*

GOODS and SERVICES

Entrepreneurship and Wealth Building

LG1

Goods -- Tangible products such as computers,

food, clothing, cars and appliances.

Services -- Intangible products that cant be held in

your hand like, education, healthcare, insurance, recreation and travel.

Success in business is often based on the strategy of finding a need and filling it.

BUSINESS and ENTREPRENEURSHIP

Entrepreneurship and Wealth Building

LG1

Business -- Any activity that seeks to provide

goods and services to others while operating at a profit.

Entrepreneur () -- A person who risks time

and money to start and manage a business.

Successfully filling a market need means you could make money for yourself and provide jobs for others.

*Revenues,
REVENUE, PROFIT AND LOSS
Revenue () -- The total
amount of money a business takes in during a given period by selling goods and services.
Profits and Losses LG1

Profit () -- The amount of

money a business earns above and beyond what it spends for salaries and other expenses.

Loss () -- Occurs when a

business expenses are more than its revenues.

*
RISK
Matching Risk with Profit LG1

Risk -- The chance an entrepreneur takes of losing

time and money on a business that may not prove profitable.

Businesses take risks, but with great risks could come great profit.

*
QUALITY of LIFE

Businesses Add to the Standard of Living and Quality of Life

LG1

Quality of Life ( ) -- The general well-being

of a society in terms of its political freedom, natural environment, education, healthcare, safety, amount of leisure and rewards that add to personal satisfaction.

*
STAKEHOLDERS

Responding to the Various Business Stakeholders

LG1

Stakeholders () -- All the people who

stand to gain or lose by the policies and activities of a business and whose concerns the businesses need to address.

Who are Stakeholders?

- Customers
Employees Stockholders Suppliers Dealers

- Community Members
- Media - Elected Officials - Environmentalists

OUTSOURCING and INSOURCING

Responding to the Various Business Stakeholders

LG1

Outsourcing -- Contracting with other companies

(often in other countries) to do some of the firms functions

Insourcing -- Foreign companies opening offices

and factories in the domestic country (US, Korea).

*
NONPROFIT ORGANIZATIONS

Using Business Principles in Nonprofit Organizations

LG1

Nonprofit Organization -- An organization whose

goals are for the betterment of the community, not financial gains.

*
FIVE FACTORS of PRODUCTION
1. Land 2. Labor 3. Capital

The Importance of Entrepreneurs to the Creation of Wealth

LG2

4. Entrepreneurship
5. Knowledge Entrepreneurs use what theyve learned to grow their businesses and increase wealth.

GOVERNMENTS ROLE in BUSINESS

The Economic and Legal Environment

A government can promote business by

LG3

1.Minimizing spending and keeping taxes and regulations to a minimum. 2.Allowing private ownership of businesses. 3.Minimizing interference with the free exchange of goods and services. 4.Passing laws that enable businesspeople to write enforceable contracts. 5.Establishing a currency thats tradable in world markets. 6.Minimizing corruption.

*
BENEFITS of TECHNOLOGY

How Technology Benefits Workers and You

LG4

Technology -- Everything from phones to copiers

and the various software programs that make businesses more effective, efficient and productive.

Effectiveness -- Producing the desired result. Efficiency -- Producing goods and services using
the least amount of resources.

Productivity -- The amount of output you generate

given the amount of input (example: hours you work).

*
E-COMMERCE
The Growth of E-Commerce LG4

E-Commerce -- The buying and selling of goods

on the Internet.
- B2C: Business to Consumer - B2B: Business to Business

USING EMPOWERMENT The Competitive Environment to COMPETE in TODAYS MARKET LG5

Customers want quality products at a good price with excellent customer service. Because business is more customer-driven, some managers give frontline employees more decision-making power. Empowerment -- Giving frontline workers the
responsibility, authority, and freedom to respond quickly to customer requests.

*
IMPORTANT CHANGES to the GLOBAL ENVIRONMENT
1. Growth of global competition
2. Increase of free trade among nations 3. More efficient distribution systems and communication advances.

The Global Environment LG7

*
GLOBAL GREENING

The Ecological Environment LG7

Climate Change -- Movement of the temperature of

the planet up or down over time.

Many companies like GE, Coca Cola, British Airways and Shell are shifting their practices to save energy and produce products that cause less harm to the environment. This process is called greening.

IMPORTING and EXPORTING

*
The Dynamic Global Market

LG1

Importing -- Buying products

from another country.

Exporting -- Selling products to another country. The U.S. is the largest importing and the second largest exporting nation in the world.

3-16

*
TRADING with OTHER NATIONS
Why Trade With Other Nations?

LG1

Countries with abundant natural resources (like Venezuela or Russia) need technological resources from other countries (like Japan). Global trade allows countries to produce what they make best and buy what they need from others. Free Trade -- The movement of goods and
services among nations without political or economic barriers.
3-17

*
COMPARATIVE and ABSOLUTE ADVANTAGE

The Theories of Comparative and Absolute Advantage

LG1

Comparative Advantage -- A country should sell

the products it produces most effectively/efficiently and buy from other countries the products it cannot produce as effectively/efficiently. ex) Chinas clothing, Japans electronics

Absolute Advantage -- A country has a monopoly

on producing a specific product or is able to produce it more efficiently than all other countries. ex) U.S.s reusable spacecraft
3-18

*
HOW to MEASURE GLOBAL TRADE
Measuring Global Trade LG2

Balance of Trade () -- The total value of a

nations exports compared to its imports measured over time.

