses. Obviously, the greater and more stable a company’s gross margin, the greater potential there is for positive bottom line (net income) results.

Selling, General and Administrative Expenses: Often referred to as SG&A, this account comprises a company’s operational expenses. Financial analysts generally assume that management exercises a great deal of control over this expense category. The trend of SG&A expenses, as a percentage of sales, is watched closely to detect signs, both positive and negative, of managerial efficiency.

Operating Income: Deducting SG&A from a company’s gross profit produces operating income. This figure represents a company’s earnings from its normal operations before any so-called non-operating income and/or costs such as interest expense, taxes and special items. Income at the operating level, which is viewed as more reliable, is often used by financial analysts rather than net income as a measure of profitability.

Interest Expense: This item reflects the costs of a company’s borrowings. Sometimes companies record a net figure here for interest expense and interest income from invested funds.

Pretax Income: Another carefully watched indicator of profitability, earnings garnered before the income tax expense is an important bullet in the income statement. Numerous and diverse techniques are available to companies to avoid and/or minimize taxes that affect their reported income. Because these actions are not part of a company’s business operations, analysts may choose to use pretax income as a more accurate measure of corporate profitability.

Income Taxes: As stated, the income tax amount has not actually been paid—it is an estimate, or an account that has been created to cover what a company expects to pay.

Special Items or Extraordinary Expenses: A variety of events can occasion charges against income. They are commonly identified as restructuring charges, unusual or nonrecurring items and discontinued operations. These write-offs are supposed to be one-time events. Investors need to take these special items into account when making inter-annual profit comparisons because they can distort evaluations.

Net Income (net profit or net earnings): This is the bottom line, which is the most commonly used indicator of a company’s profitability. Of course, if expenses exceed income, this account caption will read as a net loss. After the payment of preferred dividends, if any, net income becomes part of a company’s equity position as retained earnings. Supplemental data is also presented for net income on the basis of shares outstanding (basic) and the potential conversion of stock options, warrants etc. (diluted). (To read more, see Evaluating Retained Earnings: What Gets Kept Counts and Everything You Need To Know About Earnings.)

 

References:

http://www.accountingcoach.com/balance-sheet/explanation/1

http://www.accountingcoach.com/income-statement/explanation/1

http://www.investopedia.com/articles/04/031004.asp

http://www.investopedia.com/articles/04/022504.asp

 

financial statements manipulations:  http://www.investopedia.com/articles/fundamental-analysis/financial-statement-manipulation.asp

 

How to increase profitability using the information from the accounting statements?

There are a few ways to measure company’s profitability:

Profit margin analysis:

In the income statement, there are four levels of profit or profit margins – gross profit, operating profit, pretax profit and net profit. The term “margin” can apply to the absolute number for a given profit level and/or the number as a percentage of net sales/revenues.

The different calculations can help us understand the profitability in the different aspects of the company and know which part is less/more profitable.

Gross Profit Margin – A company’s cost of sales, or cost of goods sold, represents the expense related to labor, raw materials and manufacturing overhead involved in its production process. This expense is deducted from the company’s net sales/revenue, which results in a company’s first level of profit, or gross profit. The gross profit margin is used to analyze how efficiently a company is using its raw materials, labor and manufacturing-related fixed assets to generate profits. A higher margin percentage is a favorable profit indicator.

Industry characteristics of raw material costs, particularly as these relate to the stability or lack thereof, have a major effect on a company’s gross margin. Generally, management cannot exercise complete control over such costs. Companies without a production process (ex., retailers and service businesses) don’t have a cost of sales exactly. In these instances, the expense is recorded as a “cost of merchandise” and a “cost of services”, respectively. With this type of company, the gross profit margin does not carry the same weight as a producer-type company.

Operating Profit Margin – By subtracting selling, general and administrative (SG&A), or operating, expenses from a company’s gross profit number, we get operating income. Management has much more control over operating expenses than its cost of sales outlays. Thus, investors need to scrutinize the operating profit margin carefully. Positive and negative trends in this ratio are, for the most part, directly attributable to management decisions.

A company’s operating income figure is often the preferred metric (deemed to be more reliable) of investment analysts, versus its net income figure, for making inter-company comparisons and financial projections.

