Summary Internal environment

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Summary - Internal environment

  • 1.0 Internal Environment

  • Omnipotent view
    managers are directly responsible for an organization’s success or failure 
  • Symbolic view
    much of an organization’s success or failure is due to external forces outside managers’ control
  • Example of symbolic few
    · In reality, managers are neither all-powerful nor helpless. But their decisions and actions are constrained. 
    · External constraints come from the organization’s environment and internal constraints come from the organization’s culture 
  • Environment
    institutions or forces outside of the organization that could potentially affect performance. 
  • Environment
    • Environments differ on the degree of environmental uncertainty 
    • • Environmental uncertainty has two dimensions 
    • • Degree of change
    • • degree of complexity 
  • Environments can be either dynamic or stable
    • In a dynamic environment the components in an 
  • organization’s environments change frequently 
    In a stable environment the components in an organization’s environment change very little 
    • Environmental complexity looks at the number of components in an organization’s environment and the extent of the knowledge the organization has about those components. 
    • Depending on the organizational environment, managers may need to know a lot about the components, or very little. 
  • factors and forces outside the organization that affect its performance (GENERAL/MACRO)
    • Economic
    • Demographic 
    • Political/Legal 
    • Sociocultural 
    • Technological 
    • Global 
  • Specific Environment
    the part of the environment directly relevant to the achievement of organizational goals 
  • Most of management’s attention typically focuses on the specific environment 
  • The specific environment includes one or more of the following
    • Suppliers
    • Customers
    • Competitors
    • Government agencies 
    • Special interest groups
  • Suppliers
    Managers need to ensure a steady flow of inputs 
  • Customers
    Organizations exist to meet customer needs 
  • Competitors
    All organizations have competitors that they need to monitor.
  • Government
    Federal, state, and local governments influence what the organization can and cannot do. 
  • Pressure Groups
    Special interest groups can have a significant impact on the organization. Lobbyists, protestors, various action groups all effect change 
  • Describe the constraints and challenges facing managers in today’s external environment
    · The external environment includes those factors and forces outside the organization that affect its performance. 
    · The main components of the external environment are economic, demographic, political/legal, sociocultural, technological, and global. 
    · These components can constrain and challenge managers because they have an impact on jobs, environmental uncertainty, and stakeholder relationships. 
  • Environment complexity 
    the number components in an organization’s environment and the extent of the organization’s knowledge about those components 
  • Organizational culture
    the shared value, principles, traditions, and always organization members act and that distinguish the organization from other organizations. 
  • These six dimensions indicates and organization culture
    1. Adaptability : the degree to which employees are encouraged to be innovative and flexible and to take risks and experiment. 
    2. Attention to detail: the degree to which employees are expected to exhibit precision, analysis, and focus and details. 
    3. Outcome orientation: the degree which management emphasizes results rather than on the techniques and processes used to achieve them. 
    4. People orientation: the degree to which management consider the effect of outcome on people within and outside the organization.
    5. Team orientation: the degree to which collaboration is encouraged and work activities are organized around teams rather than individuals.
    6. Integrity: the degree to which people exhibit honestly and high ethical principles in their work.  
  • Strong cultures
    -Value widely shared
    -Culture conveys consistent messages about what’s important
    -Most employees can tell stories about company history or heroes
    -Employees strongly identify with culture 
    -Strong connection between shared values and behaviors 
  • Weak cultures
    -Value limited to a few people usually top management 
    -Culture sends contradictory messages about what’s important
    -Employees have little knowledge of company history or heroes
    -Employees have little identification with culture
    -Little connection between shared values and behaviors
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What the statement of cash flows shows
The statement of cash flows shows cash in- and outflows of a business over a period.
Cash inflows and cash outflows are divided into three categories:

§ cash flows from operating activities
§ cash flows from investing activities
§ cash flows from financing activities
Net increase (or decrease) in cash over the period is shown as well.
Why is liquidity important?
Liquidity of a business is based on its ability to generate cash.
A business should not only generate sufficient sales and receive profit for the shareholders, but it should also be able to have enough cash to pay salaries to employees, buy inventories from suppliers, pay rent, possibly pay interest to its lender etc (in other words, to run the basic operating activities).
Liquidity is essential for the survival of a company. Persistant cash problems can bring the company into bankruptcy.
Income statement vs statement of cash flows
If a business is profitable, it does not necessarily have sufficient cash, and vice versa – a business with a good liquidity position is not always profitable.
While the profitability of the business is shown in the income statement, 
the cash position (or liquidity) of the business is shown in the statement of cash flows.
Weighted average cost (AVCO
This assumption values all inventories — units sold and units remaining in closing inventories — at the average per-unit cost. (In effect, the average- cost method assumes that units are withdrawn from the inventory in random order.) 
Last-in, first-out (LIFO
Under LIFO, the most recently purchased units are assumed to be sold first. The closing inventories, therefore, are assumed to consist of the earliest (oldest) purchases. 
First-in, first-out (FIFO).
As the name implies, FIFO involves the assumption that the first units that were purchased (that is, the oldest units) are sold first. Thus the closing inventories are comprised of the most recently purchased inventories. 
Three Methods of costing inventories 
first in, first out (FIFO)
last in, first out (LIFO)
weighted average cost (AVCO) 
Key terms:
  • The cost of the asset is the total cost incurred by a business in buying the asset, delivering, installing it and making it ready for use.
  • Residual value of the asset is an amount of money to be received by a business when it disposes of the asset at the end of its useful life. Residual value can be zero or above zero.
  • Depreciation rate is a fixed percentage rate of depreciation, which is multiplied by the carrying amount of the asset in order to determine the depreciation expense.
Depreciation expense: Calculation
To calculate depreciation expense, the following information is required:
  • the cost of the asset
  • the residual value of the asset
  • the expected useful life of the asset (in years)
  • depreciation rate (for the reducing-balance method) 
Depreciable amount (or amount to depreciate) = Cost – Residual value
CapEx versus OpEx
Capital expenditure (CapEx) is an expenditure related to the purchase of a non-current asset.
Operating expenditure (CapEx) is an expenditure related to the purchase of a current asset.