Trade Surplus ()-- When the value of a

countrys exports is more than that of its imports.

Trade Deficit () -- When the value of a

countrys exports is less than that of its imports.

3-19

*
BALANCE of PAYMENTS
Measuring Global Trade LG2

Balance of Payments () -- The difference

between money coming into a country (from exports) and money leaving the country (from imports) plus other money flows (from tourism, foreign aid, military expenditures, and foreign investment)

The goal is to have more money flowing into a country than out a favorable balance. An unfavorable balance is when more money flows out of a country.
3-20

*
UNFAIR TRADE PRACTICES
Measuring Global Trade LG2

Dumping -- Selling products in a foreign country at

lower prices than those charged in the producing country.

Dumping is prohibited.
China, Brazil and Russia have been penalized for dumping steel in the U.S.

3-21

*
KEY STRATEGIES for REACHING GLOBAL MARKETS
Strategies for Reaching Global Markets

LG3

Licensing

Exporting

Franchising

Contract Manufacturing

International joint ventures and strategic alliances

Foreign direct investment

Least

Amount of commitment, control, risk and profit potential

Most

3-22

LICENSING

*
Licensing LG3

Licensing -- When a firm (licensor) provides the

right to manufacture its product or use its trademark to a foreign company (licensee) for a fee (royalty). ex) Disney, Coca-Cola

Licensing can benefit a firm by:

- Gaining revenues it wouldnt have otherwise generated. - Spending little or no money to produce or market their products.
3-23

*
FRANCHISING
Franchising LG3

Franchising -- A contractual agreement whereby

someone with a good idea for a business sells others the rights to use the name and sell a product/service in a given area.

Franchisors need to be careful to adapt their product to the countries they serve.

Pizza Hut and Dominos learned that pizza topping preferences differ all around the world.
3-24

*
CONTRACT MANUFACTURING
Contract Manufacturing
LG3

Contract Manufacturing -- A foreign company produces private-label goods to which a domestic company then attaches its own brand name or trademark. A form of outsourcing. ex) Dell contracts with Quanta Computer of Taiwan
Contract manufacturing can be used to: - Allow a company to experiment in a new market without heavy start-up costs such as building a manufacturing plant. - Temporarily meet an unexpected increase in orders.

3-25

JOINT VENTURES

*
International Joint Ventures and Strategic Alliance

LG3

Joint Venture -- A partnership in which two or more

companies join to undertake a major project.
ex) Joint venture among Volkswagen, General Motors, and Chinas Shanghai Automotive Industrial Corporation

The Benefits of Joint Ventures:

- Shared technology and risk. - Shared marketing and management expertise. - Entry into markets where foreign companies are often not allowed unless goods are produced locally.
3-26

STRATEGIC ALLIANCES

International Joint Ventures and Strategic Alliance

LG3

Strategic Alliance -- A long-term partnership between two or more companies established to help each company build competitive market advantages.
ex) Hewlett-Packards strategic alliances with Hitachi & Samsung

Unlike joint ventures, strategic alliances dont share costs, risks, management or profits.
Strategic alliances provide broad access to markets, capital and technical expertise.

3-27

*
FOREIGN DIRECT INVESTMENT
Foreign Direct Investment
LG3

Foreign Direct Investment (FDI) -- The buying of permanent property and businesses in foreign nations. Foreign Subsidiary () -- A company owned in a foreign country by another company called the parent company. The most common form of FDI. - Primary Advantage: Parent company maintains complete control over its technology or expertise. - Primary Disadvantage: Must commit funds and technology within foreign boundaries.
3-28

*
MULTINATIONAL CORPORATIONS
Foreign Direct Investment
LG3

Multinational Corporation ( ) -- A company that manufactures and markets products in many different countries and has multinational stock ownership and management.
ex) ExxonMobil, Wal-Mart, China Mobil, GE, Microsoft, Volkswagen

Not all large global businesses are multinational. Only firms that have manufacturing capacity or some other physical presence in different nations can truly be multinational.

3-29

EXCHANGE RATES

*
Economic and Financial Forces

LG4

Exchange Rate () -- The value of one nations

currency relative to the currencies of other countries. High value of the dollar Dollar is trading for more foreign currency; foreign goods are less expensive.

Low value of the dollar Dollar is trading for less foreign currency; foreign goods are more expensive.
Currencies float in value depending on the supply and demand for them in the global market.
3-30

DEVALUATION and COUNTERTRADING

*
Economic and Financial Forces

LG4

Devaluation () -- Lowers the value of a nations currency relative to others. Countertrading (/ ) -Complex form of bartering in which several countries each trade goods or services for other goods or services.

3-31

TRADE PROTECTIONISM

*
Trade Protectionism LG5

Trade Protectionism -- The use of government

regulations to limit the import of goods and services.