Pretax Profit Margin – Again many investment analysts prefer to use a pretax income number for reasons similar to those mentioned for operating income. In this case a company has access to a variety of tax-management techniques, which allow it to manipulate the timing and magnitude of its taxable income.

Net Profit Margin – Often referred to simply as a company’s profit margin, the so-called bottom line is the most often mentioned when discussing a company’s profitability. While undeniably an important number, investors can easily see from a complete profit margin analysis that there are several income and expense operating elements in an income statement that determine a net profit margin. It behooves investors to take a comprehensive look at a company’s profit margins on a systematic basis.

Return on assets analysis

This ratio indicates how profitable a company is relative to its total assets. The return on assets (ROA) ratio illustrates how well management is employing the company’s total assets to make a profit. The higher the return, the more efficient management is in utilizing its asset base

effective tax rate:

This ratio is a measurement of a company’s tax rate, which is calculated by comparing its income tax expense to its pretax income.

 

References:

http://www.free-management-ebooks.com/faqfi/performance-05.htm

http://www.investopedia.com/university/ratios/profitability-indicator/ratio1.asp

more-

http://www.graduatetutor.com/accounting-tutors/income-statements/

http://smallbusiness.chron.com/determines-companys-profitability-16116.html

http://www.dummies.com/business/accounting/understanding-profitability-ratios-in-bookkeeping/

http://www.investopedia.com/university/fundamentalanalysis/fundanalysis6.asp

 

http://www.investopedia.com/terms/r/ratioanalysis.asp

 

Product margin and product markup

The two concepts are telling different sides of the same story. The profit margin is addressing the profit as it relates to selling price. Markup addresses the profit as it relates to cost price.

Example

profit margin in these contexts is referring to gross profit margin for a specific sale, which is the profit earned on a product expressed as a percentage of total revenue from that product. For instance, if a company spent $1,000 for a good and received $3,000 in revenue, then gross profit margin is equal to ($3,000 – $1,000) / ($3,000), or 66.6%.

Markup is the retail price a product that is expressed as a percentage of wholesale costs; for instance, using the same numbers as the example above, markup would be equal to ($3,000 – $1,000) / ($1,000), or 200%.

 

Reference:

http://www.investopedia.com/ask/answers/102714/whats-difference-between-profit-margin-and-markup.asp

PBL Task 6 – How to take a business from idea to reality.

1. What are the steps in a starting process of a company?

1. Determine your offering – have the business idea. According to Ken Sundheim and his article in Forbes magazine, it is important you will think what do you want to do for a career, and start your business based on your passion..

2. Have a business plan, describe and determine the followings:

– Your expertise (experience, studies)

– Description of the product (for example its features)

– Description of the customers (who are they, their characteristics)

–  Your differentiation (what makes you different from the rest)

A recommendation from same article: If you don’t know it yet-

it will come with time and you will learn what aspects of the product or service are important and secondary to the client. Until then, think price and quality.

– Your future plans, how do you plan to expand and how will you do it.

– Marketing and advertisements and how you will do it (start with a website)

– Risk analysis

– Intellectual Property Right if needed

– Estimate funds, profitability and sales

3. Determine your pricing and have the initial capital

4. Select a business form

5. Deal with licensing and registrations.

6. Learn how to sell

 

1.1. How to estimate startup cost?

1. Estimate of one-time costs needed to get your doors open (for example, creating your LLC or acquiring a permit, equipment such as computers, telephones, machinery needed or other fixtures.

2. Develop an operating budget. Calculate monthly costs and take in to account for example;

• Rent
• Figure out the cost of raw materials, plus any production costs, or the wholesale prices of products you’ll be selling. Calculate shipping and packaging costs, sales commissions and other costs related to the sale of your product.
• Calculate salaries plus benefits you would offer, payroll-related taxes, overtime pay and workers’ compensation.
• Marketing.For example, advertising campaigns, the sign above your door and meals or entertainment with clients.
• Administrative and operational costs.Keep track of how much you’ll need to pay for insurance (to protect against property damage, business interruption and floods) and office supplies. Don’t forget utilities, a commonly overlooked expense, and other charges, such as phone and Internet service, cleaning and property maintenance.
• Professional fees.Add up how much you’ll pay for your attorney, accountant or other advisor or consultant.

