𝐁𝐮𝐬𝐬𝐢𝐧𝐞𝐬 𝐟𝐨𝐫 𝐩𝐡𝐚𝐫𝐦𝐚.pptx

11/06/2024 prepared by meaza .A 1
Mizan Aman health science college
Improving business practice
Prepared by Meaza .A(MBA)

CHAPTER 1
DIAGNOSIS BUSINESS

At the end of these chapter the students able to understand
• Introduction to business
• Diagnosis business
• Identifying Sources data
• Determining and acquiring data for diagnosis.
• Conducting Value chain analysis.
• Undertaking SWOT analysis of the data.
• Determining Competitive advantage of the business.

Business Goals, Activities, & Performance Measures
• A business is an economic unit that aims to sell
goods and services to customers at prices that will
provide an adequate return to its owners.
• Businesses, though diverse, have similar goals
(wealth Maximization) and engage in similar
activities (production or goods) or (service delivery).

Business Goals
1.Profitability
A business must take in enough money to pay all the costs of
doing business, with enough left over as profit for the owners
to want to stay in business.
2. Liquidity
A business must have enough funds available to pay debts
when they are due.
October 12, 2016

Business Activities
1)Financing Activities
 Obtaining capital from owners and creditors
 Repaying creditors and a return to owners.
2) Investing Activities
 Spending the capital it receives in ways that are
productive and will help the business achieve its
objectives.
 Buying and selling long-term assets to be used in the
business.
October 12, 2016

3) Operating Activities
 Selling of goods and services to customers.
 Employing managers and workers, buying and
producing goods and services, and paying taxes.

Profitability
Liquidity
Financing Operating
Investing
October 12, 2016
Business Activities
Business Goals

Types of Business Organization
(1) Sole Proprietorship: is a
business unit owned by one person.
The single person (owner) assumes
all the profit (or loss) resulting from
the business activities for himself.
(2) Partnership: A business unit
owned by two or more persons as
co-owners of business for profit.
In a partnership form of business
the owners also called the
partners agreed to share the net
income (or loss) among
themselves according to the
agreements stated in the articles
of a partnership.
(3) Corporation: A corporation is an
artificial person, created by law and
having a distinct existence separate
and apart from the natural persons
who are responsible for its creation
and operation.
• There are three dominant forms of business
ownerships.

Sole Proprietorship
• Advantages
–Easiest to start
–Least regulated
–Single owner keeps
all of the profits
–Taxed once as
personal income
• Disadvantages
– Limited to life of owner
– Equity capital limited to
owner’s personal wealth
– Unlimited liability
– Difficult to sell
ownership interest

Partnership
• Advantages
–Two or more owners
–More capital available
–Relatively easy to start
–Income taxed once as
personal income
• Disadvantages
–Unlimited liability
–Partnership dissolves when
one partner dies or wishes to
sell
–Difficult to transfer
ownership

Corporation
• Advantages
–Limited liability
–Unlimited life
–Separation of ownership
and management
–Transfer of ownership is
easy
–Easier to raise capital
• Disadvantages
–Separation of ownership
and management (agency
problem)
–Double taxation (income
taxed at the corporate rate
and then dividends taxed
at personal rate, while
dividends paid are not tax
deductible)

value chain analysis (VCA)
• According to Porter, the business can best be described as a
value chain, in which total revenues minus total costs of all
activities undertaken to develop and market a product or
service yields value.
• which includes activities such as obtaining raw
materials, designing products, building
manufacturing facilities, developing cooperative
agreements, and providing customer service.

Cont…
• Value chain analysis (VCA) refers to the process
whereby a firm determines the costs associated with
organizational activities from purchasing raw
materials to manufacturing product(s) to marketing
those products.

Cont…
• A firm will be profitable as long as total revenues
exceed the total costs incurred in creating and
delivering the product or service.
• Firms should strive to understand not only their own
value chain operations but also their competitors’,
suppliers’, and distributors’ value chains.

The activities of the Value Chain
Primary activities (line functions)
• Inbound Logistics. Includes receiving, storing,
inventory control, transportation planning.
• Operations. Includes machining, packaging,
assembly, equipment maintenance, testing and all
other value-creating activities that transform the
inputs into the final product.

