The Institute of Chartered Accountants of Bangladesh
Business and Finance
Chapter-02
Managing a business
Presented By: Muhammad Mahbub Alam FCA
16th February ,2022
Learning Objectives
After the session the students will be able to
identify the meaning of business and finance
identify the managements and their Power, authority, responsibility,
accountability and delegation (Forces of an organization)(Forces of
identify the types of manager and the managerial process
identify about culture and its types on a business
understanding the model of management
identify the functions of a business
understanding about product and service marketing mix
understanding about operation management, its role and key decisions.
Business: An organisation that is oriented towards making a profit for its owners so as to maximise
their wealth.
Finance: Finance may be defined as the art and science of managing money.
Business & Finance: Business and finance provide an understanding of how businesses operate and
how finance functions support businesses in achieving organizations objectives.
Organizations: A social arrangement for the controlled performance of collective goals, which has a
boundary separating it from its environment.
Stakeholders: A person or group of persons who has a stake in the organization. This means that they
have an interest to protect in respect of what the organization does and how it performs.
Business’s objectives:
✓ Primary objectives: for a business the primary objective is the financial objective of profit maximization
so as to increase shareholder wealth.
✓ Secondary objectives: Secondary objectives support the primary objective.
❖ Market position
❖ Product development
❖ Technology
❖ Employees and management.
Management: Management means getting things done through other people. Managers act on behalf
of owners in the organization.
The need for Management:
✓ Objectives have to be set for the organization.
✓ Somebody has to monitor progress and results to ensure that objectives are met.
✓ Somebody has to communicate and sustain corporate values, ethics and operating principles.
✓ Somebody has to look after the interests of the organisation's owners and other stakeholders
Governance: Governance is the system by which an organisation is directed and controlled.
Governance incorporates concepts of ethics, risk management and stakeholder protection, extending way
beyond management alone.
What is needed for effective management: Businesses have a large number of different
activities to be co-ordinated, and large numbers of people whose co-operation and support is necessary
for a manager to get anything done. There are a number of significant forces at work in an organisation,
which need to be managed by managers.
Power, authority, responsibility, accountability and delegation (Forces of an
organization):
Power: The ability to get things done. Power is not something a manager 'has' in isolation: it is
exercised over other individuals or groups, and to an extent – depends on their recognising the manager's
power over them.
Continue…
Type of power Description
The power of physical force or punishment. Physical power is rare in business
Coercive power
organizations, but intimidation may feature, e.g. in workplace bullying.
French and Raven classified power into six types or sources:
Reward (or Based on access to or control over valued resources. For example, managers have
resource) power access to information, contacts and financial rewards for team members.
Legitimate (or Associated with a particular position in the organisation. For example, a manager has
position) power the power to authorize certain expenses.
Based on experience, qualifications or expertise. For example, Professional Accountants
Expert power
have expert power because of their knowledge on IFRS , IAS, ISA and relevant laws.
Referent (or Based on force of personality, or 'charisma', which can attract, influence or inspire other
personal) power people.
Negative power The power to disrupt operations: for example, by industrial action, refusal to
(Handy) communicate information, or sabotage.
Authority: The right to do something, or to ask someone else to do it and expect it to be
done. Authority is thus another word for position or legitimate power.
Responsibility: The obligation a person has to fulfil a task which s/he has been given.
Accountability: A person's liability to be called to account for the fulfilment of tasks s/he
has been given by persons with a legitimate interest in the matter.
Delegation: The principle of delegation is that a manager may
make subordinates responsible for work, but remains accountable to
his or her own manager for ensuring that the work is done, that s/he
retains overall responsibility.
When a manager delegates authority and responsibility for a task, they
also delegates accountability. Do you agree? Explain. (N-D’15)
Types of manager: Manager in a business can be classified according to the
types of authority they hold.
iffestaff, functional or project authority. The obligation a person has to fulfil a task w
A line manager - A line manager has authority over a subordinate.