It is recommended to have initial capital for first six months or even the first year of the business.

 

References:

https://prezi.com/hmih9mo11kgu/guide-to-entrepreneurs-in-finland-by-juan-borra/

http://www.forbes.com/sites/kensundheim/2013/05/03/the-7-steps-to-starting-a-business/#1b50f7b054d4

#  https://www.sba.gov/starting-business/how-start-business/10-steps-starting-business

http://www.wsj.com/articles/SB125451683482660349

https://www.entrepreneur.com/article/218131

 

2. What are the ways of financing a startup company?

1. Fund your startup yourself. Savings.

2. Using credit card lines.

3. Family and friends.

4. Using the internet to find a crowd of like-minded people, with small amount each, to back your efforts.

5. Apply to an angel investor

6. Using your retirement account

7. Bank loan

8.     Solicit venture-capital investors. These are professional investors who invest institutional money in qualified start-ups, usually with a proven business model, ready to scale. They typically look for big opportunities, needing a couple of million dollars or more, with a proven team.

9. There are many private companies and non-profits that offer small loans to promote entrepreneurship, to individuals who would not normally quality for bank financing. Peer-to-peer lending: This is a process whereby a group of people comes together to lend money to each other. It’s been around many years, in examples like small business groups or ethnic groups supporting similar efforts. In the startup context, look for a successful entrepreneur peer willing to fund similar new ideas.

10. Vendor financing. If you need tangible products for inventory, many manufacturers and distributors can be convinced to defer your payment until the goods are sold by you. This really means an extension of the normal 30-day payment terms to a period of months or longer, depending on your credit worthiness and extra fees.

 

References:

http://www.forbes.com/sites/martinzwilling/2013/03/06/10-more-creative-ways-to-finance-your-startup/#af094632f0df

http://www.investopedia.com/articles/personal-finance/021015/top-5-ways-finance-your-business-startup.asp

https://www.entrepreneur.com/article/237926

 

3. What are the legal actions needed to be done when I start a business?                                            

1. Register at the NBPR (National Board of Patents and Registration) and the Tax Administration.

A basic declaration to the Trade Register must be filed (in either Finnish or Swedish) as the National Board of Patents and Registration specifies. For each type of business, a separate basic declaration form must be used.

– Decide on the form of business. Company form has an effect on how a company is taxed. It is worth taking this into account when choosing a company form.

– Have a company name.

Where: NBPR office and Tax office

 

2. Deposit the paid-in share capital in a bank; pay the registration fee and get a receipt.

Open an account for your company providing the necessary forms

Where: bank of private choice

 

3. Find out which permits and licenses you will need (depends on business type)

Even though in Finland there is freedom of trade, for certain industries, you do need a licence for the sake of the community, the environment and consumer safety. In other fields, you must notify the authorities of your operations, even though an official licence is not required. For example, companies selling foodstuffs, or a beauty salon, must be carried out and a licence obtained from the municipal health authorities, before such premises can be utilised.

Where: Licensing authorities are municipal or city authorities, police districts, Regional State Administrative Agencies (aluehallintovirasto) and ministries.

 

4. Make sure you have the necessary insurance

For the entrepreneur

• Pension insurance: Self-employed persons’ pension insurance (YEL-vakuutus) is mandatory, if the self-employed person is between the age of 18 and 67 and receives at least 7 557.18 euros (situation in 2016) of income per year from his or her business
• Accident insurance is not mandatory

For the employees

• The employer must provide pension insurance, accident insurance, (and medical insurance?). the employer must pay unemployment benefit contribution

Where: private insurer

 

5. Organise your accounting

In Finland every entrepreneur has a legal obligation to keep books.

Where: you can do it yourself or hire an accounting firm to handle your company’s bookkeeping for you

 

References:

In finland:

http://www.doingbusiness.org/data/exploreeconomies/finland/starting-a-business/

http://contactfinland.fi/editorial/setting-business-finland/

http://www.infopankki.fi/en/living-in-finland/work-and-enterprise/starting-a-business

http://www.infopankki.fi/en/living-in-finland/work-and-enterprise/obligations-of-the-entrepreneur

http://uusyrityskeskus.fi/sites/default/files/Opas_englanti_2015_web_0.pdf

http://www.yrityssuomi.fi/en/yrityksen-perustaminen

http://www.eubusiness.com/europe/finland/home/business

 

general and more information:

http://mashable.com/2012/02/08/legal-steps-start-business/#xryM7p80qkqV

http://smallbusinessbc.ca/article/how-start-your-business-your-legal-requirements/

 

 

Task 5 – Key factors determining final product prices

What affect supply and demand of commodities and consumers’ goods?

