Understanding Business Fundamentals: Types, Trends, and Functions

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Chapter 2
Business Fundamentals Powered by DeSiaMore

Our Agenda The Nature of Business Types of Businesses Business Trends Business Functions The Organization of a Business Powered by DeSiaMore

Our Agenda Information and Business Operations Information and Business Management Basic Business Information Processing Information Systems and Business Powered by DeSiaMore

Learning Objectives Explain the purpose of a business and describe the main types of businesses. Describe several trends that affect businesses today. Describe the major business functions and explain how a business is organized. Powered by DeSiaMore

Learning Objectives (cont’d.) Diagram typical flows of information in business operations. Explain how information is used in the management of a business. Describe several basic business information processing activities used in businesses. Powered by DeSiaMore

Learning Objectives (cont’d.) Explain how information systems support information needs in all functions of all types of businesses and organizations. Powered by DeSiaMore

The Nature of Business

The Nature of Business The purpose of a business is to provide products – goods and services – for its customers. Money, or value, received from customers for its products is revenue. To provide its products, the business incurs expenses. Powered by DeSiaMore

The Nature of Business (cont’d.) Most business are “for profit”. Some businesses are “not-for-profit”. The business environment includes economic, legal, cultural, and competitive factors. Powered by DeSiaMore

Types of Businesses

Types of Businesses Products sold to other businesses are sold at wholesale. Products sold to the consumer are sold at retail. Powered by DeSiaMore

Types of Businesses (cont’d.) Manufacturers Wholesalers (or Distributor) Retailers Service Businesses Not-for-profit Organizations Government Powered by DeSiaMore

Business Trends

Business Trends Globalization of business Consolidation of businesses Shift away from manufacturing towards service businesses Powered by DeSiaMore

Business Functions

Business Functions Accounting Finance Marketing Production Human Resource Management Other functions Research and Development Information Services Powered by DeSiaMore

The Organization of a Business

The Organization of a Business Employees often grouped by general functions. Departments Workgroups Organization Chart diagrams the arrangement of employees functionally. Powered by DeSiaMore

Information and Business Operations

Information and Business Operations Business operations are those activities that provide products and ensure the business makes a profit. Information flow within a business may be within or between workgroups, within or between departments, or within or outside the business. Powered by DeSiaMore

Information and Business Management

Information and Business Management Management is all the activities related to deciding how a business functions. A decision is a selection among different courses of action. Management decisions are of three types: Strategic decisions Usually made at the highest level Generally long-term decisions Powered by DeSiaMore

Information and Business Management (cont’d.) Tactical decisions Usually made at the department or workgroup level Generally short to medium term in nature Operational decisions Usually made by individuals at the “front line” Generally short term in nature Powered by DeSiaMore

Basic Business Information Processing

Basic Business Information Processing Eight basic information processing activities Entering customer orders Billing (invoicing) customers Collecting customer payments Keeping track of inventory Purchasing stock and materials Paying bills Paying employees Reporting financial information Powered by DeSiaMore

Entering Customer Orders Customer order acceptance and preparation of a sales order in a form the business can use. Usually part of the marketing function and performed in the Sales Department. Sales Department determines if there is sufficient inventory on hand and the creditworthiness of the customer. Powered by DeSiaMore

Entering Customer Orders (cont’d.) Inputs Customer orders May be received by mail, phone, fax, email, and other methods Outputs Sales order Shipping order Powered by DeSiaMore

Billing Customers Shipping Department uses the salesorder to determine what items should be shipped to the customer. Billing Department prepares the customer’s bill (invoice) for those goods shipped by the Shipping Department. Billing department may be part of the accounting or marketing function. Powered by DeSiaMore

Billing Customers (cont’d.) Inputs Sales order Shipping order Outputs Invoice Powered by DeSiaMore

Collecting Customer Payments The Accounts Receivable Department uses a copy of the invoice produced by the Billing Department to keep track of the amount a customer owes the business. Powered by DeSiaMore

Collecting Customer Payments (cont’d.) Inputs Invoice Customer payments Outputs Customer statements Overdue notices Accounts receivable reports Powered by DeSiaMore

Keeping Track of Inventory A business must keep track of its inventory and report when inventory is low so it can reorder more stock. Can be a part of the production or operations function. Can be a part of the marketing or accounting function. Powered by DeSiaMore

Keeping Track of Inventory (cont’d.) Types of inventory Raw Materials Work-in-Process Finished goods Powered by DeSiaMore

Keeping Track of Inventory (cont’d.) Inputs Receiving notice Outputs Inventory reorder report Inventory value report Powered by DeSiaMore

Purchasing Stock and Materials Determine the best suppliers and prepare purchase orders which indicate to the suppliers what items the business wants to purchase. Can be a part of the production or operations function. Can be a part of the accounting function. Powered by DeSiaMore

Purchasing Stock and Materials (cont’d.) Inputs Inventory reorder report Outputs Purchase order Powered by DeSiaMore

Paying Bills Accounts Payable Department uses a copy of the purchase order to keep track of money owed by the business for purchases, called accounts payable. Part of the accounting function. Powered by DeSiaMore

Paying Bills (cont’d.) Inputs Purchase order Receiving notice Invoice from supplier Outputs Checks payable to suppliers Accounts payable report Powered by DeSiaMore

Paying Employees Involves paying employees wages or salaries and providing reports to other business functions. Usually part of the accounting function, but may be part of the human resources management function. Powered by DeSiaMore

Paying Employees (cont’d.) Inputs Employee work report (time sheet) Outputs Payroll report Paychecks to employees Powered by DeSiaMore

Reporting Financial Information Provides reports of financial information for the management and owners of the business. Usually a part of the accounting department. Powered by DeSiaMore

Reporting Financial Information (cont’d.) Categories of “accounts” Assets – what the business “owns” Liabilities – what the business “owes” Stockholder’s Equity – what the business is “worth” Revenues – the income of the business Expenses – the costs incurred to produce the revenues of the business Powered by DeSiaMore

Reporting Financial Information (cont’d.) Inputs Reports on revenue, expenses, assets and liabilities – the transactions of the business Outputs Balance Sheet Income Statement Powered by DeSiaMore

Information Systems and Business

Information Systems and Business IS can control the information flow in business operations. IS can increase the effectiveness of management decision making. Information processing activities are more efficient and effective when IS are utilized. Powered by DeSiaMore

Business Fundamentals
Key Terms Powered by DeSiaMore

Accounting Department Finance Human Resource Management Information Services Manufacturer Marketing Operations Organization Chart Production Research and Development (R&D) Retailer Key Terms Powered by DeSiaMore

Service Business Wholesaler (Distributor) Workgroup Key Terms (cont’d.) Powered by DeSiaMore

Summary The Nature of Business Types of Businesses Business Trends Business Functions The Organization of a Business Powered by DeSiaMore

Summary Information and Business Operations Information and Business Management Basic Business Information Processing Information Systems and Business Powered by DeSiaMore

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Understanding Business Fundamentals: Types, Trends, and Functions