Understanding Basics of Business

Learning
Management Skills

Information Sheet - 1 Concepts of Business Management

5.1.1. What is a business?

A business is a set of regular activities conducted by an individual or a group of individuals to

generate profit by fulfilling the needs of other people. To generate a profit, businesses conduct
three basic activities
• buying (equipment and materials)
• producing (goods or services)
• selling (goods or services)

5.1.2. Business management

Business management is managing the coordination and organization of business activities. This
typically includes the production of materials, money, and machines, and involves both
innovation and marketing. Management is in charge of planning, organizing, directing, and
controlling the business's resources so they can meet the objectives of the policy.
1. What Does Management Do?
2. What Is Business Management System?
3. Business Management Tactics
4. Management Styles

i) What Does Management Do?

Managers and directors have the responsibility and power to look over an enterprise and make
decisions. The management size can be anything from a single person in an organization to
thousands of managers in companies that are in different nations. In bigger organizations, the
policy is defined by the board of directors and then carried out by the CEO, or chief executive
officer.
Management functions include the following:
 Planning
 Organizing
 Staffing
 Directing or leading
 Controlling an organization

ii) What Is Business Management System?

Business Management System is a toolset that's used for tactical implementation and strategic
planning of practices, processes, policies, guidelines, and procedures to use in the deployment,
execution, and development of business strategies and plans, as well as any associated
management activities.

iii) Business Management Tactics

The functional group of a BMS finds what the tactical techniques and approaches are when it
comes to implementing busin11ess plans that are linked to their business strategies. Tactical
solutions should only be brought up during the decision-making part. .

iii) Management Styles

There are several types of management that are common, including democratic, autocratic,
paternalistic, and laissez-faire. Democratic management style is used when employees are able
to give feedback or input on business decisions. Autocratic management lets the business owner
be the person in charge of making all decisions and leading the company through the business
environment. When the best work environment possible is created for each employee, it's known
as paternalistic management. Laissez-faire has the most employee autonomy and lets decisions
be made with little to no business owner oversight.

Information Sheet - 2 Determining Human and Non-Human Resource

5.2.1. Human resource management (HRM)

Human resource management is the planning, organizing, directing, and controlling of the
procurement, development, compensation, integration, maintenance, and separation of resources.
Human resource management is that part of management concerned with people at work and
with relationships with in an enterprise. It is to bring together and develop in to an effective
organization that men and women who makeup an enterprise and having regard for the wellbeing
of the individual and working groups to enable them to make their best contribution to its
success.

5.2.2 Human resource management functions

Human Resource management is seen as a system. The system entails the performing of six
functional areas associated with effective human resource management. These are Human
resource planning, requirement and selection, human resource development, compensation and
benefits, safety and health, employee and labor relations, and human resource research. It is these
exerted and integrated performances that human productive factors of production; i.e. people
with its skill, knowledge, experience, and inventiveness will be created and maintained for
organizational purpose. Some of its(hrm) functions are:

1. Human resource Planning - Human resource planning is the process of systematically

reviewing human resource requirements to ensure that the required numbers of employees,
with the required skills, are available when they are needed. Human resource planning is the
process of matching the internal and external supply of people with job openings anticipated
in the organization over a specified period of time.
2. Recruitment - Recruitment is the process of attracting individuals in sufficient numbers and
encouraging them to apply for jobs with the organization. It is the process of identifying and
attracting a pool of candidates, from which some will later be selected to receive employment
offers.
3. Selection - Selection is the process of choosing from a group of applicants the individual’s
best suited for a particular position. Whereas recruitment encourages individuals to seek
employment with a firm, the purpose of the selection process is to identify and employ the
best qualified individuals for specific positions.
4. Orientation - Orientation is the formal process of familiarizing new employees with the
organization, their job, and their work unit. Through orientation (also called socialization or
induction) new employees will acquire the knowledge, skills and attitudes that make them
successful of the organization.
5. Training and Development - Training and development aim to increase employee’s ability
to contribute to organizational effectiveness. Training is a process designed to maintain or
improve performance (and skills) in the present job. Development is a programmed designed
to develop skills necessary for future work activities. It is designed to prepare employees for
promotion.
6. Compensation administration - Compensation administration refers to the administration
of every type of reward that individuals receive in return for their services. In its boarder
sense, compensation represents all sorts of rewards that individuals receive as a result of their
employment.
7. Performance Evaluation - Performance evaluation is a formal system of periodic review
and evaluation or an individual’s job performance.
8. Safety and Health - Safety involves protecting employees from injuries caused by work
related accidents. Health refers to the employee’s freedom from illness and their general
physical and mental well – being. These aspects of the job are important because employees
who work in a safe environment and enjoy good health are more likely to be productive and
yield long-term benefits to the organization.
9. Promotion, Transfers, Demotions and Separations - Promotion, Transfers, Demotions and
Separations reflect an employee’s value to the organization. High performers may be
promoted or transferred to help them develop their skills, while low performers may be
demoted, transferred to less important positions, or even separated.
10. Human Resource Research - Human Resource research is a systematic gathering,
recording, analyzing, and interpretation of data for guiding human resource management
decisions. Every human resource management function needs effective research.
11. Other areas - Such as employee and labor relations, collective bargaining, employee rights
and discipline, and retirement are also concerns of human resource management

5.2.3. Human and non-human resources

Human resource management is defined as the utilization of human resources to achieve
organizational goals. Human resource management is the process of hiring and keeping the best
people for the organizational goals achievements
A. Human Resources - Human resources is the set of people who make up the workforce of an
organization, business sector, industry, or economy. A narrower concept is human capital,
 the knowledge and skills which the individuals command. Similar terms include manpower,
labor, personnel, and associates or simply: people:
• Energy - Good health is essential to maintaining a high energy level.
• Skills - Skills are developed when a person learns how to do a task competently.
• Knowledge - A real zest for life and an active curiosity will stimulate one’s learning.
Reading, observing and listening are ways of staying in the mainstream of life. Entrepreneurs
must take responsibility for acquiring knowledge by developing communication skills such
as reading, writing, speaking and listening.
B Non- human resources - Non-human resources are tangible things or objects that exist
externally of people. They can be seen, experienced and used by people. Non-human
resources are also known as material resources. Examples include cars, hospitals,
banks, libraries, parks petrol, computers, books, clocks, plants, money etc.

Risk Management
Introduction
Risk is a potential variation in outcome. When risk is present, outcome cannot be forecasted with
certainty. As a result risk gives rise to uncertainty. Risk is an object concept, meaning it is
measurable. Exposure to risk is created whenever an act or circumstances gives rise to possible
gain or loss that cannot be predicted with certainty.

5.4.1. Sources of Risk

The following are some of the possible sources of risk
1. Physical environment: Physical environment is fundamental sources of risk. Earthquake,
droughts, or excessive rainfall can lead to loss. The ability to fully understand our
environment and the effects we have on it-as –well as those it has on us-is a central aspect of
this source of risk.
2. Social environment: Changing the traditions and values, human behavior, social structures
and institution are a second source of risk. In fact, changing cultural values also create
opportunities, as when new attitudes regarding women in the workforce open a door to a
significantly talent pool.
 3. Political environment: Within a single country, the political environment can be an
important source of risk. A new president or prime minister can move the nation in to a
policy direction that might have dramatic effects on particular organizations.
4. Legal environment: A great deal of uncertainty and a risk arises from a legal system of a
country. Not only are standard of conduct uphold a punishments enforced, but as the system
itself evolves new standards arises that may not be fully anticipated.
5. Operational environment: Process and procedures of an organization generate risk and
uncertainty. A formal procedure far promoting, hiring, or firing employee may generate a
legal liability. The manufacturing process may put employees at risk of physical harm. The
operational environment also provides gains, as it is the ultimate sources or the goods and
services by which an organization succeeds or fails.
6. Economic environment: Although economic often flows directly from the political clam,
the dramatic expansion of the global marketplace has created an environment that is greater
than may single government

Risk management: is the identification, assessment, and prioritization of risks defined in as the
effect of uncertainty on objectives) followed by coordinated and economical application of
resources to minimize, monitor, and control the probability and/or impact of unfortunate events
or to maximize the realization of opportunities. Risk management’s objective is to assure
uncertainty does not deflect the endeavor from the business goals.

5.4.2. Identification and assessment of risks

Ensuring that adequate and timely risk identification is performed is the responsibility of the
owner, as the owner is the first participant in the project. The sooner risks are identified, the
sooner plans can be made to mitigate or manage them. Assigning the risk identification process
to a contractor or an individual member of the project staff is rarely successful.

5.4.3. Types of Risks

1. Financial Risk
Financial risk is the possibility that shareholders will lose money when they invest in a company
that has debt, if the company's cash flow proves inadequate to meet its financial obligations.
When a company uses debt financing, its creditors are repaid before its shareholders if the
 company becomes insolvent. Financial risk also refers to the possibility of a corporation or
government defaulting on its bonds, which would cause those bondholders to lose money.

2. Non-financial risk (NFR)

Non-Financial Risk can be related to compliance failures, misconduct, technology, or operational
challenges, has only a downside. And the downside is large.
Yet the direct financial consequences of NFR are not the only concern. The reputational damage
wrought can hit a bank hard at a time when customers, shareholders, and public stakeholders are
questioning banks’ business models. And there are also the personal consequences for senior
managers, whom regulators increasingly hold accountable for misconduct or failure to comply
with laws and regulations. All of this, and the prospect of still tighter regulation, puts
considerable pressure on banks to manage NFR better.