Factors affecting supply of product:

1. Price: As price increases firms have an incentive to supply more because they get extra revenue (income) from selling the goods.
2. Cost of production
3. Number of producers (will cost an increase in supply)
4. Expansion in capacity of existing firms, e.g. building a new factory
5. An increase in supply of a related good
6. Climatic conditions
7. Improvements in technology, (e.g. computers, reducing firms costs)
8. Lower taxes reduce the cost of goods
9. Increase in government subsidies will also reduce cost of goods

 

Factors affecting demand of a product:

1. Price
2. An increase in disposable income enabling consumers to be able to afford more goods. Higher income could occur for a variety of reasons, such as higher wages and lower taxes.
3. An increase in the quality of the good e.g. better quality digital cameras encourage people to buy one.
4. can increase brand loyalty to the goods and increase demand. For example, higher spending on advertising by Coca Cola has increased global sales.
5. Substitutes and changes in their prices.
6. A fall in the price of complements will increase demand. E.g. a lower price of Play Station 2 will increase the demand for compatible Play Station games.
7. Weather: In cold weather there will be increased demand for fuel and warm weather clothes.
8. Expectations of future price increases. A commodity like gold may be bought due to speculative reasons; if you think it might go up in the future, you will buy now.

 

Factors affecting demand and supply of commodities:

1. Goals of the firm
2. Price of the substitutes
3. The price of factors of production: With the rise in the price of factors of production the cost of production rises. This result in decrease of supply and vice versa.
4. Change in technology: A change in technique of production may lead to a change in supply if the technique of production improves, cost of production will fall. Even at the same prices, producers will like to supply more and vice versa.
5. The price of the commodity: The supply of a commodity very much depends on its price. There is direct and positive relationship between the price of the commodity and its supply.
6. Expected change in price: In case producers expect an increase in the price, they will withdraw goods from the market. Consequently, supply will decrease. If price is expected to fall in future, supply will naturally increase.
7. Taxation policy: The production of the commodity is discouraged if heavy tax on its production is imposed. On the contrary, tax concessions encourage producers to increase supply.
8. Number of producers: If the number of producers producing a commodity increases, its supply will increase. With the exit of producers, the supply would decrease.
9. Internal peace and stability: Existence of internal peace and stability will increase the production and supply of a good. With political disturbances, labor unrest and wars production and supply of a good will be hampered.
10. Natural factors: Natural calamities like flood, drought and cyclone reduce the supply of a commodity. If natural disasters are absent, production and supply of a good will increase.
11. Means of transport: Goods transport and communication facilitates free and quick mobility of factors of production to the producing centers and the final products to the market. Presence of good means of transport and communication thus increases the supply of a good. The supply curve will shift to left.

 

References:

http://www.economicshelp.org/microessays/equilibrium/demand/

http://www.economicshelp.org/microessays/equilibrium/supply/

http://www.preservearticles.com/201103104455/factors-influencing-supply-of-a-commodity.html

 

What factors in production dictate final products’ prices?

The factors that affect the final products are:

1. Cost of the product
2. Variable costs
3. Fixed costs
4. Production Productivity: as productivity falls, the marginal cost of production will increase

The costs of the product include the amount spent on:

1. product development
2. testing
3. packaging

the company’s total costs include both fixed costs and variable costs.

Fixed costs are costs that a company must pay regardless of its level of production or level of sales. A company’s fixed costs include items such as rent, leasing fees for equipment, contracted advertising costs, and insurance.

Variable costs are costs that change with a company’s level of production and sales. Raw materials, labor, and commissions on units sold are examples of variable costs.

The point at which total costs equal total revenue is known as the breakeven point (BEP). For a company to be profitable, a company’s revenue must be greater than its total costs. If total costs exceed total revenue, the company suffers a loss.

