Business Decisions and the Changing Conditions - Essay Example

Business Decisions and the Changing conditions Introduction The paper considers that there are many decisions that can be made. It considers that decisions have different results. It shows that the decisions made have to do with know ledge. But it also has to do with skill or judgment of the operational environment. It is similar to having an atlas. Reading the atlas is one thing. It is a tool to plan a trip. The atlas makes it possible to reach the destination. The atlas can help plan for obstructions along the way to the destination. The atlas as a tool is the firm r business. The destination is two fold. It is to produce a product or service and as a result earn income or wealth creation. This wealth is owned by the owners. The Firm This is an entity. The firm or organization needs resources. The resources are finance, production marketing labor research. These resources are brought together under leadership. This activity all operates under the constraints of time. Law There are agreed upon rules for the orderly functioning of society. These rules are enforceable. An example is the inventory that is gasoline. There must be rules for safety. Different jurisdictions will have somewhat different guidelines. The end result will be the same. A thing is never responsible for an action or in action. This reality of action is at the heart of the benefits and responsibilities of ownership. This law aspect sets the parameters for all that will follow in the decision making process. This gives the choice of having a proprietorship or partnership. Or we may choose to have a corporation. The corporation may be public or it may be private. This legal arrangement sets the tone for the inflow of finance and economics. Finance is the glue that makes business possible. Finance and Economics This area deals with the management of funds. Inventory results in the use of funds to acquire it. In finance there is the added requirement of insurance. This is a protection of funds in the event of loss. This area deals with the management of scarce resources. There are limited human resources. There is limited funds and space. The products for sale are limited. Of course there is a time limit. The business has to operate with a view to accounting periods. The inventory itself is a scarce resource. The Business Approach There are many approaches. One of them is to consider the flow of money as made up of four parts. There is the flow to land as rent, then the flow to labor as wages, next is the flow to capital as interest and finally the flow to entrepreneurship as profits. Another approach is to consider the business activities with five segments. There is finance, marketing, production, labor and research and development. This is a popular and in many cases very helpful when considering business activity. This is especially true when considering the corporation. Strategic Management I will be necessary to consider different aspects of an organization. The different aspects will generally require different techniques. This exercise looks at three techniques. First there will be the SWOT technique. This is generally considered the core of analysis in strategic management. Then there will be the cost price relationship. The third one is the four Cs. The second and third ones are relevant because the business serves the consumer market. This approach looks at the special dynamics of the consumer market. SWOT – Strengths weaknesses opportunities and threats. There are internal factors and there are external factors. Business strategy is the focus of improving the competitive position of the organization. This is viewed within the context of the particular industry. Strategies can be competitive or cooperative. The decision has to be made how to compete. In other words which approach will be used. Competitive strategies seek to out perform the competition. Once the decision is made the decision has to be made as to the basis to be used. Would it be on price or some other measure. The level of competitive intensity in an industry is determined by the attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An unattractive industry is one where the combination of forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition WT minimize weaknesses and avoid threats – defensive. There is a paradox. . The threat would be possible punitive government regulation. There is the need to be vigilant. One way to do this is to follow the law. This means considering any laws on the books. In addition it would be necessary to consider any proposed legislation. ST considers strengths to avoid threats. The company’s strength can be identified by its management skills. This management skill should be also considered its leadership skills (Goetz, Stephan J.; Rupasingha, Anil). The distinction is necessary. The reason is that management can be seen as the ability to accomplish the task efficiently. In the case of leadership, it is necessary to read the environment and know what the correct task is. In many cases this is described as having vision. WO use opportunities by overcoming weaknesses. This can be achieved by identifying more closely with the community. The company can achieve this by giving to charities. It would be necessary to also promote suitable existing charities. SWOT is one possible tool to be used in strategic management. It seeks to reduce the factors under consideration to four. Then it seeks to break them down into two broad categories. The two categories are internal and external. The internal factors are strengths and weaknesses. The external forces are opportunities and threats. The thought process is to consider the internal forces as being under the organizations control. And to consider the external forces as being outside of the organization’s control. This frame work makes it possible to have a mix of the letters. The objective is to increase strengths. To reduce the level of weakness or in other words become stronger in the weak areas. For the external factors the organization seeks to identify the opportunities. As the opportunities are identified the organization seeks