Page 1
© 2015 Universität Stuttgart - IKR
Business Management & Administration
Universität StuttgartINSTITUT FÜR
KOMMUNIKATIONSNETZEUND RECHNERSYSTEME
Dr.rer.nat. Dipl.-Ing. U. Guddat, MBA
Business Management & Administration- Basics -
International Master's program in Information Technology (INFOTECH) of the University of Stuttgart2015
> Reprinting or reproduction only with the permission of the publisher <
Page 2
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
(2)
Learning Targets
The ecosystem around a successful product: Basic elements of business management that make a company functional
• Leadership: Beyond the mechanics of business management
• Basics: From products all the way to financial management and back
• Process Management: Approaches for continuous improvement to Business Process Reengineering
• Organization: Design and redesign
• Corporate strategy: Purpose, approaches and tools
Closer looks at fashion retail, automotive and software industry
Page 3
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
The Marketing mix (Neil Borden)
(3)
Page 4
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
The Marketing mix (4P’s)
(4)
Page 5
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
The Marketing mix (7P’s)
(5)
Page 6
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
The Marketing mix (4C’s)
(6)
Page 7
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
The Marketing mix (4P’s)
(7)
Page 8
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
The Marketing mix (4P’s)
(8)
Page 9
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Products and / or Markets?
(9)
Page 10
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Levitt on the Product
(10)
Page 11
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
What-it-is (features) or What-it-does? (benefits)
(11)
Page 12
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
A service is..
(12)
Page 13
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
The Service Product
(13)
Page 14
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
The Augmented Product Concept
(14)
Page 15
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
The Product/Service Life Cycle
(15)
Page 16
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
The Marketing mix (4P’s)
(16)
Page 17
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
An important word about Price
(17)
Page 18
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Approaches to Pricing
(18)
Page 19
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Why industrial (B2B) companies lose customers
(19)
Page 20
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Understanding Profit Drivers
(20)
Page 21
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Understanding Profit Drivers (2)
(21)
Page 22
© 2015 Universität Stuttgart - IKR
Business Management & Administration
22
� Balance Sheet
� Income Statement
� Statement of Retained Earnings
� Statement of Cash Flows
Primary Financial Statements
Page 23
© 2015 Universität Stuttgart - IKR
Business Management & Administration
23
Primary financial statements answer basic questions including:
� What is the company’s current financial status?
� What was the company’s operating results for the period?
� How did the company obtain and use cash during the period?
Purpose of Primary Financial Statements
Page 24
© 2015 Universität Stuttgart - IKR
Business Management & Administration
24
Summary of the financial position of a company at a particular date
� Assets: cash, accounts receivable, inventory, land, buildings, equipment and intangible items
� Liabilities: accounts payable, notes payable and mortgages payable
� Owners’ Equity: net assets after all obligations have been satisfied
The Balance Sheet
Page 25
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Generic Balance Sheet
Assets
Cash
Accounts Receivable
Inventory
Property, Plant, Equipment
Total Assets
Liabilities and Owner’s Equity
Accounts payable
Wages payable
Short-term debt
Long-term debt
Common stock
Retained earnings
Total Liabilities and Owners Equity
Page 26
© 2015 Universität Stuttgart - IKR
Business Management & Administration
26
Primary financial statements answer basic questions including:
� What are the resources of the company?
� What are the company’s existing obligations?
� What are the company’s net assets?
Purpose of the Balance Sheet
Page 27
© 2015 Universität Stuttgart - IKR
Business Management & Administration
27
Primary financial statements answer basic questions including:
� What are the resources of the company?
� What are the company’s existing obligations?
� What are the company’s net assets?
Purpose of the Balance Sheet
� Assets recorded at historical value� Only recognizes assets that can be expressed in monetary terms � Owners’ equity is usually less than the company’s market value
Page 28
© 2015 Universität Stuttgart - IKR
Business Management & Administration
28
Shows the results of a company’s operations over a period of time:
� What goods were sold or services performed that provided revenue for the company?
� What costs were incurred in normal operations to generate these revenues?
� What are the earnings or company profit?
Revenues: Assets (cash or AR) created through business operations
Expenses: Assets (cash or AP) consumed through business operations
Net Income or (Net Loss): Revenues - Expenses
The Income Statement
Page 29
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Generic Income Statement
Sales
- Cost of Goods Sold
- Selling and Administrative Expenses
- Depreciation
- Interest
-Research and Development Expenses
= Earnings before tax (EBT)
- Taxes
= Net Income (NI)
Page 30
© 2015 Universität Stuttgart - IKR
Business Management & Administration
30
An additional financial statement that identifies changes in retained earnings from one accounting period to the next.
The Statement of Retained Earnings
Beginning retained earnings
+ Net income
– Dividends paid
= Ending retained earningsDividends result in:� Decrease in net assets� Decrease in retained earnings� Decrease in owners’ equity
Net income results in:� Increase in net assets� Increase in retained earnings� Increase in owners’ equity
Page 31
© 2015 Universität Stuttgart - IKR
Business Management & Administration
31
Reports the amount of cash collected and paid out by a company in operating, investing and financing activities for a period of time.
� How did the company receive cash?
� How did the company use its cash?
Complementary to the income statement.
Indicates ability of a company to generate income in the future.