–

Also affecting: Costs related to promotion and distribution. For example, when a new offering is launched, its promotion costs can be very high because people need to be made aware that it exists. Thus, the offering’s stage in the product life cycle can affect its price. A product may be in a different stage of its life cycle in other markets.

 

References:

http://2012books.lardbucket.org/books/marketing-principles-v1.0/s18-02-factors-that-affect-pricing-de.html

http://www.economicshelp.org/blog/glossary/costs-of-production/

 

What are the effects of competition (manufacturing, retailing, consuming level) on the prices?

Competition Among Buyers

Buyers compete with one another. The producers are aware that their product is in high demand, and they use this knowledge to set the price of the product for consumers. Competition determines market price because the more that product is in demand (which is the competition among the buyers), the higher price the consumer will pay and the more money a producer stands to make.

Competition of Sellers

Not only does the demand of consumers for the product affect price, but so does the relationship among the different producers of the product. Competition among sellers usually deals with who has the best price. This will also help determine the price. Greater competition among sellers results in a lower product market price. If the same product has numerous producers instead of only one, the price would be lower because the producer knows the consumer could get the toy somewhere else.

 

The cycle of competition between sellers never ends. People are always battling for goods that the sellers have, and people’s wants are endless. As long as there are buyers wanting things, then there will be competition between sellers.

 

References:

http://study.com/academy/lesson/impact-of-competition-on-the-quality-quantity-price-of-goods.html

 

Pricing under monopolistic and oligopolistic competition:

http://www.jbdon.com/pricing-under-monopolistic-and-oligopolistic-competition.html

 

Task 4 – Risks and consequences of having a single commodity economic policy

The risks of having a single commodity economy

 The overall export performance of the country is inevitably tied to trends and fluctuations in the revenues from that commodity.

The risks are:

1. Possible changes in demand in the world (due to change  trends or people’s needs for example).
2. Changes in world prices: the total export earning can decrease if there are changes in the commodity prices in the world.
3. If there is dependency of the product production on external factors like weather, when problems arrive the whole export revenue will decrease.
4. Other markets and competition will decrease the revenue.

 

References:

http://www.fao.org/docrep/005/y3733e/y3733e0d.htm

 

How does the global economy affect national economies and commodity prices?

The global economy is affecting the commodity prices and vice versa.

The countries’ economies are interdependent since they are exporting to and importing from each other.

The commodity prices in the world are affecting different countries in different ways:

Low commodity prices are an advantage for industrialized countries- A price increase is generally a negative event for industrialized economies that are importing raw materials, such as Europe, Japan and the United States, while a falling price is a positive event.

High prices favour emerging countries, producing and exporting raw materials. The collapse of commodity prices caused serious problems for some oil producers, such as Mexico, Indonesia and Russia, and to some exporters of agricultural products, such as Brazil and Argentina.

For example, The increase of oil prices during the ‘70s caused inflation and recession in Europe and the United States while oil producers were building a trade surplus and currency reserves.

 

References:

https://www.weforum.org/agenda/2016/03/why-the-fall-in-oil-prices-is-a-problem-for-everyone/

 

How to create economic growth through government policy?

Government can try to create economic growth by:

Devaluation: Devaluation is a deliberate downward adjustment to the value of a country’s currency relative to another currency, group of currencies or standard.

1. To Boost Exports
2. Reduce amount of import and increase demand for local products.
3. To Reduce government’s debt burdens

Take for example a government who has to pay $1 million each month in interest payments on its outstanding debts. But if that same $1 million of notional payments becomes less valuable, it will be easier to cover that interest.

Fiscal Policy: The government can boost demand by cutting tax and increasing government spending. Lower income tax will increase disposable income, encouraging consumer spending. Higher government spending will create jobs and provide an economic stimulus.

Cutting interest’s rate:  To boost AD, the Central Bank (or government) can cut interest rates. Lower interest rates reduce the cost of borrowing, encouraging investment and consumer spending. Lower interest rates also reduce the incentive to save, making spending more attractive instead.(Aggregate demand is the total demand for final goods and services in an economy at a given time.)

Lower Income Taxes:  It is argued that lower income tax can boost the incentive to work and increase labour supply. It is possible, if income taxes were excessive, then cutting them may encourage people to work more.