Advocates of protectionism believe it allows domestic producers to survive, grow and produce jobs.

3-32

*
TARIFFS
Tariffs -- Taxes on imports. Two kinds of tariffs:
Protective Raise the retail price of imports so domestic goods are competitively priced. Revenue Raise money for governments.
Trade Protectionism LG5

3-33

*
IMPORT QUOTAS and EMBARGOS
Trade Protectionism LG5

Import Quota -- Limits the number of products in

certain categories a nation can import.

Embargo -- A complete ban on the import or export

of a certain product or the stopping of all trade with a particular country.

Political disagreements can lead to embargos, like the U.S. embargo against Cuba.

3-34

*
WORLD TRADE ORGANIZATION
The World Trade Organization

LG5

General Agreement on Tariffs and Trade (GATT) -A global forum for reducing trade restrictions on goods, services, ideas and cultural problems. World Trade Organization (WTO) -- Headquartered in Geneva, the WTO is an independent entity of 152 member nations whose purpose is to oversee crossborder trade issues and global business practices.

3-35

*
COMMON MARKETS
Common Markets LG5

Common Market -- A regional group of countries

with a common external tariff, no internal tariffs and coordinated laws to facilitate exchange among members.

The European Union (EU), Mercosur and the ASEAN are common markets.

3-36

*
FUTURE of GLOBAL TRADE
The Future of Global Trade
LG6

China is the largest global consumer of steel, copper, coal and cement and second only to the U.S. in the consumption of oil. Multinationals (like GM) are investing heavily in China. India has seen huge growth in information technology, pharmaceuticals and biotechnology.

Russia is a large oil producing country with many multinationals interested in developing there.

3-37

*
WHAT are ETHICS?
Ethical Standards are Fundamental

LG1

Ethics -- Standards of moral behavior, that is,

behavior accepted by society as right versus wrong.

4-38

*
BASIC MORAL VALUES
Right:
Integrity
Ethical Standards are Fundamental

LG1

Wrong:
Cheating Cowardice Cruelty

Respect for human life

Self control Honesty Courage Self-sacrifice

4-39

ETHICS START at the TOP

1. People learn their standards and values from observing what others do, not what they say. 2. Leadership and example of strong top managers can help instill corporate values in employees.

Managing Businesses Ethically and Responsibly

LG3

3. Any trust and cooperation between workers and managers must be based on FAIRNESS, HONESTY, OPENNESS, AND MORAL INTEGRITY. 4. Overly ambitious goals and incentives may encourage unethical actions.
ex) cell phone service representatives lie to get customers extend their contracts
4-40

ETHICS CODES

* Setting Corporate
Ethical Standards LG4

An increasing number of companies have adopted written codes of ethics. Compliance-Based Ethics Code -- Emphasize
preventing unlawful behavior by increasing control and by penalizing wrongdoers.

Integrity-Based Ethics Code -- Define the

organizations guiding values, create an environment that supports ethically sound behavior and stress a shared accountability among employees.
4-41

CORPORATE SOCIAL RESPONSIBILITY

*Corporate
Social Responsibility LG5

Corporate Social Responsibility (CSR) -- A

businesss concern for the welfare of society.

CSR is based on a commitment to integrity, fairness, and respect.

CSR proponents argue that businesses owe their existence to the societies they serve and cannot exist in societies that fail.
4-42

CORPORATE PHILANTHROPY and SOCIAL INITIATIVES

*Corporate
Social Responsibility LG5

Corporate Philanthropy -- Includes charitable

donations.

Corporate Social Initiatives -- Includes enhanced

forms of corporate philanthropy directly related to the companys competencies.

4-43

CORPORATE RESPONSIBILITY and POLICY

*Corporate
Social Responsibility LG5

Corporate Responsibility -- Includes everything

from hiring minority workers to making safe products, minimizing pollution, using energy wisely, and providing a safe work environment.

Corporate Policy () -- The position a firm

takes on social and political issues. (. )

4-44

*
INSIDER TRADING
Responsibility to Investors LG5

Insider Trading () -Insiders using private company information to further their own fortunes or those of their family and friends.

Unethical behavior does financial damage to a company and investors are cheated.
4-45

*
SOCIAL AUDITING
Social Audit A systematic evaluation of an
organizations progress toward implementing socially responsible and responsive programs.
Social Auditing LG5

Four Types of Social Audit Watchdogs

-

Socially conscious investors (insist that a company extend its own high standards to its suppliers)
Environmentalists (apply pressure by naming companies that dont abide by environmentalists standards)

Union officials (hunt down violations and force companies to comply to avoid negative publicity)
Customers (make buying decisions based on their social conscience)

4-46

*
MAJOR FORMS of OWNERSHIP

Basic Forms of Business Ownership

LG1

Sole Proprietorship -- A business owned, and

usually managed, by one person.

Partnership -- Two or more people legally agree to

become co-owners of a business.

Corporation -- A legal entity with authority to act

and have liability apart from its owners.

