Saturday, January 7, 2012
Contractual Savings Organization
Collect premiums and contribution from participants and provide retirement benefits and insurance against major financial losses. Insurance companies provide financial protection to individuals and businesses for life, property, liability, and health uncertainties. Customers, called policyholders, pay premiums to insurance companies that invest these funds until the insured claims must be paid. Pension funds receive contributions from employees and/or their employers and invest the proceeds on behalf of the employees. Many business organizations provide private pension plans for their employees. State and some local governments also provide pension (retirement) funds for employees. Like depository institutions, both insurance companies and pension funds are actively involved in the financial intermediation process of gathering the funds of individuals (premium payments and employee contributions) and investing these pooled funds so that businesses can grow and government units can provide more benefits for its citizens.
Small Business Practice
As the American economy moves from the industrial age to the information age, dramatic changes have been taking place in the importance of small businesses. While large firms with 500 or more employees continued to downsize and restruction throughout the 1990s, small firms provided the impetus for economic growth.
Between 1976 and 1990 firms with fever than 500 employees provided over one-half of total employment and 65 percent of net new jobs in the U.S. During the 1990s, small firms provided almost all of the new jobs. For example, data for the 1992-1996 period show that small firms were responsible for creating nearly 12 million new jobs while large firms exhibited a decline in their number of employees.
Why have small firms been so successful in creating new jobs? A recent white paper by the Small Business Administration suggest two reasons. First, small firms provide a crucial role in technological change and productivity growth. Market economics change rapidly and small firms are able to adjust quickly. Second, small firms provide the mechanism and incentives for millions of individuals to pursue the opportunity for economic success.
Others may argue that is the entrepreneurial spirit and activity that account for the importance of small firms in the U.S economy. Whatever the reason(s), the ongoing growth of small businesses continue to be an important stimulus to the economy as we enter the 21st century.
Between 1976 and 1990 firms with fever than 500 employees provided over one-half of total employment and 65 percent of net new jobs in the U.S. During the 1990s, small firms provided almost all of the new jobs. For example, data for the 1992-1996 period show that small firms were responsible for creating nearly 12 million new jobs while large firms exhibited a decline in their number of employees.
Why have small firms been so successful in creating new jobs? A recent white paper by the Small Business Administration suggest two reasons. First, small firms provide a crucial role in technological change and productivity growth. Market economics change rapidly and small firms are able to adjust quickly. Second, small firms provide the mechanism and incentives for millions of individuals to pursue the opportunity for economic success.
Others may argue that is the entrepreneurial spirit and activity that account for the importance of small firms in the U.S economy. Whatever the reason(s), the ongoing growth of small businesses continue to be an important stimulus to the economy as we enter the 21st century.
Tuesday, January 3, 2012
Overview of the Financial System
An effective financial system is a complex mix of government and policy makers, a monetary system, financial institutions, and financial markets that interact to expedite the flow of financial capital from savings into investment. Depicts a simplified view of the U.S, financial system. First, an effective financial system must have several sets of policy makers who pass laws and make decisions relating to fiscal and monetary policies. These policies makers include the President, Congress, the U.S, Treasurer, and the federal Reserve Board. Since the U.S operates within a global economy, political and economic actions of foreign policy makers impact, although indirectly, on the U.S financial system and its operations.
Second, an effective financial system needs an efficient monetary system for creating and transferring money. Third, an effective financial system also must have financial institutions that support capital formation either by channeling savings into investment in physical assets or by fostering direct financial investments by individuals in financial institutions and businesses. We refer to these activities as the savings-investment process. Fourth, an effective financial system must have financial markets that facilitate the transfer of financial assets among individuals, institutions, businesses, and governments.
The monetary system must provide an efficient medium for exchanging goods and services. A way to measure prices, called a unit of account, is a basic requirement. The unit of account in the United States is the U.S dollar. The unit of account must be universally accepted if exchange is to function smoothly.
Second, an effective financial system needs an efficient monetary system for creating and transferring money. Third, an effective financial system also must have financial institutions that support capital formation either by channeling savings into investment in physical assets or by fostering direct financial investments by individuals in financial institutions and businesses. We refer to these activities as the savings-investment process. Fourth, an effective financial system must have financial markets that facilitate the transfer of financial assets among individuals, institutions, businesses, and governments.
The monetary system must provide an efficient medium for exchanging goods and services. A way to measure prices, called a unit of account, is a basic requirement. The unit of account in the United States is the U.S dollar. The unit of account must be universally accepted if exchange is to function smoothly.
The Informal Organization
So far we have talked only about formal aspects of internal organization, the structures that are designed to accomplish a group's goals. These structures let all employees know how they fit into the company; they spell out reach employee's responsibility and authority. This is desirable. But there is more to a business firm than its internal organization. Every company of any size also has an informal organization, a network of social interactions among employees that cannot be specified by a formal structure or demonstrated on an organization chart.