 Make more flexible labour markets: Highly regulated labour markets, with excessive regulation may discourage firms from employing workers and setting up in the first place. More flexible labour markets can thus provide a long term boost to investment.

The bad side- More flexible labour markets could increase job insecurity and lead to harmful effects on labour productivity.

Privatisation and deregulation: Privatizing industries can increase efficiency as private firms have a greater profit incentive to cut costs and boost productivity.

 

References:

http://www.economicshelp.org/blog/5272/economics/policies-for-economic-growth/

http://www.investopedia.com/articles/investing/090215/3-reasons-why-countries-devalue-their-currency.asp

 

 

TASK 3 – What actions need to be taken when a company is growing?

What are the risks and challenges for a growing company?

According to CEOs, presidents or founders of companies participating in the Inc. 5000 conference (annual gathering of entrepreneurs) the prominent challenges when a company is growing are related to hiring, managing, satisfying employees, for example:

• Understanding the type of people the company needs
• Having sufficient amount of people that you can delegate work to
• Working with young employee’s
• Maintaining/preserving the company’s culture when the number of people/locations is growing
• Having the right platform for recruiting new talented employees, retaining them and enabling them to perform at their best
• Managing with a lack of personnel when the demand is growing
• Balancing the needs of the company and its money usage with the need to grow your team is not easy, and when a company is growing managing its cash-flow is a demanding task for itself.

It is also challenging to concentrate on a strategy for future when there are a lot of small tasks that needs to be done in your routine.

When growing, the expenses of the company grow as well and therefore a company is taking a big risk because there is a possibility that the potential customer will not buy. Other risks can be for example starting the growth in a time that isn’t suitable for the company or taking an opportunity which is not the best one for the company.

 

References:

http://www.forbes.com/sites/johnhall/2013/11/03/12-challenges-faced-by-the-fastest-growing-companies/#37af6f359fa8

http://www.forbes.com/sites/sundaysteinkirchner/2013/05/18/growing-your-business-evaluate-the-risks-first/#47ac117c4e6d

 

How to structure a growing company?

When structuring a company for growing, you need to decide the type of structure it will have, identify smaller departments needed for your company and divide your current employees into these departments (based on their skills/specialities). You need to define the roles of each division and establish leadership and hierarchy in them. While smaller companies/teams can function without hierarchy, the need for explicit hierarchy grows when the company grows. You need to hire more people to handle the growing demand. There is a need to form basic rules and codes that might not have been needed before and create standard methods of operations and performance. Previously mentioned steps will prevent misunderstandings and assert that the employees know what you expect from them. Allow your division leaders to communicate freely and encourage them to share information and ideas. Communicate with your division leaders, create a board and involve them in decisions making.

 

References:

http://www.techrepublic.com/article/how-to-structure-your-startup-as-the-company-grows/

http://smallbusiness.chron.com/functional-structure-growing-business-21734.html

http://smallbusiness.chron.com/develop-organization-structure-4902.html

 

What are the roles and responsibilities of management in a growing company?

a. Managing employee satisfaction in a changing company.

According to Peter F. Drucker from his book “The Practice of Management”, the manager’s tasks are:

• set goals and objectives for the employees and measuring ways for the outcomes
• to coordinate the tasks and roles with the right people
• make sure information is spreading around
• motivate and develop the employees.

 

According to Mike Green, in his book “Change Management Masterclass: A Step-By-Step Guide to Successful Change Management” it is the management’s role to develop the possibility for change in the company. When implementing a change, management has few responsibilities:

• “Seeing the big picture”, the effect of the change on company, the changing relationship with stakeholders and other members in value chain
• Identify the places where there is a need for adapting, recognize when previous values or ways of operating are not relevant anymore and develop new ways. Recognize the challenges and resistances within the company
• Understand the impact of the change on the workers, their performance and help them dealing with it
• Make sure the employees are able to continue their work without interference.

Since growth is a type of change in the company, I think these statements are very relevant as answers for the question.

 

employee satisfaction:

According to Michael Burchell and Jennifer Robin, in their book “The great workplace”, the employee considers his workplace as a great one when he: trusts and enjoys the company of his

Colleagues and is proud of his work. It is the manager’s responsibility to work hard for creating this workplace. It is more than important that the manager understands that what he does and how he does it makes a huge difference for his employees.