Statement of Cash Flows
Cash outflowsPay operating expensesExpand operations, repay loansPay owners a return on investment
Cash inflowsSell goods or services
Sell other assets or by borrowingReceive cash from investments by owners
Page 32
© 2015 Universität Stuttgart - IKR
Business Management & Administration
32
Relation of statements
Balance Sheet 12/31/13
Cash $80,000Other $4,550,000Total $4,630,000
Liabilities $2,970,000Cap. Stock $900,000R/E $760,000Total $4,630,000
Revenues $12,443,000Expenses $11,578,400Net income $864,600
Income Statement
Cash $110,000Other $4,975,000Total $5,085,000
Liabilities $2,860,400Cap. Stock $1,000,000R/E $1,224,600Total $5,085,000
Balance Sheet 12/31/14
Cash--Op. Act. $973,000 Cash--Inv. Act.$(1,188,000)Cash--Fin. Act. $245,000Net increase $30,000 Beg. Cash $80,000End. cash $110,000
Cash Flow Statement
R/E 12/31/13 $760,000Net income $864,600Dividends $(400,000)R/E 12/31/14 $1,224,600
Stmt of Retained Earnings
Page 33
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Function of Financial Manager
Operations (plant, equipment, projects)
Financial Manager
Financial Markets (investors)
1a.Raising funds2.Investments
3.Cash from operational activities
4.Reinvesting
1b.Obligations (stocks, debt securities)
5.Dividends or interest payments
Finance function – managing the cash flow
Page 34
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Financing decisions
Financing decisions
Internal corporate financing
External sources of funds
Retained earningsDirect financing
(financial markets Instruments)
Indirect financing(financial
Intermediaries)
Stocks
Debt instruments (bonds, CPs etc.)
Loans
Page 35
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Financial markets
Financial markets
Primary marketsSecondary markets
Money marketCapital market
Organized exchangesOver-the-counter
Page 36
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Primary and secondary markets
Primary market – primary issues of securities are sold, allows governments, banks, corporations to raise money by directly selling financial instruments to the public.
Secondary market – allows investors to trade financial instruments between themselves. Secondary transactions take place.
Page 37
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Money and capital markets
Money markets – short-term assets (maturity less than 1 year) are traded:� Certificates of deposits (CDs)� Commercial papers (CPs)� Treasury bills
Capital markets – long-term assets (maturity longer than 1 year) are traded:� Stocks� Corporate bonds� Long-term government bonds
Page 38
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Organized exchanges and over-the-counter
Organized exchange – most of stocks, bonds and derivatives are traded. Has a trading floor where floor traders execute transactions in the secondary market for their clients.
Stocks not listed on the organized exchanges are traded in the over-the-counter (OTC) market. Facilitates secondary market transactions. Unlike the organized exchanges, the OTC market doesn’t have a trading floor. The buy and sell orders are completed through a telecommunications network.
Page 39
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Pro-forma financial statements
Always begin with sales forecast
Project expenses – often a % of sales
Forecast changes in asset and liability accounts
Page 40
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Valuation
Question: How much of the company’s equity will the entrepreneur have to give up in order to raise required amount of capital?
• Depends on the value of the stream of uncertain future cash flows
• Requires a technique for valuation
Page 41
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
The three primary techniques for valuation
1. Discounted cash flow (DCF)
2. Market multiples
3. Venture capital method
Page 42
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Discounted cash flow
Time value of money
What is the present value of $100 to be received next year?
PV = CFt/(1+r)t
If r = 10%,
PV = 100/(1+0.1) = $90.91
What is r? Required rate of return – usually 40-60% in VC situations
Page 43
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Market Multiples
Apply valuation ratio of comparable firm to firm being valued.
Examples: P-E, market value/book value, Market value/ Sales
Problems:
� What is the appropriate multiplier?
� Start-ups frequently do not have positive earnings, may not yet be generating sales, and have few assets.
Page 44
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Venture Capital Method
Effectively combines the previous two methods. Commonly used in the privateequity industry.
� Project value at some point in the future using some sort of multiple
� Discount that value to the present
� Discount rate is more ad hoc – but usually high (40-75%)
Page 45
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Role of price
(45)
Page 46
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
The race to the bottom
(46)
Page 47
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
The Marketing mix (4P’s)
(47)
Page 48
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
The distribution channel is ...
(48)
Page 49
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Channel Configurations
(49)
Page 50
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Why use intermediaries?
(50)
Page 51
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Reducing “contactual” costs or channel geometry
(51)
Page 52
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Increasing Retailer concentration
(52)
Page 53
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Battle for control
(53)
Page 54
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Who ‘owns’ the customer owns the margins
(54)
Page 55
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Your choice
(55)
Page 56
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
The Marketing mix (4P’s)
(56)
Page 57
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
Which half ?
(57)
Page 58
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
The fundamental proposition
(58)
Page 59
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
(59)
Contact
[email protected]
Wolfgang Sauerzapf
Dr. Ulrich Guddat(0174) 30 54 930
Prof. Andreas KirstädterZimmer 1.345, (0711) 685-68026
Institut für Kommunikationsnetze und RechnersystemePfaffenwaldring 47 (Gebäude ETI-2, 1. Stock)70569 Stuttgart
Page 60
© 2015 Universität Stuttgart - IKR
Business Management & Administration - Basics
(60)
Reference
[1] P Fifield: “Marketing Strategy”, 3rd Edition, Elsevier 2007
[2] P Fifield: “Marketing Strategy Masterclass”, Elsevier 2008
[3] P Fifield: “Collected Essays in Marketing Strategy”, 2006
[4] Kevin Kelly: “Out Of Control: The New Biology of Machines, Social Systems, and the Economic World”, Basic Books, 1995