A staff manager - has authority in giving specialist advice to another manager or
department, over which they have no line authority.
A functional manager has functional authority, a hybrid of line and staff authority,
whereby the manager has the authority.
A project manager has authority over project team members in respect of the
project in progress; this authority is likely to be temporary (for the duration of the
project) and the project team are likely still to have line managers who also have
authority over them.
Continue…
The management hierarchy: Businesses of any size develop a management
hierarchy, with some management positions holding more power and authority than others,
the less powerful managers being accountable to the more powerful ones, and the latter
being responsible for the performance of the managers lower down the hierarchy.
The management process: The process of management comprises planning,
organising, controlling and leading.
Planning: Planning involves setting detailed objectives and targets in the light of the overall
objective, forecasts and resources. Plans should be constantly reviewed and updated in the light
of actual performance.
Following on from the business's overall objective, mission and goals, managers need to set the
direction of the work to be done. This includes:
✓ Pinpointing specific aims
✓ Forecasting what is needed
✓ Looking at actual and potential resources
✓ Developing objectives, plans and targets
✓ Using feedback from the control part of the process to make necessary amendments to the plan
Continue…
Organizing: Organizing involves identifying the processes, technology and
people that are required and then allocating and co-ordinating the work.
Managers allocate time and effort in such a way that the objectives, plans and
targets are likely to be met.
This includes:
✓Defining what processes, technology and people are required
✓Allocating and co-ordinating work
Controlling: Controlling follows on from reviewing plans in the light of
experience; control actions will often have to be taken to ensure that the overall
objective can still be met. Managers monitor events so they can be compared
with the plan and remedial action can be taken if required.
Leading: Leading means generating effort and commitment in a team.
Managers generate effort and commitment towards meeting objectives,
including motivation of staff.
Continue…
Managerial roles: The management process sets out what managers have to achieve
and how, but it does not as such describe what managers actually do. Mintzberg (1973)
defined what managers do in terms of three key roles:
1. The informational role: Checking data received and passing it on to relevant people.
2. The interpersonal role: Acting as leader for his or her team.
3. The decision role: Managers actually do what we perceive as managing. In this role they:
✓ Allocate resources to operations
✓ Handle disturbances
✓ Negotiate for what they need
✓ Solve problems that arise
✓ Act as entrepreneur
Culture: The common assumptions, values and beliefs that people share, 'the way we do
things round here.
Quinn (1995) emphasises two distinct tensions that affect the type of culture a particular
business manifests:
✓ The tension between having flexibility and having control
✓ The tension between whether the business is inward– or outward-looking
Continue…
Types of Culture: There are four different types of culture which may characterize entire
business or just parts of business.
Internal Process culture: The business looks inwards, aiming to make its internal environment
stable and controlled. Goals are known and unchanging, and there are defined methods, rules
and procedures. Security, stability and order motivate staff. Example: public sector
organizations.
Rational goal culture: Effectiveness is defined as achieving goals that satisfy external requirements.
The business is structured and controlled so as to deal effectively with the outside world. Competition and
the achievement of goals motivate staff. Example: large established businesses.
Open systems culture: The external environment is a source of energy and opportunity, but it is ever-
changing and unpredictable. The business must be highly flexible and open to new ideas, so it is very
adaptable in structure. Staff are motivated by growth, creativity and variety. Example: a new business unit
working with fast-changing technology.
Human relations culture: The business looks inwards, aiming to maintain its existence and the well-
being of staff. Staff are motivated by a sense of belonging. Example: support service units
Continue…
Management models: Models are used in management theory to represent a complex
reality, such as a client’s business, which is then analysed and broken down into its
constituent parts.
Handy points out that management models:
✓ Help to explain the past, which in turn
✓ Helps us to understand the present, and thus
✓ To predict the future, leading to
✓ More influence over future events, and
✓ Less disturbance from the unexpected
The rational goal model of management: A business with a rational goal culture
uses the reason why the business does something to make sure it is done as well as
possible.
