3/11/2012 BUSS1001 Understanding Business Week 2: What is Business? Associate Professor Philip Seltsikas Associate Dean (Undergraduate) THE UNIVERSITY OF SYDNEY BUSINESS SCHOOL Preview of today’s lecture ›What is Business? - Narrow view - More complex view ›Assessment 1 2 What is business? The narrow view ›‘Any activity that seeks to provide goods and services to others while operating at a profit’ (Nickels, McHugh and M H h 2010 p. G 14) d McHugh 2010, G-14). 3 1 http://images. google. com/imgres? q=henry+fayol&hl=en&gbv=2&tbm=isch&tbnid=L07_nJsWisbAAM:&imgrefurl=http://mariaavilla 4zKAcE9kM&w=131&h=173&ei=rrUvTvP0BJGmizar. logspot. com/2008/09/henry-fayol-vs-max-weber. html&docid=gigzs4 sAOJ9Lkd&zoom=1&iact=hc&vpx=287&vpy=150&dur=2276&hovh=138&h hovw=104&tx=81&ty=75&page=1&tbnh=128&tbnw=88& start=0&ndsp=35&ved=1t:429,r:1,s:0&biw=1429&bih=723 Total returns on assets must exceed cost of capital required to finance assets http://en. wikipedia. org/wiki/Max_Weber http://en. wikipedia. org/wiki/Scientific_management Reinvestment Returns Reinvestment Returns Assets Debt Equity The Value Creation Equation A ‘model’ of all businesses Assets › 1841-1925 Henry Fayol Founder of Classical Management Theory 1856 – 1915 Frederick Taylor Developed ‘scientific management’ › 1864 – 1920 Max Weber Studied organizational bureaucracy Fayol, Weber, and Taylor All capital is a costly resource Debt Equity 3/11/2012 2 3/11/2012 What doesn’t this model show us? WHAT? Organizational building blocks › › › › Mission, Vision, Goal, Purpose Strategy Collection of assets Configuration of Assets - into a structure (s) - to enact business processes Management (decision making & control) - using structure - using policies & procedures - using rewards & punishments DON’T NORMALLY SEE DON’T NORMALLY SEE › Where did these companies come from?

WE SEE SOME OF THESE or ASPECTS OF THEM M 3 3/11/2012 Someone is at the controls – Keeping it running and navigating the environment 10 What is a BUSINESS? › ‘Structure’ – multiple meanings › This is ‘part of’ understanding Business Structure › Organisational Structure will help us understand: ‘What is a Business’? 11 Dimensions of Organizational Structure › › › › › › Job specialization Departmentalization Span of control Chain of Command (c. f. hierarchy) Line functions and staff functions (front office/back office) Power and authority › › Divisionalization Centralization / Decentralization 4 3/11/2012 Organization Chart

CEO CFO CIO COO Marketing Director IT Manager Sales Director Production Manager Marketing group A Marketing group B IT department Sales region A Sales region B Plant workers French & Raven 1959 5 bases of organizational power › Coercive Power › Reward Power http://www. carrollcoaching. com/coaching › Legitimate Power › Referent Power › Expert Power Functional Organization Measures of Success? › Profit › Market Share › KPIs (key performance indicators) 5 3/11/2012 Inside and Outside Perspectives › Organisations are subject to external forces but may also influence the operation and effect of those same forces. Key aspects of the capacity of organisations to effectively shape their own destiny include the decisions that they make about: k b t ? Strategy ? Structure; and BUSS1001 Understanding Business ? Behaviour BUSS1002 The Business Environment Business: key player in society • Is a major change agent • Has the potential to be a ‘force for good’ g prosperity • Drives growth and p p y Society • Impacts on business • Is constantly changing and so, must business change • Affects what businesses do and how they do it What is business? A broader perspective Transformation of inputs into outputs to produce goods and services that meet needs and wants in the society [adapted from Wetherly and Otter 2011] For-profit businesses Private P i t sector t Types of business activity Public sector Non-profit organisations Government organisations 18 6 3/11/2012 Purpose of a ‘For-profit’ business organisation ›Maximising returns on debt and equity ›This is achieved through sustainable competitive titi advantage 19 Sustainable competitive advantage ›Outperforming your competitors in the long run ›How is this done? 20 Next week What? Why? Strategy 21