Employees may work in one department, but they develop relationships with people in other departments, too. They make new friends in the cafeteria, or on the company bowling team, or in the credit union. An employee's friends or acquaintances in other departments may help to solve business problems or provide needed advice or information. Such relationships make work more pleasant in many cases, and they go a long way toward maintaining employee's morale--how they feel about their jobs. Everyone is happier when they work with people they know and care about.
On the other hand, the informal organization may also create problems for management and other workers. For example, an unhappy employee may use the informal organization to spread complaints about another workers or about the firm. The gossip and misinformation that often are spread through the "grapevine" can break down the morale among employees and can turn a firm into a "rumor factory."
Effective business managers recognize that they are dealing with an informal organization as well as a formal one, and they use it to help accomplish the group's stated objectives.
Employees may work in one department, but they develop relationships with people in other departments, too. They make new friends in the cafeteria, or on the company bowling team, or in the credit union. An employee's friends or acquaintances in other departments may help to solve business problems or provide needed advice or information. Such relationships make work more pleasant in many cases, and they go a long way toward maintaining employee's morale--how they feel about their jobs. Everyone is happier when they work with people they know and care about.
On the other hand, the informal organization may also create problems for management and other workers. For example, an unhappy employee may use the informal organization to spread complaints about another workers or about the firm. The gossip and misinformation that often are spread through the "grapevine" can break down the morale among employees and can turn a firm into a "rumor factory."
Effective business managers recognize that they are dealing with an informal organization as well as a formal one, and they use it to help accomplish the group's stated objectives.
Internal Organization and Parkinson's Law
We have reviewed the five basic forms of internal organization, and we have noted the differences between a centralized (tall) organization and a decentralized (flat) one. However, we still have no basic rules to guide the organization of all business firms. This is why the management principle of minimal levels of authority is so important: The levels of authority should be limited to the fewest possible to accomplish the goals of a specific firm.
As any firms grows in size, it adds supervisory personnel and more and more specialists to the payrolls. Usually, some of this growth is necessary; but much of it is not. If we can trust the judgement of many experienced executives and business consultants, staff additions do not always bring comparable increases in production, efficiency, or profits. In fact, many additions set the stage for Parkinson's Law, which states that "work expands to fill the time available for its completion." (Have you noticed that if you have only one hour to prepare for an exam, that's how long it will take; but if you have three hours, or six, the work will expand to fill all the time?)
The author of this "law" was the British historican C. Northcote Parkinson, who developed it from lengthy observation of British industry and government during the early twentieth century. But examples of how Parkinsons's Law works can be found throughout our business world and our government today, too. Why should it be the case that what once took only a few people's time to accomplish now requires the efforts of many people? What causes Parkinson's Law to apply even in the modern business world?
At least three aspects of modern business combine to complicate the matter of internal organization by bringing Parkinson's Law into play.
1. The desire of managers to build "empires" of their departments, believing that this will increase their importance and salaries.
2. The increased paperwork needed in modern business -- even in the hiring of employees.
3. The failure of many managements to establish effective control in an era of permissiveness and strong union bargaining power.
Only through strong top management that is constantly aware of productivity and personnel needs can business avoid, or at least minimize, the operation of Parkinson's Law.
As any firms grows in size, it adds supervisory personnel and more and more specialists to the payrolls. Usually, some of this growth is necessary; but much of it is not. If we can trust the judgement of many experienced executives and business consultants, staff additions do not always bring comparable increases in production, efficiency, or profits. In fact, many additions set the stage for Parkinson's Law, which states that "work expands to fill the time available for its completion." (Have you noticed that if you have only one hour to prepare for an exam, that's how long it will take; but if you have three hours, or six, the work will expand to fill all the time?)
The author of this "law" was the British historican C. Northcote Parkinson, who developed it from lengthy observation of British industry and government during the early twentieth century. But examples of how Parkinsons's Law works can be found throughout our business world and our government today, too. Why should it be the case that what once took only a few people's time to accomplish now requires the efforts of many people? What causes Parkinson's Law to apply even in the modern business world?
At least three aspects of modern business combine to complicate the matter of internal organization by bringing Parkinson's Law into play.
1. The desire of managers to build "empires" of their departments, believing that this will increase their importance and salaries.
2. The increased paperwork needed in modern business -- even in the hiring of employees.
3. The failure of many managements to establish effective control in an era of permissiveness and strong union bargaining power.
Only through strong top management that is constantly aware of productivity and personnel needs can business avoid, or at least minimize, the operation of Parkinson's Law.
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