5-47

MAJOR BENEFITS of SOLE PROPRIETORSHIP

Ease of starting and ending the business Being your own boss Pride of ownership Leaving a legacy (for future generation) Retention of company profit No special taxes

*Advantages of
Sole Proprietorships LG1

5-48

DISADVANTAGES of SOLE PROPRIETORSHIPS

*Disadvantages
of Sole Proprietorships LG1

Unlimited Liability -- Any debts or damages

incurred by the business are your debts, even if it means selling your home, car or anything else. Limited financial resources (use personal funds, borrow on
credit cards)

Management difficulties
Overwhelming time commitment Few fringe benefits

Limited growth (rely on owner for everything)

Limited life span (no exist if owner dies, retires)
5-49

ADVANTAGES of PARTNERSHIPS
More financial resources Shared management and pooled skills and knowledge Longer survival
- Partnerships were 4 times as likely to succeed as sole proprietorships - being watched by a partner can help each other more disciplined

Advantages & Disadvantages of Partnerships

LG2

No special taxes
- All profits of partners are taxed as personal income of the owners
5-50

DISADVANTAGES of PARTNERSHIPS
Unlimited liability Division of profits Difficult to terminate

Advantages & Disadvantages of Partnerships

LG2

Disagreements among partners

5-51

CONVENTIONAL CORPORATIONS
Conventional (C) Corporation -- A statechartered legal entity with authority to act and have liability separate from its owners (its stockholders).

*
Corporations LG3

5-52

*
ADVANTAGES of CORPORATIONS
Advantages of Corporations LG3

Limited liability - owners are responsible for losses only up to the amount they invest
Ability to raise more money for investment
- stock, loans, bonds

Size - modern facilities, hire experts, buy other corporations Perpetual life - death of owners does not terminate the corp.

Ease of ownership change - selling stock to someone else

Ease of attracting talented employees Separation of ownership from management
5-53

HOW OWNERS AFFECT MANAGEMENT

*
Advantages of Corporations LG3

5-54

DISADVANTAGES of CORPORATIONS
Cost and complexity of formation
- registration, license fees, cost for lawyers/accountants

*
Disadvantages of Corporations LG3

More government restrictions - register, financial report

Double taxation (income is taxed twice) corporation pays tax;

stockholders pay tax

Two tax returns - file both a corporate tax return and an individual
tax return.

Size - large corp. could become inflexible & too tied down in red tape Difficulty of termination Possible conflict with stockholders and board of directors

*
WHO CAN INCORPORATE?
Individuals Can Incorporate
LG3

Anyone - truckers, doctors, plumbers, athletes and small business owners can incorporate.
Normally, stock is not issued to outsiders when individuals incorporate so the advantages and disadvantages are not exactly the same as for large corporations.

Major advantages are limited liability and possible tax benefits.

5-56

*
S CORPORATIONS
S Corporations LG3

S Corporation -- A unique government creation that

looks like a corporation but is taxed like sole proprietorships and partnerships.

S corporations have shareholders, directors and employees, plus the benefit of limited liability.
Profits are taxed only as the personal income of the shareholder.

5-57

LIMITED LIABILITY COMPANIES ()

*
Limited Liability Companies
LG3

Limited Liability Company (LLC) -- Similar to a S

corporation but without the eligibility requirements.

Advantages of LLCs:
Limited liability - personal assets are protected Choice of taxation - can be taxed as partnerships or as corp. Flexible ownership rules - do not have to comply with
ownership restrictions as S corporations do

Flexible distribution of profits and losses - dont have to

be distributed in proportion to the money each person invests

Operating flexibility - reporting requirements are less than for

a corporation
5-58

*
MERGERS and ACQUISITIONS .
company.

Corporate Expansion: Mergers and Acquisitions

LG4

Merger -- The result of two firms joining to form one

Acquisition -- One companys purchase of the
property and obligations of another company.

5-59

*
TYPES of MERGERS (p130)

Corporate Expansion: Mergers and Acquisitions

LG4

Vertical Merger -- Joins two firms in different stages

of related business; ex) merger of a soft drink company and a
company producing artificial sweetener

Horizontal Merger -- Joins two firms in the same

industry and allows them to diversify or expand their products; ex) merger of a soft drink and a mineral water company

Conglomerate Merger -- Unites firms in completely

unrelated industries in order to diversify business operations and investments;
ex) merger of a soft drink company and a snack food producer
5-60

*
FRANCHISING
Franchises LG5

Franchise Agreement -- An arrangement whereby

someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory.

More than 900,000 franchised businesses operate in the U.S., employing approximately 10 million people.