• Outbound Logistics. The activities required to get
the finished product at the customers: warehousing,
order fulfillment, transportation, distribution
management.
• Marketing and Sales. The activities associated with
getting buyers to purchase the product, including:
channel selection, advertising, promotion, selling,
pricing, retail management, etc.

• Service. The activities that maintain and enhance the
product's value, including: customer support, repair
services, installation, training, spare parts
management, upgrading, etc.
• Technology Development. Includes technology
development to support the value chain activities.
Such as:
• Research and Development, Process automation,
design, redesign.

11/06/2024 19
• Human Resource Management. The activities
associated with recruiting, development (education),
retention and compensation of employees and
managers.
• Firm Infrastructure. Includes general management,
planning management, legal, finance, accounting,
public affairs, quality management, etc.
prepared by meaza .A

Importance of VCA
• identify where low-cost advantages
disadvantages exist
• identify strengths and weaknesses, about the
firm and competitor

SWOT analysis
• The Strengths-Weaknesses-Opportunities-Threats
(SWOT) analysis is an important matching tool that
helps managers develop four types of strategies:
• SO (strengths-opportunities) Strategies,
• WO (weaknesses-opportunities) Strategies,
• ST (strengths-threats) Strategies, and
• WT (weaknesses-threats) Strategies.

Cont….
• SO Strategies use a firm’s internal strengths to take
advantage of external opportunities.
• All managers would like their organizations to be in a
position in which internal strengths can be used to
take advantage of external trends and events.
• WO Strategies aim at improving internal weaknesses
by taking advantage of external opportunities.

• ST Strategies use a firm’s strengths to avoid or
reduce the impact of external threats.
• This does not mean that a strong organization should
always meet threats in the external environment head-
on.
• WT Strategies are defensive tactics directed at
reducing internal weakness and avoiding external
threats.

Competitive Advantage
• “anything that a firm does especially well
compared to rival firms.”

11/06/2024 25
Competitive Advantage
• Competitive advantage refers to the factors or
attributes that allow a given company to produce
more affordable or higher quality services or products
than its competitors.
• do something that rival firms cannot do, or owns
something that rival firms desire, that can represent a
competitive advantage.

Cont..
Organization gain competitive advantage from three different bases
Three generic strategies
1. cost leadership
2. differentiation,
3. focus.
o Cost leadership emphasizes producing standardized
products at very low per-unit cost for consumers who
are price-sensitive.

Cont….
o Differentiation is a strategy aimed at producing products
and services considered unique industry wide and
directed at consumers who are relatively price-
insensitive.
o Focus means producing products and services that fulfill
the needs of small groups of consumers.

Chapter 2
Benchmark the business

At the end of these chapter the students able to understand
• Introduction to Benchmarking
• Types of Benchmarking
• identified Areas of improvements

Cont….
• Benchmarking is an analytical tool used to
determine whether a firm’s value chain activities are
competitive compared to rivals and thus conducive
to winning in the marketplace.
• entails measuring costs of value chain activities
across an industry to determine “best practices”
among competing firms for the purpose of
duplicating or improving upon those best practices.

Cont…
• enables a firm to take action to improve its
competitiveness by identifying firms comparative
advantages in cost, service, status, or operation.
• The hardest part of benchmarking can be gaining
access to other firms’ value chain activities with
associated costs.

sources of benchmarking information,
• published reports, trade publications, suppliers,
distributors, customers, partners, creditors,
shareholders, and willing rival firms.

11/06/2024 35
benchmarking process has the following steps:
1. Identify the area or process to be examined
2.Find behavioral and output measures of the area or
process and obtain measurements.
3. Select an accessible set of competitors and best-in-
class companies against which to benchmark.

Count….
4. Calculate the differences among the company’s
performance measurements and those of the best-in-
class and determine why the differences exist.
5. Develop tactical programs for closing performance
gaps.
6. Implement the programs and then compare the
resulting new measurements with those of the best-in-
class companies.

Performance Measurement
Indicate whether or not achieving the business goals and
if they are managing business activities well.
Performance measures include:
 Earned income or profit
 Cash flow
 Ratio of expenses to revenues
 Ratio of money owed to total resources controlled.
Note: Managers should understand these measures.

