 Good morning students. I am Dr. Vaidya Subramaniam. I will be the faculty who is going to handle this course titled business analysis for engineers. In today's class, I will be providing an introductory framework to this course and then we will see what are the different elements that we will be covering in this course. Now, before I provide you that framework, let me first tell you a few reasons why I think a course of this type is required for engineers. There is enough literature that all of you have been reading on the quality of engineers and that also makes people to ask the question, a very fundamental question whether do we need engineers at the first place to do a set of jobs that they are currently doing and I am just trying to extend this question to a different orbit altogether and also roping in the field of management and hence a sequential question to the start process is do we really require MBA graduates to do the management work that they are doing right now and this essentially on the issue of MBA graduates was the basis on which I work my PhD thesis. The results of that is a different subject altogether but at least I got the feeling that we need to juxtapose both these questions on do we need the engineers and do we need the MBAs to do the jobs that they are doing right now and my experience with interacting with the students has definitely been a learning one. I have found that there is a lot of interest level among students especially students in the engineering stream to know some nuggets of management. So I decided whether it would be fair to provide these students an interactory level course on management and I decided to offer this course called business analysis for engineers and this was just the starting point. The starting point because this served as a prerequisite for two more courses that I will be offering later. The second course would be finance for engineers the third course would be entrepreneurship and I believe that if a student completes all these three courses he or she would be having the required toolkit to start a business on their own and suppose we are not interested in starting new businesses on our own at least I felt that this subject would help them to survive a very serious dinner talk or a party talk that very often happens in various organizations that you will be working in future. Just imagine that you are working for a multinational or a very reputed company and that you are engaging in a serious conversation with your superiors and many members of the leadership team over a dinner and you begin to hear words like corporate strategy, dupe on ratio, inflation, inflation adjusted GDP. I am sure you would not cut a sorry figure not knowing at the first place what these words mean and how it would feel to make an attempt to engage in an intelligent conversation if you know what these terminologies really mean to you. So, in essence at the end of this course you would be enlightened enough to engage in an intellectual conversation of this type or at least provide a perception to your superiors and leadership team that you are really making some sense on terminologies that they otherwise would think is strange for students from an engineering background. So, it is with this perspective that I have designed this course. Now, let me just share with you what are the various ingredients that will actually form this entire course. The fundamental to this course is the word business because this course is titled business analysis for engineers. So, you need to know what business is and I am sure many of you after you graduate you would be engaged in working for a business entity or probably you would be starting your own business and you need to understand at a very fundamental level what business is all about and I am not going to provide you any textbook definition for business. I am just going to invite some answers to some questions and understand what you understand is business all about. So, if I am going to ask you the question what is business I am expecting some very fundamental answers from you and I am sure many of you will have different answers to this question, but let me first begin with the very fundamental question and I do not want to really burden you with a lot of questions in the first class itself. Let me start providing you with some direct answers to these fundamental questions. To me business is an entity, an entity that is for profit and I am sure many of you will ask the question whether all businesses need to make profit. The answer is no, there are entities that are not making profit and we still can categorize them as business entities and so I would rather define the basic unit of business that of an entity for profit or some businesses can also exist not for profit as well. So, recap a business is an entity for profit not for profit and during the course of the lecture you would understand why I used the terminology profit as the first indication for a business and secondly to generate profit or to engage in a business not for profit a business needs to use resources. So, hence an entity that is for profit or not for profit is run by people men or women. So, we need a business that uses human resources people and other resources as well and we will spend a lot of time talking on what these other resources are it could be material, it could be finance. So, it could be a host of other non people resources that businesses use. Thirdly the entity that exists that engages human and non human resources need to function for a desired output and hence they have a goal to achieve a desired output and output essentially is an end product of a series of processes starting from the input stage. So, a business has a set of input that gets converted into a desired output and that output definitely is for a public or private benefit. So, in essence as I told you before this is not a textbook definition a definition that just got coined in this very same classroom. And I am sure each of you will have different definitions which could either completely be different from what we have as long as it makes sense everybody can accept a definition. But to me a business is an entity for profit or also entities that can exist not for profit run by people using various resources to achieve a desired set of output for a public or a private benefit. So, this in a nutshell is a business. As