5-61

Franchises
Advantages Disadvantages

Increased ability for franchisor to expand - franchisees finance their own - no need of major investment Recognized name, product, and operating concept - reduced risk of franchisees Management training and assistance Financial assistance - obtain funds b/c of brand - advice from franchisor
62

Loss of control - franchisor over franchisees Cost of franchising - facilities/equipment - royalties, advertising Restricted operating freedom - conform to franchisors rules

COOPERATIVES ()

*
Cooperatives LG6

Cooperatives -- A legal entity typically formed by

people with similar interests, such as suppliers or customers, to reduce costs and gain economic power
Seller Cooperatives
Sunkist/Land OLakes

Individual producers join together to compete more effectively with large producers (popular in agriculture)

Buyer Cooperatives
ex) Ace Hardware

A group of cooperative members who unite for combined purchasing power

Members democratically control the business by electing a board of directors that hires professional management.
5-63

*
WHAT IS MANAGEMENT?
Four Functions of Management

LG2

Management -- The process used to accomplish

organizational goals through planning, organizing, leading and controlling people and other organizational resources

7-64

FOUR FUNCTIONS of MANAGEMENT

*
Four Functions of Management

LG2

1. Planning 2. Organizing 3. Leading 4. Controlling

7-65

*
DEFINING THE MISSION
Planning & Decision Making

LG3

Mission Statement -- Outlines the organizations

fundamental purposes. It includes: The organizations selfconcept. Its philosophy. Longterm survival needs. Customer needs. Social responsibility. Nature of the product or service.

7-66

STRATEGIC and TACTICAL PLANNING

*
Planning & Decision Making

LG3

Strategic Planning -- Done by top management

and determines the major goals of the organization and the policies, procedures, strategies and resources it will need to achieve them.

Tactical Planning -- The process of developing

detailed, short-term statements about what is to be done, who is to do it and how.

7-67

*
OPERATIONAL and CONTINGENCY PLANNING
Planning & Decision Making

LG3

Operational Planning -- The process of setting

work standards and schedules necessary to implement the companys tactical objectives.

Contingency Planning -The process of preparing alternative courses of action the firm can use if its primary plans dont work out.

7-68

*
PLANNING FUNCTIONS
Planning & Decision Making

LG3

7-69

ORGANIZING
Dividing up tasks Grouping jobs and employees Assigning authority and responsibilities division of labor

*Organizing:
Creating a Unified System LG4

departmentalization

delegation

7-70

LEVELS of MANAGEMENT
Top Management

*Organizing:
Creating a Unified System LG4

Strategic Plans

Middle Management

Tactical Plans

Supervisory Management

Operational Plans

7-71

LEVELS of MANAGEMENT

*Organizing:
Creating a Unified System LG4

Top Management
CEO, CFO, COO, CIO President Governor General Director

Middle Management
Regional Manager Division head Director Plant manager Sales manager

Supervisory Management
Supervisor Team leader Foreman

7-72

*
MANAGERIAL SKILLS

Tasks and Skills at Different Levels of Management

LG4

Technical Skills -- The ability to perform tasks in a

specific discipline or department.

Human Relations Skills -- Skills

that involve communication and motivation; they enable managers to work through and with people.

Conceptual Skills -- Skills that

involve the ability to view the organization as a whole and the interdependencies among its various parts.
7-73

SKILLS NEEDED at VARIOUS LEVELS of MANAGEMENT

Tasks and Skills at Different Levels of Management

LG4

7-74

LEADERSHIP
Leaders must:

Leading: Providing Continuous Vision and Values.

LG5

- Communicate a vision and rally others around that vision. - Establish corporate values. - Promote corporate ethics. - Embrace change. - Stress accountability and responsibility
- Transparency -- The presentation of the companys facts and figures in a way that is clear and apparent to all stakeholders.
7-75

LEADERSHIP STYLES
Autocratic Leadership -Making managerial decisions without consulting others.

*
Leadership Styles
LG5

Participative or Democratic Leadership -- Managers and

employees work together to make decisions.

Free-Rein Leadership -Managers set objectives and employees are free to do whatever is appropriate to accomplish those objectives.
7-76

*
MANAGING KNOWLEDGE
Managing Knowledge
LG5

Knowledge Management -Finding the right information, keeping the information in a readily accessible place and making the information known to every one in the firm.

7-77

*
FIVE STEPS of CONTROLLING

Controlling: Making Sure it Works

LG6

Accounting/Finance are often the foundations for control systems, b/c they provide the numbers management needs to evaluate progress.
7-78

*
MEASURING SUCCESS

A Key Criterion for Measurement: Customer Satisfaction

Traditional forms of measuring success are financial.

LG6

Pleasing employees, stakeholders and customers (both internal and external) are important. External Customers -- Dealers, who buy products
to sell to others, and ultimate customers (or end users), who buy products for their own use.

Internal Customers -- Individuals and units within

the firm that receive services from other individuals or units (e.g., field salespeople marketing research people)
7-79

FAYOLS PRINCIPLES
Unity of command
- Each worker is to report to only one boss

*
Fayols Principles of Organization

LG2

Degree of centralization
- The amount of decision-making power vested in top management should vary by circumstances

Hierarchy of authority
- One should know to whom to report

Division of labor
- Functions should be divided into areas of specialization

Clear communication channels

Order
- Materials and people should be placed in the proper location

Subordination of individual interests to the general interest

- Goals of the organization should be considered more important than personal goals

Equity
- A manager should treat employees and peers with respect and justice

Authority
- Managers should give orders and expect them to be carried out

Esprit de corps
- A spirit of pride and loyalty should be created
8-80

ORGANIZATIONS BASED on FAYOLS PRINCIPLES

Organizations in which employees have no more than one boss; lines of authority are clear. Rigid organizations that often dont respond to customers quickly.