A, Income Statement
• An income statement shows the operating results of a firm
over a period time.
• It is a summary of the revenue and expenses of a business
entity for a specified period of time such as a month or a
year.
• The excess of revenue over expenses incurred in earning
revenue is called net income or net profit.

B) Statement of Owner’s Equity
• It is all about a summary of changes in the owner’s
equity of a business entity that have occurred over a
specified period of time such as a month or a year.
C) Balance Sheet
• A balance sheet presents the financial condition of a
business entity on a specific date.
• It is a list of assets, liabilities and owner’s equity as of
a specific date, usually at the end of a month or a year.

11/06/2024 40
D) Statement of Cash Flows
• A statement of cash flows focuses on transactions that
directly affect cash.
• It is a summary of the cash receipts and cash payments of
a business entity on a particular date, usually at the last
day of a month or a year.
• Hence statement of cash flows presents information about
the inflows and outflows of cash due to;
prepared by
meaza .A

Count….
• Financing Operating and Investing activities of a
business entity during an accounting period.
• Income: is the increase in the net worth of the
enterprise from business or no business activities. Net
income is also called net profit
• E) ratio is the arithmetical expression of the relationships
between two variables for the purpose of comparison.

• Ratio analysis is the process where by the financial
statements are analyzed and interpreted through ratios.
• Absolute figure given in the financial statements can be
misleading unless they are compared with each other.
• Ratio analysis is therefore, the way of establishing
meaningful relationships between two figures of the
financial statements.

How a Ratio is expressed?
 As Percentage - such as 25% or 50% . For example if net
profit is Br.25,000/- and the sales is Br.100,000/- then the
net profit can be said to be 25% of the sales.
 As Proportion The above figures may be expressed in
terms of the relationship between net profit to sales as (1 : 4).
 As Pure Number /Times - The same can also be
expressed in an alternatively way such as the sale is 4
times of the net profit or profit is 1/4th
of the sales.

Profitability Ratios
 Net result of a number of policies and decisions
 Show the combined effect of liquidity, asset management, and debt
management on operating results
 The following are common types of profitability ratios
A. Gross profit Margin
B. Net Profit Margin
C. Return on Investment (ROI).
D. Return on Common Equity (ROE).
E. Earning per Share (EPS)

Such analysis are made by calculating Basic financial
Ratios
Meaning of Ratio
• A ratio is the arithmetical expression of the
relationships between two variables for the
purpose of comparison.
• Ratio analysis is the process where by the
financial statements are analyzed and interpreted
through ratios.

• Absolute figure given in the financial
statements can be misleading unless they are
compared with each other.
• Ratio analysis is therefore, the way of
establishing meaningful relationships between
two figures of the financial statements.

A. Gross Profit Margin:
This ratio computes the margin earned by the firm after
incurring manufacturing or purchasing costs.
Gross Profit Margin = Gross Profit
Net Sales
• Gross profit margin is calculated by subtracting direct
expenses from net revenue, dividing the result by net
revenue and multiplying by 100%.

• The lower the ratio, indicates company is
not using cost leadership strategy.
• Poor selection of raw material
suppliers……

B. Net Profit Margin
Measures the profitableness of sales.
• A high net profit margin is a welcoming feature to a firm.
Net Profit Margin = Net Income
Net Sales
It is the ratio of net profits to revenues for a company or business
segment. ... The net profit margin illustrates how much of each
dollar in revenue collected by a company translates into profit.
• The lower the ratio than expected is indication of poor cost and
expenses management

C. Return on Investment (ROI)
Measures the rate of return a firm realizes on its investment in assets.
Return on Assets (ROA) = Net Income
Total Assets
Reasonably higher ratio is preferable to companies.
is a performance measure used to evaluate the efficiency or
profitability of an investment or compare the efficiency of
a number of different investments.
• According to conventional wisdom, an annual ROI
of approximately 7% or greater is considered a
good ROI for an investment in stocks. ...