we end this class I would also encourage the class to probably email me if you have any other better definitions and I am sure you will be having for this concept called business. Now, if we assume that we accept this definition for business. Now, the next question is how do we do a business analysis? A business analysis to do a business analysis we should understand that we need to have some framework that actually provides us a direction to do this analysis. And this framework could possibly be from again standard frameworks that are available in textbooks. But again I would like to mention that I am not for choosing standard frameworks we are going to use enough standard models as we get into the finer details of the course. But for this class let me just allow the class to think independently and see what different and acceptable frameworks can we provide before we finish this class. Now, if we need to understand and analyze a business what do you think would you be looking out as the first indicators the first set of parameters that you would like to actually assess. And then get an understanding of what this business entity is all about any answers yes. So, you would be interested in knowing various parameters that actually define the success or failure of businesses that is one an accepted parameter. But we are not just interested in knowing whether a business is successful or not we also need to go a step back or a step forward to understand what business businesses do after they meet success or a step backward to understand what actually happens back stage that makes business is successful. It could be decisions that are taken inside the board room it could be decisions that are taken outside the board room or even outside the business boundaries themselves. And also we need to understand a framework that actually provides you with some set of information on the very look of that information you could say that this information this business is successful or not which means you probably could define success by looking at annual reports of business entities. So, host of such information is essential to analyze a business in a proper perspective, but from different dimensions. And to me I feel that there are three C's to do this business analysis, three C's to do the business analysis. You know there is a I can see 7S you know there is a 6 sigma you know there is 4 P's. So, let us start with a new concept called a three C's for business analysis. And what are those three C's? Let me first begin with the first C the business code any guesses what I mean by a code for business that to me is the first C for doing a business analysis. Now nobody is going to dispute the fact that business success the currency for business success is the extent to which businesses make money. So, when I ask you this question why did you think that business X did better than business Y? An actual answer would be that the profitability or the profit that business X made was higher than business Y. And quite rightly that has become an accepted currency that measures the success for business to what extent to businesses make profit or make money. The next question is I already told you that businesses also exist for not for profit are we contradicting? How do we measure success stories of business enterprises not for profit when you are using the currency that tells that you measure business success based on the money that you make because businesses not for profit are not supposed to make money. But at least the underlying current is money in businesses for profit we see how much money they make. And in my view businesses not for profit can also be measured by using money as a common denominator if you are able to make an assessment on how much money they are able to get which is a recognition for the good work that they are doing. So, at the fundamental level we can understand that money is the common denominator that is used to measure success of business. And it is used in different forms you measure profitability, you measure return on investment, you measure shareholder value maximization, you measure price to earnings ratio, different financial parameters get into this game when money is involved. And we are going to talk at length about these as the course proceeds, but at least you must understand to arrive at a common parameter based on which we are going to measure success of business to which the money is the common denominator. We need to understand that there needs to be some common language that uses this currency to measure success of business. And this language of business is essentially accounting. So, when I am talking about code it means that I am talking about accounting because that is the language of business. And when we are talking about a language of business we should make sure that this language is understood by everybody. Students were sitting in this class, students were outside the class, people who run the businesses inside the country, outside the country, students outside the country, whoever it is we need to have a common understanding when it comes to the language of business. And only then we will be able to compare apples to apples. And to provide a common syntax that ensures that there is a uniform understanding when we are measuring the success of business. Then we should have certain accepted principles that form the guidelines on which accounting rests. So, this code in essence is a set of guidelines which are generally accepted by people all over with some minor customizations that does not alter the very fundamentals. But at the very broad level and to certain specific levels there is a common syntax, a common code which actually defines this language of business that I am going to call as accounting. So, that is the first C which means that you will be knowing certain basic issues on accounting because that forms the very fundamental that translates the currency of business, the currency of business success into uniformly understood parameters which are financial in nature. So, we need some common language of business which is accounting. So, that is the first C. Now, the second C is conduct. As students, you know what a conduct certificate is all about. Some students would be good, some students would be bad and that reflects in your conduct certificate. Now, try to extend this logic to business enterprises. When do we say that a business is doing good, a business is doing bad? Of course, you have financial statements to indicate that. Now, as I told you, we also need to understand by taking a few steps backward to understand the thought process of those decision makers, to understand the entire decision making process itself that actually led to such decisions which either cause success or failure to a business. And I am not talking about the ethical certificate when I am talking about conduct. The conduct that I am referring in this context is more strategic in nature. What do businesses do right? What are the key inputs that they analyzed that help them in taking right decisions? Why did businesses fell flat? What did they miss as a result of which they took wrong decisions? Now, these are issues that I would be interested in analyzing when I want to understand certain decision making. When I really want to understand what makes businesses succeed or fail? Why do I have big business enterprises that succeeded at a global level? Take for example, why did Apple succeed? Why is Microsoft succeeding? Why is the Tata consultancy services a successful IT services company globally competitive? It is not just some day to day activities that actually define the success of these enterprises. Definitely they are an integral part of the success, but there is something more that is happening at a very broader level, at the leadership level that actually defines the directions in which these companies operate. And that to me is the strategy. What is the strategic direction that organizations undertake? So, conduct to me is the strategic certificate that actually defines the direction, the path that provides a pathway for these businesses to undertake. So, this is the second C that we will be looking in this course. Now, the third C is climate. And I am sure all of you know that a business does not operate in isolation. No business says that I operate and I am the only one who is the only person in this business. There is competition of course, but that we will be covering when we are going to talk more about conduct of businesses, because we are going to touch on how businesses compete against each other. But beyond competition, still an industry does not survive in isolation. There is a set of stakeholders outside the business ecosystem that actually influences the way in which businesses are run. And these stakeholders could be your customers, could be the government. And the government in my opinion or the policy making body in general, not necessarily the government, because some policies also are trans-governmental as well. This external stakeholder is very important because they provide the climate around which businesses operate. In some geographies the climate might be conducive for doing business. In some geographies the climate is not conducive at all as a result of which the conduct of your business or the strategy of the business keeps changing. Because you need to have different strategies for different business climates. But then who decides what type of climate is available for doing business business? It is the government as well as other relevant policy holders are the ones who decide how the business climate should be. And that is why you often see business analysts, people who run businesses would like to understand the impact of policy decisions that say some of the RBI raises interest rates. Now how is that going to affect my business? Inflation, how is that going to affect my business? Very recently the finance minister announced the budget. Budget is the income statement and balance sheet of a country. So if it is the income statement and balance sheet of the country why is that it is going to affect my business? Because my business has a different income statement and balance sheet. But definitely you should understand that such policy decisions, decisions taken by the government have a telling impact on the way in which businesses operate because these policy decisions actually form the climate in which businesses operate. And this could also be outside the Indian geography. It transcends geographies. So we need to also understand that at a geopolitical level what policy decisions are taken can affect the way in which we do businesses assuming that we have business interest outside a defined geography. So we need to understand that the climate around which we do business gets a character because of certain policy decisions. So climate according to me is the policy characteristic. So quick recap, you know what a business is? And you know the three C's that we would be using to analyze a business. So this entire course is about using these three C's to understand the business code, to understand the business conduct and to understand the business climate. And if you are able to understand all three you would be at a comfortable position in being able to understand and appreciate the way in which businesses are being transacted. Let us get a little deeper. Now what is that we are going to do in these three C's? The first C as I already told you is accounting. Accounting I told you is the language of business. And when I am saying that this is the language of business then you will have to actually talk that language, feel that language, understand the language and you should be able to know the syntax that actually defines this language. And we will be spending a lot of time in this because I think that this is actually the fundamental to this course, not only to this course, but also to the other courses to which this course forms a prerequisite. For example, finance for engineers. You would not be able to understand finance for engineers if you are not knowing what accounting is all about. So this forms the very fundamental. And what we would be doing is to understand what financial accounting is and what management accounting is. And I have already told you that the very purpose, not the very purpose, but at least one of the main purposes for this course is to make sure that you get the best of the engineering as well as the best of some basics in management. So that you can survive a very good intellectual conversation. So I am not going to get into the very deep and finer aspects of accounting. I am not going to train you for becoming CPAs or chartered accountants. But at least I am going to train you so that given a set of transactions, you would be able to prepare financial statements. And we are going to talk about that at length. What these financial statements are? What is an income statement? What is a balance sheet? What is a cash flow statement? Before that you should understand that accounting has two parts. Financial accounting and management accounting. And in financial accounting I am going to teach you these three important statements. The income statement or popularly called the profit and loss statement, the balance sheet and cash flow. And of course what you need to know to prepare an income statement a balance sheet or a cash flow. We go to spend a considerable amount of time in understanding some accounting principles based on which we prepare an income statement, a balance sheet or a cash flow. The next part is management accounting, where I will be telling you, giving you some introductory level inputs on fixed cost, variable cost, then economic order quantity or break even, variance and a host of other information. Now why is that we are doing these two in accounting? Because this part is for external use, management accounting is more for internal use. Now what do I mean by external use and internal use? The internal end user for a financial accounting or the financial statements that you prepare is not only the business itself. So it is not just external, I can say this is external plus internal as well. It is not just the business itself that is interested in knowing what its income statement is, what its balance sheet is. But there is a set of stakeholders which is outside the business ecosystem that would like to know your financial statement. It could be the banks or it could be the investors, it could be the tax authorities, it could be government agencies, regulators. So these are people who would be interested in knowing what your income statement balance sheet is all about. How did you prepare that to make an analysis to probably raise tax demands. So for various other purposes we have stakeholders external to the business would be interested in knowing your financial statements. And also for an internal purpose let us say for the purpose of budgeting, for the purpose of cost optimization, for the purpose of defining better workflows we have a control system. So to have a perfect management control system in place that provides a good framework for an internal analysis that provides optimal use of resources, a framework that can optimally use these resources from a cost perspective we need to do a management accounting which is more consumed by those who are internal to the organization. Say for example as a vice president of manufacturing I would be interested in knowing the various cost elements within the shop floor and how I can reduce further so that the value addition is more. How I can manage time better so that the value addition is more. How I can increase productivity so that there is more value addition and all this if I can capture by way of numbers then the exercise becomes easier because qualitative indicators if they are quantified then it is easy to understand and work towards a specific target. And to convert this qualitative parameters into quantitative indicators and targets we can and for the purpose of using them internally to improve the internal processes we do this management accounting. So accounting will have two broad categories one financial accounting the other is management accounting and both of these will have a uniformly accepted set of principles. And we are going to look at what these uniform principles are as we actually progress further. The second see I already told you is conduct which I said I am viewing conduct as a strategic direction for a business what is strategy. In fact I have asked this question to many of my students who have actually undergone this course before. I have this question what is strategy. And I got answers they are actually answered my question what is not strategy which means that there is a popular belief that you know strategy is being number one in the market I need to have the number one market share is that strategy. I ask the students a question and any of you think that that strategy you can raise your hand I can see a number of hands that to me is not strategy. There is a goal and people confuse goals of businesses with strategy for the business. So before understanding what is strategy I would want the class to understand what strategy is not. So we would be spending time on first understanding what and what is not. And then I told you that there is a climate to do business. And if you look at the business ecosystem it comprises not only the business the entity the firm but also competition customers suppliers government agencies and a host of other peripheral entities that influence the way in which we do business. So when I am going to say that I am going to prepare a strategic plan I prepare a strategy for the business I should also understand how these various stakeholders influence my business operations. And if I ask you to do that analysis you would do it in a way that you think is right. And if I ask you to do that analysis you would do in a way that you think is right. Both of you may be right and both of you may be wrong as well. Both of you right because you have a right way of analyzing business strategy. Both of you wrong because you did an analysis which is wrong because it did not have a definitive way in which you could make an understanding of business strategy simple. But at least to provide some common understanding I am not saying that this is the only way in which you will have to understand business strategy. I am an alumnus of the Harvard business school. So I have some attachment to some models that come out of the Harvard business school. And I am a big fan of Michael Porter. So I would be using some models that Michael Porter actually formulated. Some models that actually explain to the class how to understand businesses. And in the process how to understand how strategic decisions are being made. So in effect I am going to tell you that these models are inputs for you to appreciate the strategic intent behind these strategic decisions. So I would be spending some time on those models. Models that help you in understanding the industry. What do you mean by industry? Industry is a set of a group of companies that are engaged in identical businesses. A two wheeler industry will comprise a TVS motor. It will comprise hero Honda, the judge. A car industry, a four wheeler automobile industry. Car industry will comprise Tata Motors. It will comprise Ford, Hyundai. So like minded businesses, like minded companies, aggregated form an industry. So when you are talking about strategy, I would want you to understand the logic of an industry itself. You might be a part of the industry. So it is not enough to understand just about yourself, but you need to understand the industry dynamics, because your decision is based on the industry dynamics as well. Let us go one step ahead. It is not enough if you just understand the industry, but I say no you should even understand the nation. Even before investment comes into a country, why did Ford decide to invest in Chennai? Why did Indian companies decide to invest in Africa? Which means there is something happening in different countries that provides relative comparative advantages as a result of which investments go all over. So it is about industry competitiveness. It is about nation's competitiveness that you need to understand. Why did a set of businesses decide to get into different countries and why not into these countries? You need a model to understand even nation's competitiveness or you even need to know how corporates, corporates by here I mean conglomerates let us say conglomerates. How conglomerates view their subsidiaries? What is the biggest conglomerate in India for example? Yeah Tata, the house of Tata. Now if you are Ratan Tata, how are you going to look at companies under the Tata Suns umbrella? Tata consultancy services, Tata steel, Tata power, Tata chemicals, Tata Alexi, the hotel groups of Tata. As a conglomerate also I would like to see how my subsidiaries are performing because strategy is not just at individual business level. Strategies also exist at a bird's eye view. A typical example is let us say Tata Suns strategy for a subsidiary. So you need to know whether there are models which I will be using and you will be knowing to understand the bird's eye views. How do conglomerates get this bird's eye view? Now the third C is the climate and I told you that the policy characteristics. It is about policy characteristics which means various policy decisions that are being taken by the policy makers and it happens at various levels. So you need to understand some very fundamental macro and microeconomics which means you need to know what is GDP? What is GNP? How is that calculated? What it means to have a higher GDP? What is inflation adjusted GDP? What is nominal GDP? What is real GDP? You need to know what is inflation? What is interest rate? How are these both related? So you need to understand the macroeconomics and microeconomics. You need to understand how to interpret a budget and I thought I should teach this class this because every time come February or at times during March you are glued on to your TV sets or you read reams and reams of newspapers that covers the budget and very often I found students saying that they have not really understood what the budget is all about. The budget analysis is a different ball game altogether but at least I am not going to make you experts to analyze budget till the last mile but at least you should be able to appreciate a country's income statement and balance sheet. How does a country earn income? What are the sources of its income and how does it spend and why such decisions are being taken to generate income, to borrow money and spend and what it means to the country and because of that why are these macroeconomic indicators that I talked about earlier keep changing which means that these policy decisions are always interrelated. So we need to also understand at a superficial level how these various policy decisions are interwoven and intertwined because a decision taken by one arm of the government affects a different arm because we live in this policy web where decisions taken are interrelated and at the end of the day it affects businesses also. So we would be discussing in this course three C's as I said earlier the code it is going to teach you the fundamental and universally accepted principles and syntax of accounting based on which you would be preparing financial statements and this is important because I told you that this actually is the currency measure for success of businesses. The second C is the conduct of doing business how decisions are being made, what is the strategic intent the strategic thought process behind such decisions and the third C is the climate that gets created because of various policy decisions and it is in this climate that business transactions happen and before I conclude I would also like to caution the class that I am not my endeavour is not to prepare experts in all these three C's that is a huge task but at least I am making an honest attempt to give you at a very superficial level and understanding of some key terminologies and understanding of some basic inputs that gets into these three C's namely the conduct the climate and code. So that you do not feel that ten years let us assume after ten years you are a general manager in a firm and that you did not do an MBA the fact that you did not do an MBA will never be a handicap to you when it comes to engaging in management practices. So at least to that level I will give you some inputs that gives you that comfort level that gives you the feeling yes I think I can make sense in a business dialogue I can make sense in a leadership meet that is going to talk about the strategic road map for a firm and I really do not care whether I have an MBA or not. So the absence of an MBA is not going to be a handicap for me and that is precisely why I think I am going to offer this course to you. So next class when we meet I am going to start with the first C which is the code of business which is accounting. So when we meet next class I will just quickly start with a quick refresher on what we did today and then we go to spend some considerable time in understanding the principles of accounting and if time permits we will jump into certain important elements of how to record transactions the principles of debit credit double entry bookkeeping and all that. So when we meet next be prepared you will be entering into the world of accounting. Thank you very much I will see you next class.