*
Fayols Principles of Organization

LG2

8-81

WEBERS PRINCIPLES
Employees just need to do what theyre told. In addition to Fayols principles, Weber emphasized:
- Job descriptions. - Written rules, decision guidelines and detailed records. - Consistent procedures, regulations and policies. - Staffing and promotion based on qualifications.

Max Weber and Organizational Theory

LG2

8-82

*
HIERARCHIES and COMMAND

Turning Principles into Organization Design

LG2

When following Fayol and Weber, managers control workers.

Hierarchy -- A system in which one person is at the

top of an organization and there is a ranked or sequential ordering from the top down.

Chain of Command -- The line of authority that

moves from the top of the hierarchy to the lowest level.

8-83

*
BUREAUCRATIC ORGANIZATIONS

Turning Principles into Organization Design

LG2

Bureaucracy -- An organization with many layers of

managers who set rules and regulations and oversee all decisions.

It can take weeks or months to have information passed down to lower-level employees. Bureaucracies can annoy customers.

8-84

*
CENTRALIZATION or DECENTRALIZATION?
concentrated at the top level of management.

Choosing Centralized or Decentralized Authority

LG3

Centralized Authority -- When decision-making is

ex) Target CEO personally interviews candidates for 600 positions

Decentralized Authority -When decision-making is delegated to lower-level managers and employees more familiar with local conditions than headquarters.
ex) J.C. Penney store managers have authority to buy, price, and promote merchandise appropriate for each area
8-85

*Choosing the
SPAN of CONTROL
Appropriate Span of Control LG3

Span of Control -- The optimal number of subordinates a manager supervises or should supervise. When work is standardized, broad spans of control are possible. Appropriate span narrows at higher levels of the organization b/c work becomes less standardized and managers need more face-to-face communication.

The trend today is to reduce middle managers and hire better low-level employees.
8-86

*
ORGANIZATIONAL STRUCTURES

Choosing Tall versus Flat Organization Structures

LG3

Structures determine the way the company responds to employee and customer needs.
Tall Organization Structures -- An organizational
structure in which the organization chart would be tall because of the various levels of management.

Flat Organization Structures -- An organizational

structure that has few layers of management and a broad span of control.

8-87

FOUR WAYS to STRUCTURE an ORGANIZATION

1. Line Organizations

*Organization
Models LG4

2. Line-and-Staff Organizations
3. Matrix-Style Organizations

4. Cross-Functional Self-Managed Teams

8-88

*
LINE ORGANIZATIONS

Line Organizations LG4

Line Organization -- Has direct two-way lines of responsibility, authority and communication running from the top to the bottom. Everyone reports to one supervisor - ex) military, small businesses

There are no specialists, legal, accounting, human resources or information technology departments.
Line managers issue orders, enforce discipline and adjust the organization to changes. Line Personnel -- Workers responsible for directly achieving organizational goals, and include production, distribution and marketing employees.
8-89

*
STAFF PERSONNEL

Line-and-Staff Organizations LG4

Staff Personnel -- Employees who advise and assist

line personnel in meeting their goals, and include marketing research, legal advising, IT and human resource employees.

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SAMPLE LINE-and-STAFF ORGANIZATION

Line-and-Staff Organizations LG4

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*
MATRIX ORGANIZATIONS

Matrix-Style Organizations LG4

Matrix Organization -- Specialists from different

parts of the organization work together temporarily on specific projects, but still remain part of a line-and-staff structure. Developed in the aerospace industry Now used in banking, management consulting firms, ad agencies, and school systems
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SAMPLE MATRIX ORGANIZATION

Matrix-Style Organizations LG4

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CROSS-FUNCTIONAL SELF-MANAGED TEAMS

Cross-Functional Self-Managed Teams

LG4

A way to fix the problem of matrix-style teams is to establish long-term teams.

Empower teams to work closely with suppliers, customers and others to figure out how to create better products. Cross-Functional Self-Managed Teams -Groups of employees from different departments who work together on a long-term basis.
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GOING BEYOND ORGANIZATIONAL BOUNDARIES

*Going Beyond
Organizational Boundaries LG4

Cross-functional teams work best when the voice of the customer is heard.

Some go beyond organizational boundaries to include customers, suppliers, and distributors.

Government coordinators may assist in sharing market information beyond national boundaries.

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TRANSPARENCY and VIRTUAL CORPORATIONS

*Transparency
and Virtual Organizations LG5

Transparency -- When a company is so open to

other companies that electronic information is shared as if the companies were one.

Virtual Corporation -- A temporary networked

organization made up of replaceable firms that join and leave as needed.

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A VIRTUAL CORPORATION

*Transparency
and Virtual Organizations LG5

8-97

BENCHMARKING and CORE COMPETENCIES

*Benchmarking
and Core Competencies LG5

Benchmarking -- Compares an organizations practices, processes and products against the worlds best ex) POSCO benchmarked Toyotas practice Core Competencies -- The functions an organization can do as well as or better than any other organization in the world. If a company cant match a competitor, they may try to outsource - ex) Nikes core competencies are designing and marketing
athletic shoes, but it outsources manufacturing

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RESTRUCTURING

*Restructuring
for Empowerment LG5

Restructuring () -- Redesigning an
organization so it can more effectively and efficiently serve its customers.