In 1915 Taylor put forward five 'principles' of scientific management:
✓ Determine the one best way of doing a particular task
✓ Select the best person to do this task on the basis of their mental and physical
capabilities
✓ Train the worker to follow the set procedure very precisely
✓ Give financial incentives to ensure the work is done in the prescribed way
✓ Give all responsibility to plan and organise work to the manager, not to the worker
Continue…
The internal process model of management: The internal process
model looks at how the organisation is doing things, not at why. In businesses
with an internal process model of management we tend to find:
✓Rationality – use of the most efficient means to meet the business's objectives
✓Hierarchical lines of authority; managers have closely defined areas of
authority, and have none outside those areas
✓Detailed rules and procedures – businesses which are subject to tight
regulation and public scrutiny, such as those in the financial services sector,
tend to have more rules and procedures
✓Division of labour – tight limits are set on the areas of responsibility of staff
✓Impersonality – appraisals of staff performance are based on objective
criteria, not personal preference
✓Centralization
Continue…
Business functions: The key function of any Business are
The key functions in any business are:
✓Marketing ,including sales and customer services
✓Operations or Production, including R&D and procurement(R&D)
✓Human resource
✓Finance
Continue…
Consumer and industrial markets:
Markets can be analysed in terms of the product, or the end-user, or both. The most
common distinction is between consumer and industrial markets.
Consumer markets are the markets for products and services bought by individuals for
their own or family use. Goods bought by consumers in these markets can be categorized
in several ways:
FMCGs (fast-moving consumer goods) These are high volume, low unit value,
fast repurchase, such as bread.
Consumer durables: These have low volume but high unit value. They may be further
divided into –
❑ White goods : Large electrical goods are used in domestically e.g. fridges, freezers
❑ Brown goods: Relatively light electronic durables e.g. CD players, Computer, TV and
electronic items
❑ Soft goods: these may be thought of as synonymous with consumer durables, e.g.
clothes, bed linen
❑ Services, e.g. dentist, doctor, holidays
A business which operates in the consumer market, selling to consumers, is often
described as being in the 'business to consumers', or B2C market.
Continue…
Industrial markets: Industrial marketing is the marketing of goods
and services by one business to another. Industrial goods are those an
industry of uses to produce an end product from one or more raw
materials.
The term, industrial marketing has largely been replaced by the term
B2B marketing.
The main goods and services covered by industrial markets are shown below.
Processed
Raw Capital
materials and Supplies Services
materials goods
components
Iron ore Steel Machine tools Stationery Accountancy
Timber Textiles Computers Carbide tips Legal
Coal Packing materials Buildings Lubricants Distribution
Crude oil - Lorries
The marketing mix
Marketing mix: The set of controllable marketing variables that a firm blends to
produce the response it wants in the target market. The marketing mix represents the
tools marketers have to position products and to obtain sales. It consists of the seven Ps.
Continue…
The Product marketing mix: The set of controllable
variables that a firm blends to produce the response it wants in
the target market.
One of the most common ways of presenting the marketing mix
for tangible
Business products
operating in is the
industrial markets four
are often 'P's.
described as B2B
✓ Product – quality of the product as perceived by the
potential customer.
✓ Price – Prices to the customer
✓ Promotion – Advertisement of a product
✓ Place – Distribution channel decisions.
Continue…
There are three main elements of a product:
Product:
Anything that can be offered to a market for attention, acquisition, use or consumption
that might satisfy a want or need. It includes physical objects, services, persons,
places, organizations and ideas. Marketers tend to consider products not as 'things'
with 'features' but packages of 'benefits' that satisfy a variety of consumer needs.
