UNIT 1: INTRODUCTION TO BUSINESS ECONOMICS

1. SOCIAL ECONOMIC REALITY

What is Economics?
Today’s society is a complex framework of organizations. They exist because collective effort is more productive in order
to accomplish objectives. ​Economics is a social science that studies how to manage the available resources to meet
human needs, and the behaviour and actions of people. The ​goal ​of economics is to improve the living conditions of
individuals and societies.
Our resources are limited, but our wants are unlimited. We have to choose, and when we choose another purpose is
discarded. The cost of it is what we call ​opportunity cost​. In other words, the opportunity cost is the value of the best
option not selected.
- MICROECONOMICS. Focuses on how individual consumers and producers make their decisions. Includes a
single person, a household, a business or a governmental org.
- MACROECONOMICS. It studies the overall economy. Topics studied include government fiscal and monetary
policy, unemployment rates, growth as reflected by changes in the Gross Domestic Product, ​etc.

Economics agents​:
The economic problem of resource scarcity is solved by economics agents. They are the decision-making agents of an
economy. These decisions move the c
​ ircular flow​ of the economy. They are:
· ​HOUSEHOLDS (Consumers): they could be single-individuals, families or groups of consumers. They take decisions on
consumption and they aim to satisfy their needs with limited budgets. They are also the owners of the factors of
production (Work and Capital).
· ​FIRMS (Producers): They make decisions about ​production ​and distribution of goods and services. In summary, a firm is
a system in which production, financing and marketing factors are coordinated to achieve its objectives. Factors:
- Factors of production: Work and Capital. The company uses them to produce goods and services.
- Financing factors: financial sector. They allow the company to have the necessary money to invest.
- Marketing factors: they are the decisions made about distribution, price, or promotion.
· ​GOVERNMENTS​: they play a key role in all economic systems in three ways:
- Providing rules, laws that regulate the way in agents interact when it comes to going to the market.
- Redistributing the income. Through establishment of taxes, diverts economic resources.
- Production of goods and services (army, health, education, water, etc.).
- Consumers. They purchase goods and services from private companies.
· ​EXTERNAL/FOREIGN SECTOR​: foreign trade (exports and imports).

Gross Domestic Product​ (GDP):

It is an economic indicator that reflects the monetary value of all the final goods and services produced by a country in a
given period of time (usually a year). How to calculate: Y = C + I + G + (X - M) // GDP = consumption + investment +
government spending + net exports. GDP does not give us much information about a country’s economy. Other
indicators: inflation rate, unemployment rate or Human Development Index (HDI).

Circular flow of Income​:

Model of the economy that represents the major exchanges as flows of
money, goods and services between economic agents. Two different
flows: Real flow (goods, services and productive factors) and Monetary
flow (through monetary payments).
· Households offer the factors (W, K) to the firms in exchange for an
income. That money will be used to consume.
· Firms: offer goods and services and demand the factors.
· Governments: collects taxes and provides public goods and services.
They can also consume
· Foreign sector: buy and sell to other countries though exports (injection
to the circular flow) and imports (leakages from the c. flow).
Market economy. Supply and Demand​:
Modern economies are characterized by ​specialization ​of the means of production and by ​exchange ​of goods and
services. There is regional and local specialization. All these specialization imply an exchange economy and the place
where the exchange is done is called the ​Market and it is attended by buyers and sellers. In the circular flow of income we
can find 2 types of market: ​factor markets (exchange of factors and resources) and ​product markets (exchange of goods
and services).
· ​DEMAND​: it refers to how much of a product or service is desired by buyers. The
relationship price-demand is called ​Law of Demand​, where we can find an inverse
relationship (+ price, - demand // - price, + demand).
· ​SUPPLY​: represents how much the market can offer. The relationship price-supply is
called ​Lay of Supply​, showing a positive relation between them (+ price, + demand //
- price, - demand).
· ​EQUILIBRIUM​: when supply and demand are equal. It is the most efficient point. In
the real market they are constantly changing (excess of demand or of supply).

Economic systems​:
An economic system is a system of production, resource allocation and distribution of goods and services within a
society or a given geographic area. It includes the combination of the various institutions, agencies, decisions and
patterns of consumption that the structure of a community has. In summary, an economic system is a type of social
system that answers ​what ​to produce, ​how t​ o produce, ​how much​ quantity and w
​ ho ​receives the output of production.
· ​COMMAND/PLANNED economic system​: dominant centralized power (usually government) that controls a large part of
all the economic activity. No free market.
· ​MARKET economic system​: relies on free markets and does not ally any kind of government involvement in the
economy. The entire system is regulated by the people and the law of supply and demand (theoric concept).
· ​MIXED economic system​: dual economy. It is a mixture of a market and a command economic system. For example, the
European Union refers to its economy as a social market economy.