Inverted Organization -- An organization that has

contact people at the top and the CEO at the bottom of the organizational chart.

The managers job is to assist and support frontline workers, not boss them.
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TRADITIONAL and INVERTED ORGANIZATIONS

*Restructuring
for Empowerment LG5

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*
ORGANIZATIONAL CULTURE

Creating a Change-Oriented Organizational Culture

LG6

Organizational or Corporate Culture -- The widely shared values within an organization that foster unity and cooperation to achieve common goals
ex) McDonalds culture emphasizes quality, service, cleanliness, and value

Some of the best organizational cultures emphasize service, especially to customers

friendly, mutual trust, less supervision, high moral/ethical values

Culture is shown in stories, traditions and myths.

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FORMAL ORGANIZATION

*Managing the
Informal Organization LG6

Formal Organization -- Details lines of responsibility, authority and position; appears on the organization chart The formal system is often slow and bureaucratic but it provide guides & lines of authority for routine situations. No organization can be effective without formal and informal organization.

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INFORMAL ORGANIZATION

*Managing the
Informal Organization LG6

Informal Organization -- The system that develops spontaneously as employees meet and form relationships; human side of the organization that does not appear on any organization chart. Informal organization helps foster camaraderie and teamwork among employees.

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TAYLORS SCIENTIFIC MANAGEMENT (motivation by economic incentives)

Frederick Taylor: The Father of Scientific Management

LG1

Scientific Management -- Studying workers to

determine the most efficient ways of doing things and then teaching those techniques.

Three Key Elements to Increase Productivity 1. Time 2. Methods of Work

3. Rules of Work

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*
TIME-MOTION STUDIES

Frederick Taylor: The Father of Scientific Management

LG1

Time-Motion Studies -- Studies of which tasks

must be performed to complete a job and the time needed to do each task.

Led to the development of the Principle of Motion Economy -- Every job can be broken down
into a series of elementary motions; developed by Frank and Lillian Gilbreth.

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*
HAWTHORNE STUDIES (motivation by feelings/attitudes)

Elton Mayo and the Hawthorne Studies

LG2

Researchers studied worker efficiency under different levels of light. Productivity increased regardless of light condition. Researchers decided it was a human or psychological factor at play. Hawthorne Effect -- perform better when they feel singled out for attention or feel that management is concerned about their welfare

10-106

MASLOWS THEORY of MOTIVATION (motivation by needs)

People are motivated to satisfy unmet needs.

Motivation and Maslows Hierarchy of Needs

LG3

Needs that have already been met do not motivate.

If a need is filled, another higher-level need emerges.

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MASLOWS HIERARCHY of NEEDS

Motivation and Maslows Hierarchy of Needs

LG3

fulfillment, living up to ones potential

recognition, acknowledgement, status

needs for belonging, friendship, love feel secure, protected from physical harm, avoid the unexpected

foods, shelter, clothing, etc.

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*Herzbergs
JOB CONTENT
Herzberg found job content factors were most important to workers workers like to feel they contribute to the company. Motivators -- Job factors that
cause employees to be productive and that give them satisfaction.
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Motivating Factors LG4

*Herzbergs
JOB ENVIRONMENT
Motivating Factors LG4

Job environment factors maintained satisfaction but did not motivate employees. Hygiene Factors -- Job factors that can cause
dissatisfaction if missing but that do not necessarily motivate employees if increased.

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HERZBERGS MOTIVATORS and HYGIENE FACTORS

Motivators
Work itself

*Herzbergs
Motivating Factors LG4

Achievement Recognition Responsibility Growth and advancement

Hygiene Factors Company policy and administration Supervision Working conditions Interpersonal relations Salary, status and job security

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COMPARISON of the THEORIES of MASLOW and HERZBERG

*Herzbergs
Motivating Factors LG4

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*McGregors
THEORY X MANAGERS
(pessimistic view of human nature)
Theory X and Theory Y LG5

Workers dislike work and seek to avoid it. Workers must be forced or threatened with punishment to get them to perform. Workers prefer to be directed and avoid responsibility Only effective motivators are fear and money.
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*McGregors
THEORY Y MANAGERS
(optimistic view of human nature)
Theory X and Theory Y LG5

People like work, its a part of life. Workers seek goals they are committed toward. Commitment to goals depends on perceived rewards. People can use creativity to solve problems. Intellectual capacity is only partially realized. People are motivated by a variety of rewards.
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*
THEORY Z

Ouchis Theory Z LG5

William Ouchi researched cultural differences between the U.S. (Type A) and Japan (Type J). Type J committed to the organization and group. Type A focused on the individual. Theory Z is the hybrid approach of Types A and J.

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*
GOAL-SETTING THEORY
(motivation by goals)

Goal-Setting Theory and Management by Objectives

LG6

Goal-Setting Theory -Setting ambitious but attainable goals can motivate workers and improve performance if the goals are accepted, accompanied by feedback, and facilitated by organizational conditions.