According to the book, the aspects in the employee’s satisfaction are:

1. Credibility – open & accessible communication, integrity, competence in coordinating human & material resources
2. Respect- support, collaboration with employees in decisions, caring for employees
3. Fairness – impartiality, justice, equity.
4. Pride- in the personal job, in the team, company
5. Camaraderie- ability to be oneself, socially friendly and welcoming atmosphere, community – sense of “team”.

I did not read in the book about the employee’s satisfaction and the management’s responsibilities when going through change or growth of company, still, I think all above mentioned applies and the need for the management to act towards these goals in process of change is even greater.

It is manager’s responsibility to make sure he is interacting effectively with his employees, engaging them in the processes and reasoning decision making. It is also his responsibility to make sure the working environment is comfortable and that the workers treat each other with respect (when hiring, for example, management should think what kind of people will match the working atmosphere and culture).

 

References:

https://www.thebalance.com/the-10-essential-roles-of-a-manager-2275949

Change Management Masterclass: A Step-By-Step Guide to Successful Change Management. Mike Green, 2007.

The Great Workplace: How to Build It, How to Keep It, and Why It Matters. Michael Burchell and Jennifer Robin, 2011.

Task 2 – The Effect of Technological Advancement on Business’ Mission, Vision and Strategy

How to secure the company’s position by using market analysis tools?

A company is largely influenced by external factors and the constant changing environment, internal factors and the relationship between them. Therefore, it is important to use market analysis tools and constantly study your environment. The company should also analyze its own strengths and weaknesses and learn how to handle them to successfully manage the environment’s opportunities and threats.

To secure its position in the market the company needs to use the analysis results as a base for the decision making. The results should be used to:

• Make guidelines and set relevant objectives and goals, making sure the company adapts quickly to the environmental changes, keeping the business dynamic and innovating.
• Ensure the company is optimizing the usage of its resources (when the company truly understands its external and internal situation, it can use its resources better and not waste them in wrong places).
• Analyze the competitors’ position, strategies and act accordingly in order to protect and increase market share.
• Make best decision; when the company is aware of all its options, risks etc. it can make the best decision.
• To be aware of the company’s internal situation, identify the strengths and weaknesses of the business and manage them profitably.
• To find opportunities in the market and plan to take advantage of them.
• To identify/predict possible threats and try to take preventing steps regarding to it (or even try to come up with creative solutions to change the threat to an opportunity).
• To assess the attractiveness of the market in which the company operates.
• To take into account environmental changes (that might be threats/opportunities) such as:
  1. technological advancements
  2. economical
  3. political
  4. social/cultural etc.

References:

Business environment. T.R Jain, Mukesh Trehan, Ranju Trehan.

 

What are the characteristics that companies need to have in order to adapt and survive in the changing environment?

In order to survive in the changing environment a company needs to have and be well aware of their core competencies. Core competencies are activities that the company excels in, does better than competitors and they are its competitive advantage (for example designing, producing, technology development etc.). Since today’s environment is competitive and constantly changing it is important that companies will be flexible, innovating and fast in order to be able use their competences in a profitable way. It is also favorable for a company to have core products – basic products that are used to create the final company’s products.

“Hamel and Prahalad identify three criteria for identifying a core competency:

1. It must make a very large contribution to benefits the customer values.
2. It must open doors to a wide range of markets.
3. It must be difficult for competitors to reproduce or imitate.” (H. Silber, Kearny. page 114)

References:

1. Organizational Intelligence: A Guide to Understanding the Business of Your Organization for HR, Training, and Performance Consulting. Kenneth H. Silber and Lynn Kearny November 13, 2009. John Wiley & Sons
2. Strategic management: competitiveness & globalization. Michael A Hitt, R.Duane Ireland and Rober E.Hoskisson.

 

How to create a long-lasting mission and vision?

A long lasting mission is one that is based on company’s values and focuses on a greater goal than making money; it wishes to contribute to the larger environment. “More specifically, the objective suggest that the mission shall generate value for the customer, society and the economy.” (Plenkiewicz, page 62).

