Question

1. Why most DFs have on-going nature instead of disruptive nature?
2. What is the bottom line (BL) for a firm? Why do you need to understand the significance and impact of general environment factors on the firm BL? Can you be a good manager if you do not know well the general environment?
3. What are DFs for the general environment for the health care industry (remember: never mention Tenet Healthcare Corp. in this section of analyses since that is the job for the firm internal analysis)?

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Answer 1

While Top-line refers to the gross sales of an entity, the bottom-line denotes net income. It is the income left after all the expenses, i.e. production, administrative and selling, distribution, depreciation and amortization, interest charges etc are deducted from the gross sales.

While top line is a function of an entity’s demand of product/service and accordingly increased production, the bottom line can be achieved by also, and in fact, more importantly focusing on bringing expenses under control.

A firm’s general environment factors can be categorized into Internal and External.

Internal factors

1. Organisational Heirarchy
2. Departmentalisation
3. IT Infrastructure
4. Internal Control

External factors

1. Industry demand
2. Legal restrictions
3. Technology upgradation or obsolescence
4. Government policies

All these factors have severally and collectively a bearing on the BL of a firm.

Some illustrative examples can b :-

• If an organization does not have a well structured responsibility and accountability chain ,

unauthorized transactions or undue delays in decision making may take place, leading to greater operational expenditure.

• If the MIS software of the entity is inadequate to support its operations, proper accounting of financial information may become a challenge.
• If the demand of a particular product reduces due to growing popularity of a substitute product, the firm may have to spend more on Research & Development, marketing etc.
• A technological advancement may have a direct impact on the manpower needs of the concern, thereby resulting in lesser expense on wages and salaries.

A good manager has to be fully equipped with the knowledge of all these internal and external environmental factors that a firm interacts with on daily basis.

The Environmental factors of a healthcare industry include :-

Healthcare facilities ; The healthcare industry’s performance vastly depends upon the availability of medical & surgical equipment and drugs. Their productions costs, coupled with government’s subsidy play a decisive role in their availability in hospitals and the ultimate incidence of charge on the patient.

Staffing ; The industry also depends upon the number of qualified doctors and nurses, their distribution over the existing hospitals and clinics, as opposed to the population base that an economy has to provide for. A hospital will have to shell out a huge fee to a super-speciality doctor, if the number they are available in is scanty.

Ancillary support wings development ; The pathology labs also play a key role in health care sector. They must be efficient enough to produce accurate results. Else, the doctors' diagnosis gets adversely affected, leading to patients' lack of trust.