Market structure​:
It refers to the form of market organization, determining the market power and price influence by economic agents.
Types:
○ PERFECT COMPETITION​: a large number of small firms compete against each. No one of them has any
significant market power. As a result, the full industry produces the optimal level of output, because none of the
firms has the ability to influence market prices.
1. All firms maximize profits.
2. Free entry and exit.
3. Identical selling of goods.
4. No consumer preferences.

○ MONOPOLY​: markets where a single firm controls the entire market. It has the entire and highest level of market
power, as consumers do not have any alternatives. The monopolists often reduce output to increase prices and
earn more profit. Consequences:
1. Monopolist maximize profits.
2. It can set the price.
3. There are high barriers to entry and exit.
4. One firm that dominates the entire market.

○ OLIGOPOLY​: the market structure is dominated by only a small number of firms. On it there’s a limited
competition and firms can compete or collaborate (in order to gain a collective market power).
1. All firms maximize profits.
2. Oligopolies can set prices.
3. Barriers to enter and exit.
4. Products may be homogeneous or differentiated.
5. Only a few firms that dominate the market.
 ○ MONOPOLISTIC COMPETITION​: market structure where a large number of small firms compete against each
other. However, the firms sell similar but slightly differentiated products. This fact gives them a certain degree of
market power.
1. All firms maximize profit.
2. Free entry and exit.
3. Differentiated products.
4. Consumer preferences.

Enterprise as a system​:
A system is any set of elements assembled by a mechanism of
dependencies and relationships aimed at achieving a ​common
objective​. It is located in an specific environment and receives
inputs (demand) and delivers outputs (products/services). It is
formed by other systems: the ​subsystems are the different
departments or activities into which that organisation is divided.
Characteristics:
- Open system: relationed with the environment.
- Synergy: whole > part.
- Overall system: any influence has an impact.
- Self-regulating: adapts to keep a dynamic balance.
In order to succeed as a system, an Information Subsystem is needed. It ensures that the necessary information flows
from one department to another.

Enterprise as an organization​:
A human organisation is a group of people whose efforts and actions are coordinated to achieve a ​common objective​.
For that, coordinating the activities is really crucial. Basic models:
- Mechanistic organization​: rigid and tightly controlled. Any relationship between people is reduced to a
relationship of roles or functions. It is focused on reaching the best production-consumption ratio and on
efficiency​. In this case, people’s motivation is difficult.
- Organic organization​: highly adaptive and flexible. The person is conceived as a being motivated not only by
extrinsic factors (salary, good work conditions, etc), but also by intrinsic factors (learning, responsibility,
achievement, etc). The org. aims for e
​ fficiency a
​ nd ​attractiveness​.
- Humanistic organization​: the org. is seen as an institution that reflects concrete values that must permeate all its
operations. The org. doesn’t only aim for efficiency and attractiveness, it expects a ​unity ​and an ​identification ​of
its members with the company and its objectives.

Types of enterprises​:
Main variables:
○ ACTIVITY​: in what they are involved. There are 3 economic sectors: ​primary ​(natural resources), ​secondary
(industrial) and ​tertiary ​(services).
○ SIZE​: number of employees, sales volume or equity. Enterprises can be classified as ​microenterprise ​(<10
employees, 2 million), s
​ mall (​ 10-50 employees, 10 million), ​medium​ (50-250 employees, 45 million) and ​large​.
○ GEOGRAPHICAL AREA​: zone in which they operate. Enterprises can be local, regional, national, international,
multinational or global.
○ OWNERSHIP​ of the company’s capital: enterprises can be public, private and mixed.
○ LEGAL FORM​: We are talking about companies associated with individuals and others that are associated with
their own legal personality.
UNIT 2: STRATEGIC MANAGEMENT
1. THE FOUR FUNCTIONS OF MANAGEMENT
Planning​:
Planning is about setting goals, establishing strategies to achieve them, and developing plans to integrate and coordinate
activities. An effective plan requires:
- Determination of objectives. - Setting a calendar.
- Assessment of the situation. - Assignment of responsibilities.
- Determination of the procedure. - Appraisal of the plan about costs and practicability.
The set of basic goals of the org. is called ​mission​. It must be well defined and it must include a description of the basic
products and/or services of the organization. In summary, the mission is the statement of the purpose of an organization.
Moreover, additionally objectives could also be declared, which must be clear, mesurable, realistic and time-bound.