Information sheet - 5 Managing Micro and Small Enterprises (MSE)

5.5.1 Definition

5.5.2 Definition of Micro and Small businesses in Ethiopia

Micro: - Number of employees - less than or equal to five (owner, family members and employed
employees)
- Start-up capital excluding building:
Service: Less than or equal to 50,000
Industry: Less than or equal to 100,000
Small: -Number of employees - 6 to 30 employees (owner, family members and employed
employees)
- Start-up capital excluding building
Service: 50,001 – 500,000
Industry: 100,001 – 1, 500,000
5.5.3 Key success factors in setting up Micro, Small and Medium Businesses
 Sell each unit at a profit: Evaluate each and every product that you sell and determine if you
are selling them profitably. If not, you may need to identify how to make its current sales
profitable, whether by reducing your costs for that product or increasing its price.
 Continue to reduce overhead costs.: A lower overhead should be a continuing objective for
your business. You can cut costs by evaluating your insurance needs, reducing your reliance
on outside consultants and service providers, or cutting down unnecessary supplies and
equipment.
 Develop new products while maintaining the high quality of existing products: Ensure that your
products are created or chosen in response to the needs of your customers. Ask for customer
feedback through surveys or direct interaction with them to find out what are the items that
they need and expect from your business.

Information Sheet - 6 Managing Growth and Transition of a Business

5.6.2 Managing Transitions

i) Change vs. Transition
 Change: is situational and happens without people transitioning
 Transition: is psychological and is a 3 phase process where people gradually accept the
details of the new situation and the changes that come with it.
 Information Sheet - 7 Business Growth Strategies

5.7.1 Business growth strategies

Start-ups and small businesses usually set out into their chosen markets fueled by ample
enthusiasm and positivity. This may take them far, but to truly succeed in competitive markets it
is prudent to have a tangible long-term business growth strategy in place.

The unfortunate truth is that many start-ups or small companies fail because they haven’t taken
this crucial step. Without it, a new business can reach a plateau far sooner than expected; this
stage may even be a death knell, yet it is possible to turn things around quickly by implementing
some appropriate business growth strategies. If you are at the stage where your business needs a
boost – and fast – it is time to figure out which growth strategies can be put in place. Here are
some growth strategies for small businesses:

Most small companies have plans to grow their business and increase sales and profits. However,
there are certain methods companies must use for implementing a growth strategy. The method a
company uses to expand its business is largely dependent upon its financial situation, the
competition and even government regulation. Some common growth strategies in business
include market penetration, market expansion, product expansion, diversification and
acquisition.
1. Market Penetration Strategy - One growth strategy in business is market penetration. A
small company uses a market penetration strategy when it decides to market existing
products within the same market it has been using. The only way to grow using existing
products and markets is to increase market share, according to small business experts.
Market share is the percent of unit and dollar sales a company holds within a certain market
vs. all other competitors. One way to increase market share is by lowering prices. For
example, in markets where there is little differentiation among products, a lower price may
help a company increase its share of the market.
 2. Market Expansion or Development - A market expansion growth strategy, often called
market development, entails selling current products in a new market. There several reasons
why a company may consider a market expansion strategy. First, the competition may be
such that there is no room for growth within the current market. If a business does not find
new markets for its products, it cannot increase sales or profits. A small company may also
use a market expansion strategy if it finds new uses for its product. For example, a small
soap distributor that sells to retail stores may discover that factory workers also use its
product.

3. Product Expansion Strategy - A small company may also expand its product line or add
new features to increase its sales and profits. When small companies employ a product
expansion strategy, also known as product development, they continue selling within the
existing market. A product expansion growth strategy often works well when technology
starts to change. A small company may also be forced to add new products as older ones
become outmoded.

4. Growth Through Diversification - Growth strategies in business also include

diversification, where a small company will sell new products to new markets. This type of
strategy can be very risky. A small company will need to plan carefully when using a
diversification growth strategy. Marketing research is essential because a company will need
to determine if consumers in the new market will potentially like the new products

Information Sheet - 8 Creating and Maintaining Business Relationships

Customers
These are the people who deal with or buy from the business. Customers may also be referred to
as „clients‟ (especially in travel and tourism‟) or patrons‟ (in hospitality). Customers may be
divided into, or classified in many ways, often aligning with marketing or sales targets or
business-specific „target markets‟, such as:
 Corporate customers and clients
  Government customers – such as local and or national government agencies or authorities
 Private customers – these are individuals, couples or families
 Travel or tourism sectors – for example historical tourists, medical tourists, eco-tourists.

Customers can also be identified by certain demographic characteristics, such as:

 Gender – male or female
 Age – which may be a specific range, or an age range
 Religion
 Income
 Marital status
 Domestic, or international – who may be further divided into country of origin‟ classifications.
A business may also use the following “loose” classifications of customers to describe them and
differentiate between them:
 Regular customers – who use the business services on a „regular‟ basis
 New customers – those who use the business for the first time
 Potential customers – those to whom the business has a chance to sell something
 Prospects – people or businesses that have shown an interest in doing business with, and
buying from the organization.
Suppliers
These are businesses or individual who provide products and services to the organization.
They may be:
 Wholesale businesses – these are businesses who sell only to the retail sector. They will
buy from a manufacturer and on-sell to the retail sector
 Retail businesses – who buy from wholesalers and on-sell to members of the public,
private individuals and other businesses
 Combined wholesalers-retailers

Suppliers are important to businesses because they provide the goods a business sells and they
provide a variety of services (repairs and maintenance; advertising; utilities) the business
requires to sustain its ongoing presence in the marketplace.