A long-lasting mission and vision are customer value oriented and are not driven by immediate business objectives and financial targets. They should inspire employees to work and to please the customer; Therefore, there is a need for them to also be specific enough to impact employees’ behavior. The employees, based on the mission and vision, need to understand that they have a role to fulfill when it comes to contributing to society, and that they are a part of the history of the company. A long-lasting mission and vision are also realistic and flexible.

References:

1. The executive guide to a business process management. Peter Plenkiewicz.
2. Marketing: an introduction. Twelfth edition. Gary Armstrong and Philip Kotler. Published by Pearson Education. 2015.
3. Strategic management (seventh addition). Richard Lynch. 2015.

 

How do you build strategy based on your mission and vision?

The objectives in the strategy should rephrase the generalities of the mission and vision statements into more specific activities; saying what action exactly will be completed and when. The actions made based on the strategy needs to be steps leading in to accomplishing the mission and vision.

For example, when a company is entering a market it should consider the mission and vision and think for which audience it can provide the value it wishes to provide in the mission/vision. When a company chooses its partners it should consider the mission/vision and see if the potential partners are contributing to achieving it. To give an example, a company that wishes to provide products for lower prices, for example, must partner with cheap producers.

References:

1. Strategic management (seventh addition) by Richard Lynch. 2015.
2. Strategic management competitiveness &globalization by Michael A Hitt, R.Duane Ireland and Rober E.Hoskisson.
3. Marketing: an introduction. Twelfth edition. By: Gary Armstrong and Philip Kotler. Published by Pearson Education. 2015.

 

Task 1

What is the role of the UAS to motivate student for work? 

It is the universities’ responsibility to prepare the students for working life by trying to simulate working life tasks, responsibilities, way of behaving, work environment, communication and so on.

From my experience, in many cases the student is interested in the studied subject as a theory, ideas or as interesting information to acquire but he doesn’t have any knowledge about what working in the field means. He has no information about the working tasks that are required or about the work environment. When a student graduates and goes to work he might get disappointed if there is a mismatch between his expectations and the reality.

Therefore, the closer the universities will be to working life, the higher chances there will be that the student’s motivation will stay stable. The student should understand already while studying if this field as an occupation is suitable for him, and not realise it only after graduation.

How to increase the recognition of UAS students?

The student’s recognition will increase when the university’s recognition will increase.

That can be done by creating a known brand:

First, the UAS’s must create to themselves a clear professional identity – which is the image that they have based on the way they perform and operate in the field of education: their way of educating, the type of students they are interested to bring to the work labor and so on. They should create basic standards and guidelines that must be met by each UAS.

Second, they need to make a common effort to market the concept of UAS and not only market themselves as an individual university. The UAS’s should have a common way of presenting themselves. representatives of the universities should market the concept in advertising, newspapers, social media and so on and talk about their work.

The UAS’s should aspire to make the UAS a widely known brand by continuing and increasing the number of international relationships and relationships inside Finland with companies and industries (again advocating for their type of teaching as a concept).

At last, it is important to emphasis the importance of the students as the representative of his own university but also of the concept of UAS and their type of educating, asking them to bring it to public discussion.

by sharing content: 

The UAS’s can create study materials to share online, for example in form of articles, create videos for youtube explaining different subjects and offer courses on webpages like coursera. Once the name of the university will appear when people are searching for information online – it will promote it.

What are the practical skills needed in the job market?

In today’s and future’s work environment there is an increasing need for skills such as creativity, innovativeness, design mindset and basic IT. There is a high demand for social skills such as teamwork and cooperation skills, communication skills, cross-cultural competency and virtual collaboration. Problem solving skills, information acquisition skills, negotiation and organisational skills are also needed.

“ employers’ anticipation of employability being linked with diverse social practices, not necessarily skills. They conclude that employability is more than just skills ”. (Puhakka, Rautopuro & Tuominen, p. 50). Skills in today’s work environment are not enough. There is also a need in the market for people who have practiced and perfected social competences.

 

References:

“Employability and Finnish University Graduates” by:  Antero Puhakka, Juhani Rautopuro, Visa Tuominen. From: European Educational Research Journal Volume 9 Number 1 2010 www.wwwords.eu/EERJ

Future work skills 2020 map. from: Institute for the future:  http://www.iftf.org/