In other words, planning is the process by which the organization’s

objectives are formulated and plans / programs are developed to
achieve them. It is carried out at all levels of the company and in all
its functional areas. Depending on what interval of time we are
speaking, the planning process can be ​strategic ​(long term plans),
tactical​/functional (medium term) and ​operational (​ short term).

Organizing​:
Organizing is about management and structuring work to accomplish organizational goals. The essential elements of an
organization are:
- Human action.
- Human needs.
- Procedure of coordinating actions to meet needs. The organizing function is all about this.
The design of the organization depends on different variables:
○ ENVIRONMENT​: about variability, complexity, diversity and threats. 2 types of structures:
→ Organizational: they are flexible, with a high level of informal communication. Typical for rapid-change
environments.
→ Mechanical: rigid, bureaucratic and formalized. Typical of stable environments.
○ STRATEGY​: the structure should facilitate the achievement of the objectives by allowing the development of the
selected strategies.
○ TECHNICAL​: dimension of the organization, including task, technology and size.
○ SOCIO-CULTURAL​: about its history, culture and demographics.
○ POLITICAL​: referred to the ownership structure, interest groups and the distribution of power.

Leading​:
Leading is about working with and through people to accomplish goals. It is also defined as the process of influencing
people to contribute to the achievement of the goals. What is important in leading is the management. It bridges the gap
between the rational and human aspect of the organization. It links:

In summary, the leading function of management aims to achieve a correct integration of the person in the organization.
In order to make an appropriate adjustment, we can identify this steps:
1. SELECTION PROCESS: the individual person must find an organization that suits their needs and objectives; the
organization must find the person that best suits their expectations.
2. MUTUAL ADAPTATION: gradual accommodation and reciprocal adjustment between the person and the
organization.
3. JOINT GROWTH: reciprocal development of the person and the organization.

Controlling​:
Controlling is about monitoring, comparing and correcting work. Management control is a systematic action in order to
set standards, measure progress and take appropriate corrective actions. This function connectis the preceding functions
of Organizing and Leading, to the objectives of Planning. It takes place in four steps:
1. ESTABLISHMENT OF PERFORMANCE STANDARDS: they are derived from the objectives set during planning.
2. MEASUREMENT OF THE ACTUAL PERFORMANCE: need to find an economical and reliable method to measure
performance or results actually achieved.
3. COMPARISON PERFORMANCE-STANDARD.
4. TAKING CORRECTIVE ACTION: if it is needed, the manager will have to take the necessary changes to achieve
results in line with the standard.

2. STRATEGIC MANAGEMENT
The strategy is the plan for how the
organization will do what it’s business to
do, how it will compete successfully, and
how it will attract and satisfy customers
in order to achieve its goals. It is about
long term planning and it considers the
whole organization. The strategy is about:
○ POSITIONING: competing for the present.
→ Where are we competing? Product market scope, geographical scope and vertical scope.
→ How are we competing? C ​ ompetitive advantage.
○ DIRECTION: preparing for the future.
→ What do we want to become? V ​ ision.
→ What do we want to achieve? M ​ ission.
→ How will we get there? Guidelines for development and priorities.

Business model​:
The business model is about how a company is going to make money. It focuses on 2 things: if ​customers ​will
value what the company is providing and if the company can make any ​money ​doing that. A business model
describes the relationale of how an organization creates, delivers and captures value. It can be described
through nine basic building blocks focused in 4 main areas: ​customers​, ​offer​, ​infrastructure ​and ​financial
viability​. Nine basic blocks:
1. CUSTOMER SEGMENTS: different groups of people that an enterprise aims to reach and serve.
2. VALUE PROPOSITIONS: bundle of products and services that create value for a Customer Segment.
3. CHANNELS: describes how a company communicates with and reaches its Customers Segments to
deliver a Value Proposition.
4. CUSTOMER RELATIONSHIPS: describes the relationship Customer Segments - Company.
5. KEY RESOURCES: most important assets required to make a business model work.
6. KEY ACTIVITIES: most important things that a company must do to make its business model work.
7. KEY PARTNERSHIPS: network of suppliers and partners that make the business model work.
8. REVENUE STREAMS: the cash a company generates from each Customer Segment.
9. COST STRUCTURE: all costs incurred to operate the business model.
Strategic Management process​:
Strategic Management is so important because 3 reasons:
○ Organizations that use strategic management have ​higher levels of performance.
○ It is used to examine relevant factors and decide what actions to take in changing situations.
○ It helps in order to work the whole organization together toward achieving the organization’s goal.
PROCESS:

1. MISSION STATEMENT: identifying the organization’s current mission, values and goals.
2. STRATEGIC ANALYSIS:
a. External analysis: ​Opportunities a ​ nd ​threats.
b. Internal analysis: S
​ trengths ​and ​Weaknesses.
c. SWOT analysis: combined.
3. FORMULATING STRATEGY: evaluate strategic alternatives and select appropriate strategies for all
levels in the organization that provide relative advantage.
4. IMPLEMENTING STRATEGY: fit organizational structure and activities to the environment.
5. EVALUATING RESULTS: effectiveness of the strategies. Any changes can be done?

Mission​:
The mission is the statement of the purpose of an organization. It is the company’s main objective and
determines what the company intends to be. The mission answers the company purpose, its role in the society
and the way to follow.
When we talk about what the company would like to be in the future, we are talking about the ​Vision​. It would
be the point of arrival we set for ourselves in the future, the ultimate goal we want to achieve in the long term.
However, the definition of the Mission and the Vision is nor complete if the company does not consistently set
out ​Values​. They determine the way of acting and the culture of the company. Values must be shared by all
members of the organization.

Strategic analysis​:
EXTERNAL​: it studies the environment. The environment is all that surrounds the organization. It influences
and is influenced by it. Its study is a critical step in the Strategic Management process. In an external analysis,
managers should examine the economic, demographic, political/legal, sociocultural, technological and global
components to see the trends and changes.
Its objective is to pinpoint the ​opportunities in the environment that the org. can exploit and the ​threats that it
must counteract or buffer against. There are 2 dimensions that must be studied:
- STABILITY: The environment can be stable (not constant analysis is needed) or a dynamic (constant
analysis is needed).
- COMPLEXITY AND DIVERSITY: changes can be understable or very complex. Its variables can be also a
few or many.
PESTEL ANALYSIS (GENERAL ENVIRONMENT)​:
This analysis attempts to observe how the factors affect the competitiveness of the company, causing
Opportunities or Threats.

ANALYSIS OF THE SPECIFIC, COMPETITIVE OR SECTORIAL ENVIRONMENT​ - P

​ ORTER FIVE FORCES​:

We will observe the conditions of rivalry in my sector,

the strengths and weaknesses of suppliers and
customers, the possible barriers that can be
established by the actors in my sector to potential
competitors, profitability of my sector, and the value for
money of the products that can replace those offered
by my sector.

It’s important to observe which are the variables that

can make my power increase.
INTERNAL​: it provides important information about an organization’s specific resources (what) and
capabilities (how). The objective is to detect strengths and weaknesses. It analyses:
- RESOURCES: assets that the org. use to develop, manufacture and deliver a product. They can be
tangibles (financial, physical or human) or intangibles (knowledge, reputation or brand).
- CAPABILITIES: skills and abilities in doing the work activities needed.
- CORE COMPETENCIES: org. mayor value-creating capabilities that determine its competitive weapons.
The exclusive resources or capabilities should give us a ​competitive advantage (better than competitors and
difficult to imitate). After completing the analysis, strengths and weaknesses must be detected:
- Strengths: activities done well or unique resources that the company has.
- Weaknesses: activities not done well or not-possessed resources.
VALUE CHAIN​ - ​AUDIT RESOURCES TOOL​:
The diagram of the Value Chain
shows at the bottom of the image
the needed process with which a
company can create value. At the
top there are a couple of
activities/resources needed in
order to succeed at work.

Resources audit tool: ​we should

concentrate on the tasks we do
the best and outsource others.

SWOT ANALYSIS: ​It is a matrix used for analysing the situation of the company, which aim is to provide a
clear diagnosis in order to make the appropriate strategic decisions. After completing the SWOT analysis,
managers are ready to implement strategies that:
- Exploit​ an organization’s strengths and external opportunities.
- Protect​ the organisation from external threats.
- Correct​ critical weaknesses.

Opportunities Threats

Strengths Which of the company’s strengths can How can you use the company’s strengths
be used to maximise the opportunities to minimise the threats you identified?
you identified?

Weaknesses What actions can you take to minimise How can you minimise the company’s
the company’s weaknesses using the weaknesses to avoid the threats you
opportunities you identified? identified?

STAKEHOLDERS ANALYSIS AND SOCIAL RESPONSIBILITY: