- 1. Introduction to Business Management Andrea Tracogna
Professor of Management, University of Trieste
2. What is a firm? Why do firms exist?
- Firms exist to coordinate and motivate peoples economic
activity
- When markets fail to yield an efficient solution to the
problems of coordination and motivation other mechanisms may be
better. The firm is the principal such alternative.
3. The Firms Stakeholders
- Who are the stakeholders? Anyone who has an interest in the
success of a business
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- Local Community/Environment
4.
Rate of innovation Long term Survival MVA Total Stockholder
Return Customer Satisfaction ROS Levels of employement EVA Net
Income Rate of growth Brand awareness Market share Sustainability
ROCE Net Margin Earnings Growth ROE 5. Corporate Governance Whose
that job? 6. What Businesses Do
- Meet the needs of stakeholders
- Buy inputs raw materials, labour, machinery and equipment,
land
- Produce outputs goods and services
- Focus on efficient use of resources
7. A firms resource portfolio
-
-
- Organizational competencies
8. What Businesses Do Take Inputs Process/Manufacture Output
Costs Fixed and Variable Revenue Profit 9. THE CASH-TO-CASH CYCLE
Transformation Inventories Inventories Credits delay Debts delay
Total cycle: Economic cycle + CD Economic cycle: I1 + T + I2
cash-to-cash cycle I1 T I2 CD DD 10. Value offer Services Price
Customer relation Communication Promotion Store experience Product
A Firms value offer Brand 11. THE SUPPLY CHAIN Focal firm Suppliers
Distributors Customers 12. What happens inside a Supply Chain?
Wharehouse Subsidiary End customer Plant and suppliers POS
Suppliers Focal firm Reseller Information flow Materials flow Cash
flow Paper flow 13. THE VALUE SYSTEM Focal firm Suppliers
Distributors End Customers Complementors Logistic services POS
management Design Research Communities Informationproviders Tech
systems 14. THE VALUE CHAIN FIRMS INFRASTRUCTUREHRMPRODUCT
DEVELOPMENT AND TECHNOLOGY PROCUREMENTINBOUND LOGISTICS OPERATIONS
OUTBOUND LOGISTICS MARKETING AND SALES SERVICES MARGIN MARGIN
PRIMARY ACTIVITIES SUPPORT ACTIVITIES 15. TOWARDS THE HOLLOW
CORPORATION? 16. What is outsourcing?
- Outsourcing is a term coined to describe the practice chosen by
many companies of contracting out to other companies some - usually
manufacturing - activities of the value chain that used to be
carried out in-house.
The big question is: Has outsourcing gone too far? 17.
Outsourcing in the car industry
- According to a recent study by McKinsey & Co., nearly 2/3
of the total value-added of the car industry in the United States
(which amounted to 750 billion dollars in 2001) comes from
suppliers of component and other materials, while the remainder
comes from OEM assemblers.
- Companies such as General Motors cut their workforce down to
388,000 from 761,000 in the 1990-1999 period, although the number
of cars manufactured went from 7.45 million up to 8.78
million.
- In the same period, Fiat Auto cut its workforce down to 82,450
from 133,431 although maintaining the same output.
18. There can be different reasons for outsourcing
- First of all, the search forflexibility . Firms outsource
production when demand is high and cancel it when orders are
cancelled or demand falls. Thanks to the substitution effect
between fixed and variable costs they obtain higher cost
elasticity.
- Lower costs , especially when the firm can benefit from
suppliers economies of scale (a supplier can integrate demand from
a large number of clients, as against the purchasing firm) and
economies of specialisation (a supplier can specialise in single
activities and reach world-class levels of excellence).
- Less investmentsin fixed (machinery, equipment, production
lines, transport systems) and working capital (input and output
stocks), which are undertaken by suppliers.
- Less investments in R&D as firms can take advantage of the
numerous innovations available on the outside supply market.