D. Return on Equity (ROE)
Measures the rate of return on a firm’s stockholders’ equity.
ROE = Net Income
Stockholders Equity
Because shareholders' equity is equal to a company's assets
minus its debt, ROE is considered the return on net assets.
E. Earning per Share (EPS)
EPS indicates how much money a company makes for each share of its stock
and is a widely used metric for estimating corporate value.
Measure of profitability of a firm from the point of view of the
ordinary shareholders.
EPS = Earning Available for Common Stockholders
No Shares of Common Stock Outstanding

4.7. Limitations of Ratio Analysis
1. Reliability depends on the accounting data
2. Difference in accounting practice may make ratios
incomparable
3. Price level change may make comparison difficult
for different years
4. It uses historical data

Cont…
• A firm’s strategy, operations, and
organization must all be consistent with each
other in order to achieve a competitive
advantage and superior profitability
• Organization architecture refers to the totality
of a firm’s organization, w/c includes:
– formal organizational structure
– control systems and incentives
– organizational culture, processes, and people

Chapter 3
MARKETING
PLAN

Develop marketing plans

11/06/2024 56
What is Marketing?
• Marketing is satisfying customer needs
• A social and managerial process by which
individuals and groups obtain what they need
and want through creating, exchanging
products and value with others.

• product Anything that can be offered to a
market for attention, or consumption that
might satisfy a want or need. It includes
physical objects, services, persons, places,
organizations and ideas.
• service Any activity or benefit that one party
can offer to another which is essentially
intangible and does not result in ownership of
anything.

Understanding the Marketplace
and Customer Needs
• Customer needs, wants, and demands
• Market offerings
• Customer Value and satisfaction
• Exchanges and relationships
• Markets
Core Concepts

Understanding the Marketplace
and Customer Needs
•States of deprivation
• Physical—food, clothing, warmth, safety
• Social—belonging and affection
• Individual—knowledge and self-expression
Needs
•Form that human needs take as they are
shaped by culture and individual personality
Wants
•Human wants backed by
buying power
Demands
Customer Needs, Wants, and Demands

𝐁𝐮𝐬𝐬𝐢𝐧𝐞𝐬 𝐟𝐨𝐫 𝐩𝐡𝐚𝐫𝐦𝐚.pptx

Market planning
• Putting plans into action involves four stages:
1. analysis,
2. planning,
3. implementation
4. control.
• shows the relationship between these functions that are
common to strategic planning, marketing planning or the
planning for any other function

• ANALYSIS. Planning begins with a complete analysis of the
company's situation. The company must analyze its
environment to find attractive opportunities and to avoid
environmental threats.
• PLANNING. Through strategic planning, the company
decides what it wants to do with each business unit.
• Marketing plan involves deciding marketing strategies that
will help the company attain its overall strategic objectives.
• Marketing, product or brand plans are at the centre of this.

• Strategic Management can be defined as “the art and
science of formulating, implementing and evaluating cross-
functional decisions that enable an organization to achieve
its objective.”
• The strategic management process consists of three stages:
1. Strategy Formulation (strategy planning)
2. Strategy Implementations
3. Strategy Evaluation

11/06/2024 64
• Strategy formulation is also concerned with setting
long term goals and objectives, generating alternative
strategies to achieve that long term goals and
choosing particular strategy to pursue.
• The considerations for the best strategy formulation
should be as follows:
• Allocation of resources
• Business to enter or retain

• Business to divest or liquidate
• Joint ventures or mergers
• Whether to expand or not
• Moving into foreign markets

• Strategy implementation is often called the action stage of
strategic management.
• Implementing means mobilizing employees and managers in
order to put formulated strategies into action.
• It is often considered to be most difficult stage of strategic
management.
• It requires personal discipline, commitment and sacrifice.
Strategy formulated but not implemented serve no useful
purpose.

• Strategy evaluation is the final stage in the strategic
management process. Management desperately needs
to know when particular strategies are not working
well; strategy evaluation is the primary means for
obtaining this information.
• All strategies are subject to future modification
because external and internal forces are constantly
changing.

• Strategic planning sets the stage for the marketing
plan.
• It starts with its overall purpose and mission.
• These guide the formation of measurable corporate
objectives.
• A corporate audit then gathers information on the
company, its competitors, its market and the general
environment in which the firm competes.

• A SWOT analysis gives a summary of the strengths
and weaknesses of the company together with the
opportunities and threats it faces.
• Next, headquarters decides what portfolio of
businesses and products is best for the company and
how much support to give each one.