1. Basic (or core) product – a car. This looks at the perceived or real benefits to be
gained from the product, e.g. Volvo cars satisfy safety/security needs, BMWs satisfy ego or
status needs, etc
2. Actual product – a Ford Focus
3. Augmented product – Ford Focus with 0% finance or extended warranty. Essentially an
augmented product can be thought of as having more features per CU
General factors to be considered when taking a product from basic to actual and augmented
include the following:
✓ Quality and reliability – often linked to the pricing decision, these are used for positioning
the product. Level and consistency should be considered
✓ Packaging – is it functional (e.g. round a fridge) or part of the overall appeal (e.g. perfume)?
✓ Branding – this is often very important in highly competitive markets
✓ Aesthetics – smell, taste, appearance, etc
✓ Product mix – range of products, e.g. different Ford Focus models
✓ Servicing/associated services – are these required?
Continue…
Price:
At what level the product should be priced is highly relevant in any marketing mix.
Price is particularly important as it is the only P producing revenue (the other three
incur costs).
Place (distribution)
Providing customers with satisfying products at a price they like, while important, is
not sufficient to ensure success. Such products must also be made available in
adequate quantities, in the locations where customers expect to find them and at the
times when customers want to buy them.
The basic decision to be made when considering distribution is whether to sell
direct, often via the internet.
Advantages of selling direct Advantages of using intermediaries
No need to share profit margins More efficient logistically
Control over ultimate sale Costs usually lower
Speed of delivery to ultimate consumer
likely to be quicker Consumers expect choice at point of sale
Producers may not have sufficient resources to
sell direct
Continue…
Promotion:
Promotion is all about communication, thus informing customers about
the product and persuading them to buy it. There are four main types
of promotion ('the communication mix'):
✓ Advertising
✓ Sales promotion (such as 'buy one, get one free' offers)
✓ Public relations; and
✓ Personal selling.
We may distinguish two elements in promotion
1. Push - Ensuring products/ services are available to consumers by
encouraging intermediaries, e.g. Agora, Swapno, Mina bazar.
2. Pull - Persuading the ultimate consumers to buy.
Explain about the 4 P’s of Marketing mix..? (N-D’14)
What is marketing mix? Describe the various components (Known as
four ‘P’s) of marketing mix? (N-D’12)
The services marketing mix: Marketing services, as
opposed to physical products, includes consideration of the four Ps
above, as well as three added extra Ps:
✓ People: the people employed by the service deliverer are uniquely
important given they are likely to have regular interactions with
customers.
✓ Processes: these often determine the structure of the 'service
encounter'. There are some important 'moments of truth' that
determine how effective a service is, such as enquiries and
reservations before the service is granted.
✓ Physical evidence that the service has been performed, such as a
certificate or a receipt. These three are important because of the
varying degrees of intangibility that characterise services relative
to tangible products.
Operation Management (OM)
Operation management is “The business function responsible for planning, coordinating, and
controlling the resources needed to produce products and services for a company”.
Operation management is:
❑A management function
❑An organization’s core function
❑In every organization whether Service or Manufacturing, profit or Not for profit
Typical Organization Chart
Role of Operation Management
OM Transforms inputs to outputs
❑Inputs are resources such as People, Material, and Money
❑Outputs are goods and services
OM’s Transformation Role
❑ To add value
➢ Increase product value at each stage
➢ Value added is the net increase between output product value and input material value
❑ Provide an efficient transformation
➢ Efficiency – means performing activities well for least possible cost
Operations management is concerned with balancing key variables:
➢ External and internal demand for goods and services
➢ Resources
➢ Capacity of the long-term assets of the business such as machinery, buildings and
computer systems, and of the other assets of the business such as people
➢ Inventory levels
➢ Performance of the process which creates the goods or services
There are certain key decisions in operations:
➢ Forecasting demand
➢ Make or Buy
➢ Deciding whether to operate on a just-in-time basis, or to hold inventory
➢ Deciding inventory levels and managing inventory efficiently
➢ Managing the supply chain
➢ Scheduling resources to meet the plan
➢ Ensuring that the processes used in operations are managed efficiently
➢ Ensuring quality
➢ Eliminating waste efficiently