to uses them to the best advantage possible. In the case of threats, the organization seeks to identify them. The organization then seeks to minimize the effects of the threat. The challenge is how to balance the management of the internal factors and the external factors. First there is the need to know of the factors and the level of impact. This requires knowing the dynamics of the operational environment. Societal pressure can change a possible opportunity into a threat or vice versa. An example would be low fuel prices. This could be an opportunity to increase profits. To another organization low fuel prices would be a threat. This is true of the organization earns high revenue from high fuel prices. In this context each organization is unique. It becomes a matter of skill to know what is relevant in any of the four areas of (SWOT) Cost price relationship The contribution margin represents the amount of income or profit the company made before deducting its fixed costs. Said another way, it is the amount of sales dollars available to cover (or contribute to) fixed costs. When calculated as a ratio, it is the percent of sales dollars available to cover fixed costs. Once fixed costs are covered, the next dollar of sales results in the company having income. It can be calculated using either the contribution margin in dollars or the contribution margin per unit. To calculate the contribution margin ratio, the contribution margin is divided by the sales or revenues amount Break-even Concept. The break-even point represents the level of sales where net income equals zero. In other words, the point where sales revenue equals total variable costs plus total fixed costs, and contribution margin equals fixed costs. Break-even point can be in dollars or units. The break-even point in sales dollars is calculated by dividing total fixed costs of by the contribution margin ratio. Another way to calculate break-even sales dollars is to use the mathematical equation. Another calculation using the mathematical equation is the same as the break-even sales formula using the fixed costs and the contribution margin ratio discussed here. The break-even point in units is calculated by dividing fixed costs of by contribution margin per unit. The break-even point in units may also be calculated using the mathematical equation where “Y” equals break-even units. Again it should be noted that the last portion of the calculation using the mathematical equation is the same as the first calculation of break-even units that used the contribution margin per unit. Once the break-even point in units has been calculated, the break-even point in sales dollars may be calculated by multiplying the number of break-even units by the selling price per unit. If the break-even point in sales dollars is known, it can be divided by the selling price per unit to determine the break-even point in units. The four Cs The Four Ps is being replaced by the Four Cs model, consisting of consumer, cost, convenience, and communication. The Four Cs model is more consumer-oriented and fits better in the movement from mass marketing to niche marketing. The product part of the Four Ps model is replaced by consumer or consumer models, shifting the focus to satisfying the consumer. Tesla Co. seeks that satisfaction by price sensitivity (Fishman, Charles). Pricing is replaced by cost, reflecting the reality that price is set by the market, not necessarily by the firm (if the price is too high, the firm will not sell enough and be forced to lower the price). Thus, the firm must focus on cost considerations rather than on what the correct price is to set. Place is replaced by the convenience function. Convenience takes into account the ease to buy a product, find a product, find information about a product, and several other considerations. Finally, the promotions feature is replaced by communication. Communications represents a broader focus than simply promotions. Communications can include advertising, public relations, personal selling, advertising, and any form of communication between the firm and the likely consumer. Broadly defined, optimizing the marketing mix is the primary responsibility of marketing. By offering the product with the right combination of the four Ps marketers can improve their results and marketing effectiveness. Making small changes in the marketing mix is typically considered to be a tactical change (George S. Day). Making large changes in any of the four Ps can be considered strategic. There can be large or slight changes in prices. Such changes are called strategic or tactical pricing. Of course the product is still the same. Pricing is closely linked to potentially relate promotional offer. The term marketing mix however, does not imply that the 4 P elements represent options. They are not trade-offs but are fundamental marketing issues that always need to be addressed. They are the fundamental actions that marketing requires whether determined explicitly or by default (Sanchez Ron). Development in a societal environment can impact the corporation through its task environment. Wal-Mart has recognized this need. The environment is very sensitive to energy needs. Wal-Mart has recognized this. One object to this end is that the company seeks to have zero waste in a short period of time. The Tesla Co. should seek to produce it own energy technology as an additional step to wards energy consciousness. USA Market This market seems to offer the best environment for strong earnings. This will be shown easily. The USA has a high income base. It also has a view to cleaner cars. In the automotive industry the fuel-cell vehicle (FCV) is increasingly seen as the sustainable alternative to internal combustion engine (ICE)-based vehicles. This country will be willing to buy both types of vehicles. The culture thrives on choice. A good pattern is the market for the light truck and SUV. . It is the second portion of the program for economic growth. There is a need for this type of product in the USA. There has not been much thought given to this area. Maybe it is partly due the downturn in acceptance for the SUV or sports utility vehicle. There are two