- A greaterfocusof the outsourcing firm on client needs and
services and product development activities, i.e. on key activities
for value creation;
19. From Fordism to Post-Fordism
- The era of vertical integration is over (R. Reich)
- Good bye to the old dividing line between manufacturing and
services (The Economist)
- The new international division of labor, and the
deindustrialization of the West
- The new emerging business models: Virtual organizing, hollow
corporations, boundaryless organizations
Henry Ford Taiichi Ohno 20. Global sourcing and offshoring
- Seen through the labels of the products we buy, the world looks
much smaller than it actually is.
- When we visit a footwear or clothing outlet in a Western
country we find trousers coming from Malaysia, shirts from Turkey,
jackets from the United States and jeans made in Guatemala and,
perhaps, high quality shoes coming from the Marche region or
Vigevano in Italy.
Outsourcing + Globalization = Global sourcing Global
sourcingOffshoring 21. Global sourcing: the Nike case
- Nike has relocated production of its footwear and clothing to
51 countries where its third party production units employ more
than 500,000 people (as against approximately 14,000 people
directly employed by the multinational).
- From its headquarters in Beaverton, Oregon, Nike manages a
worldwide virtual company combining internal R&D functions with
a low cost manufacturing strategy. For instance, its Air Max model
is designed in sites in Oregon and Tennessee and developed jointly
by American and Asian technicians in the USA, Taiwan and South
Korea. Sneakers are then assembled in South Korea (mans size) and
Indonesia (boys size) from dozens of components supplied by firms
in Japan, South Korea, Taiwan, Indonesia and the United States.
Similarly, Nike outsources distribution to firms that specialise in
logistics services.
22. Nike Supply chain: costs, margins and profit(www.nike.com)
23. Global sourcing and Corporate Social Responsibility
- Recently, thanks also to pressure from consumers groups,
governments, trade unions organisations and non-governmental
organisations, there is a more mature awareness of the social
accountability of Western companies involved in global sourcing
processes. Most significant measures include the voluntary adoption
of Ethical Codes of conduct by multinationals such as Levis, The
Gap, Reebok and Nike.
24. The natural evolution of outsourcing is Business Process
Outsourcing (BPO)
- In BPO the contract manufacturer is responsible for managing a
complete business process on behalf of the client.
- As a result, for instance, contract manufacturing is more often
connected to provision of logistics services and management of
on-line orders.
Supply Chain Management is the coordination of information,
manufacturing and logistics flows We are witnessing the growth and
consolidation of a logistics services market made up of firms that
can replace their clients in all or part of their logistics
activities (Third party logistics providers) or play the role of
web designers or negotiators of relationships with specialised
operators (Fourth party logistics providers 25. The limits and
risks of outsourcing
- Outsourcing requires every company to find a delicate balance
between two opposite objectives:
- Exploiting opportunities (competitive advantages) offered by
existing markets for resources;
- Limiting strategic vulnerability in the event of a break-up of
relationships with suppliers or overall market failure.
- It is not just a matter of deciding how much to make or how
much to buy. The issue can be dealt with through negotiating, or
structuring the outsourcing relationship in such a way it can meet
monitoring needs and ensure necessary flexibility. In this respect
there is a large number of outsourcing agreements between the two
extremes of make and buy including partial integration and
long-term contracts.
26. Balancing vertical integration and outsourcing: the Zara
case
- A clever balance between vertical integration and outsourcing.
This seems today to be the recipe for success of many companies
such as the Spanish Zara (controlled by the holding Inditex). With
745 stores in 56 countries, Zara is the retail clothing chain with
the highest expansion rate in Europe. As against many competitors,
Zara manufactures in-house more than half of all garments it sells,
at the Spanish plant in La Coruna. At the core of its success is a
vertically integrated modelwhich covers all phases of the fashion
process: design, manufacture, logistics and distribution to its own
stores.
27. Country-specific advantages and Competitiveness:Porters
diamond
- Enterprises can benefit from the synergies created by the
presence within the same Country - of demanding purchasers,
specialized suppliers, high-skilled human resources and developed
financial and support institutions.
Demand SupportIndustries Factors ofProduction Rivalry