• The strategic plan contains several components:
• the mission, the strategic objectives, the strategic audit,
SWOT analysis, portfolio analysis, objectives and
strategies. All of these feed from and feed into
marketing.
1. Mission A mission states the purpose of a company.
Firms often start with a clear mission held within the
mind of their founder.

11/06/2024 71
• mission statement a statement of the organizations
purpose -what it -wants to accomplish in the
environment.
• A mission should be:
• Realistic. Singapore International Airlines is excellent, but it
would be deluding itself if its mission were to become the
world's largest airline.
• Specific. It should fit the company and no other.
• Motivating. It should give people something to believe in.

Cont…
2. The strategic audit covers the gathering of this vital
information. It is the intelligence used to build the detailed
objectives and strategy of a business.
• It has two parts: the external and internal
• external detailed examination of the. markets, competition,
business and economic environment in which the
organization operates.
• internal audit An evaluation of die firm's entire value
chain.

Count…
4. The Business Portfolio The business portfolio is the
collection of businesses and products that make up
the company.
• It is a link between the overall strategy of a company
and those of its parts.

• The best business portfolio is the one that fits the
company's strengths and weaknesses to opportunities
in the environment.
• The company must
(]) analyze its current business portfolio and decide
which businesses should receive more, less or no
investment, and
(2) develop growth strategies for adding products or
businesses to the portfolio.

Objective
•objectives are defined as ends which the organization
seeks to achieve by its existence and operation.
•The objectives are goals that the company would like
to attain during the plan's term.
• Goals provide a direction to the organization and
• all the divisions work towards the attainment of the
set objectives.

Long term Objectives
• Long-term objectives represent the results expected from
pursuing certain strategies.
• They indicate the specific sphere of aims, activities and
accomplishments
• Must be SMART

Annual Objectives
• short-term milestones that organizations must
achieve to reach long-term objectives
• Like long-term objectives; annual objectives
should be measurable, quantitative,
challenging, realistic, consistent, and
prioritized

Marketing Research
• everyday aspects of running a business, a company
has to consider materials, energy shortages, inflation,
economic recessions, unemployment, and
technological changes.
• A profitable company must also respond to the
market with its products and advertising.
• A critical tool for measuring the market and keeping
competitive is effective marketing research.

• Marketing research: is the systematic and objective
identification, collection, analysis, and dissemination
of information for the purpose of assisting
management in decision making related to the
identification and solution of problems and
opportunities in marketing.

Marketing research is:
• Systematic: systematic planning is required at all the stages of
the marketing research process.
• he procedures followed at each stage are methodologically
sound, well documented, and, as much as possible, planned in
advance.
• Objective: It attempts to provide accurate, impartial
information. Accordingly, marketing research involves the
identification, collection, analysis, and dissemination of
information.

Cont…
• Market research is often conducted to address
one or more of the “4 Ps” of marketing
• (product, price, place, and promotion).
• The purpose of market research should be
clearly defined prior to conducting the research.

Marketing Research Components
• Market size: deals with the number or value of units
sold to a market in a given period.
• Market Share: a specific corporation’s share of the
market size out of the whole market of a product or
products of the same purpose.
• Market penetration: used to know when a company
enters/penetrates a market with current products to
get better market share by lowering the price of a
product.

• Brand equity research –to know how
favorably consumers view the brand.
• Buyer decision processes research –used to
determine what motivates people to buy and
what decision-making process they use.

Marketing Promotion Mix
• consists of the specific blend of advertising,
personal selling, sales promotion and public
relations tools that the company uses to pursue
its advertising and marketing objectives.
• Let us define the four main promotion tools:

• Advertising. Any paid form of non-personal
presentation and promotion of ideas, goods or
services by an identified sponsor.
• Personal selling. Oral presentation in a conversation
with one or more prospective purchasers for the
purpose of making sales and building customer
relationships.

• Sales promotion. Short-term incentives to encourage
the purchase or sale of a product or service.
• Public relations. Building good relations with the
company's various publics by obtaining favorable
publicity, building up a good 'corporate image1 , and
handling or heading off unfavorable rumors, stories
and events

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