different vehicles. They are marketed to two different types of customers. The SUV is for the wealthier private individual. The electric car can be marketed successfully now. The marketing approach may be in stages. It should be marketed to the small business community. The owners and the businesses too. The vehicles are generally substitutes. This does not mean that the light truck has a specific function and is preferred by the specific customer. This customer is the small business owner. In the USA the small business owner can be a big business owner on analysis. The reason is that the small business is by definition a legal term. It is a category set by the Federal government. A general rule is based on number of employees and or level of sales. An example is the business is small if it employs less than a thousand workers. The other is if the business sells up to five million US dollars per year. A thousand workers and or five million US dollars per year in sales is a large business operation in many different parts of the world. Another complication is that the USA economy is very robust. This is also a very capitalistic system. Such a business climate makes it possible for there to be constant innovation. Of course when there is innovation there is also the risk of loss. The loss of a business in many parts of the world would be a matter of deep shame or depression in the part of the owner. Granted, no one likes to fail. How ever the American business owner is willing to accept the failure and move on to the next business venture. The USA is in an economic slow down. The country is at the same time seeking monetary strategies to stimulate the economy. It is obvious that monetary policy alone is not enough. The USA has more to offer. The Federal and state governments have the instrument of tax policy. Such policies can offer tax incentives and tax credits. One example is that of accelerated depreciation. This is a technique that recognizes that assets loose value over time. This is obvious because equipment just wears out. The wearing out is called depreciation. The business entity is given the opportunity to deduct the value of the cost of the equipment at a faster rate than it its actually physical or natural rate... An easy example is the truck maybe bought for 30 thousand dollars. Normally it is considered operational for five years. This would mean it can have an accounting expense of six thousand dollars per year. The government tax provision may allow the entire cost of thirty thousand dollars be deducted in the first year if operation. This is the concept of accelerated depreciation. The business can save the tax expense. This is separate from the calculation of the business expense. The business income earned maybe one particular value in that year. The income computed for tax purposes would be significantly lower. The reason is the higher equipment expense in the acquisition year. The business therefore reduces taxes. The reduced tax leaves more cash in the business. The cash can be used to even expand the business. Analysis and Application – Tesla Co The foregoing shows just a handful of possible choice patterns in selling the vehicle. This is true of selling any other vehicle. As seen above the first thing is to establish the legal frame work. Then next is the financing. The financing possibilities are always controlled by the legal. The next thing is to consider the marketing. This Tesla C. is making a serious study of the cost and of the production. The approach is good if it is getting the investors to the desired goal. It seem as though they think they are not getting to the desired goal. The first thing to be done is to consider the effort made on the marketing side. The marketing I king once the legal and financing is cleared. The marketing can provide the necessary funds to recover the operating costs and initial costs. Even if it is not a hundred percent recovery then the best that is possible is a success. The thought process should then to reduce the losses. Marketing has a timing element. The company should consider that technological breakthroughs in other unrelated areas can have a positive impact on their efforts. At the same time technological breakthroughs can have a negative impact on the efforts also. This shows the essences of business. It is called risk. There is therefore the need to manage the risk as skillfully as possible. In is possible to successfully show that there is no one right way to reach the goal in the business world. Then it is if a commitment has already been made to production. Then there is the need to move to a marketing emphasis. If there is no market then it is time to get out. The timing is important. If the market is nonexistent there will be losses. The more time spent will result in greater losses. This is the test for the Tesla Co. The success of the past is of no importance in this analysis. The thought process can be seen in the performance of cost. If the spending has occurred it is sunk cost. The next best approach is to consider the future. When one considers the future we move to the concept of opportunity costs. We either earn or loose in the future. A loss in the future does not return the sunk cost of the past. This is almost counter intuitive. It is however true in the case of business. The future is the key measure of truth. A purely market driven business and management model above can be seen to be another helpful way. It is another tool. The overall goal is to produce a product and earn income in the process. This approach helps in decision making in a market driven economic system. References Fishman, Charles. The Wal-Mart Effect and a Decent Society: Who Knew Shopping Was So Important? Academy of Management Perspectives, Aug2006, Vol. 20 Issue 3, p6-25, 20p; EBSCOhost 29 August 2009 Goetz, Stephan J.; Rupasingha, Anil. Wal-Mart and Social Capital American Journal of Agricultural Economics, Dec2006, Vol. 88 Issue 5, p1304-1310, 7p, EBSCOhost 29 August 2009 George S. Day. The Capabilities of Market-Driven Organizations: The Journal of Marketing, Vol. 58, No. 4 Oct., 1994, pp. 37-52 Published by: American Marketing Association Stable Read More