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APPLYING GOAL-SETTING THEORY

Goal-Setting Theory and Management by Objectives

LG6

Management by Objectives (MBO) -- Involves a

cycle of discussion, review and evaluation of objectives among top and middle-level managers, supervisors and employees.

Managers formulate goals in cooperation with everyone. Need to monitor results and reward achievement.

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*
EXPECTANCY THEORY
(motivation by expectations)

Meeting Employee Expectations: Expectancy Theory

LG6

Expectancy Theory -- The amount of effort

employees exert on a specific task depends on their expectations of the outcome.

Employees ask:
Can I accomplish the task?

Whats my reward?
Is the reward worth the effort?

Expectations can vary from person to person.

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*
EXPECTANCY THEORY

Meeting Employee Expectations: Expectancy Theory

LG6

10-119

NADLER & LAWLERS MODIFICATION

Meeting Employee Expectations: Expectancy Theory

LG6

Researchers Nadler and Lalwer modified expectancy theory and suggested five steps for managers:
1. Determine what rewards employees value. 2. Determine workers performance standard.

3. Make sure performance standards are attainable.

4. Tie rewards to performance. 5. Be sure employees feel rewards are adequate.

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*
REINFORCEMENT THEORY
(motivation by reinforcers)

Reinforcing Employee Performance: Reinforcement Theory

LG6

Reinforcement Theory -- Positive and negative

reinforcers motivate a person to behave in certain ways.

Positive reinforcement includes praise, pay increases and recognition.

Negative reinforcement includes reprimands, reduced pay, and layoff or firing.

Extinction is a way of trying to stop behavior by not responding to it.
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*
EQUITY THEORY
(motivation for fairness/justice)

Treating Employees Fairly: Equity Theory

LG6

Equity Theory -- Employees try to maintain equity

between inputs and outputs compared to others in similar positions.

It is based on individuals perceptions about how fairly they are treated compared with their coworkers Perceived inequities can lead to reduced quality and productivity, absenteeism even resignation.

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*
ENRICHING JOBS
(motivation through job enrichment)

Motivation Through Job Enrichment

LG7

Job Enrichment -- A motivational strategy that

emphasizes motivating the worker through the job itself.

Based on Herzbergs motivators, such as responsibility, achievement and recognition.

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KEY CHARACTERISTICS of WORK (p270)

1. Skill Variety 2. Task Identity 3. Task Significance 4. Autonomy 5. Feedback

Motivation Through Job Enrichment

LG7

10-124

*
TYPES of JOB ENRICHMENT

Motivation Through Job Enrichment

LG7

Job Enlargement -- A job enrichment strategy that involves combining a series of tasks into one challenging and interesting assignment. Job Rotation -- A job enrichment strategy that involves moving employees from one job to another.

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USING OPEN COMMUNICATION

(motivation through open communication)

Motivating Through Open Communication

LG7

Create a culture that rewards listening.

Train managers to listen.

Use effective questioning techniques. Remove barriers to open communication. Ask employees whats important to them.
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*
RECOGNIZING GOOD WORK
(motivation by recognition)

Recognizing a Job Well Done LG7

Raises are not the only ways to recognize an employees performance. Recognition can also include:
- Paid time off - Flexible scheduling - Work from home opportunities - Paid child or elder care - Stock options or profit sharing - Company awards - Company events or teams
10-127

HUMAN RESOURCE MANAGEMENT (HRM)

*Working with
People is Just the Beginning LG1

Human Resource Management -- The

process of determining human resource needs and then recruiting, selecting, developing, motivating, evaluating, compensating and scheduling employees to achieve organizational goals.

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*
Human Resource Planning

Determining a Firms Human Resource Needs

LG3

Creating a strategy for meeting future human resource needs

the right number of people, with the right training, in the right jobs, to meet goals

11-129

Human Resource Planning Process

Corporate strategy and policy HR objectives and policies
HR demand forecast Internal supply forecast
No difference: requirement = supply

Differences HR surplus
1. 2. 3. 4. Reassign Layoff Terminate Retire

HR shortage
1. Hire 2. Pay overtime
130

3. Subcontract

WHATS a JOB ANALYSIS?

Determining a Firms Human Resource Needs

LG3

Job Analysis -- A study of the tasks required to do

a particular job well.

Job Description -- Specifies the objectives of the

job, the type of work, the responsibilities and duties, working conditions and relationship to other jobs.

Job Specifications -- A summary of the minimal

education and skills needed to do a particular job.

11-131

*
RECRUITING EMPLOYEES

Recruiting Employees from a Diverse Population

LG4

Recruitment -- The set of activities for obtaining the

right number of qualified people at the right time.

Human resource managers use both internal and external sources to recruit employees.

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*
SELECTION

Selecting Employees Who Will be Productive

LG5

Selection -- The process of gathering information

and deciding who should be hired, under legal guidelines, to fit the needs of the organization and individuals.

11-133

*Hiring
HIRING CONTINGENT WORKERS
Contingent Workers LG5

Contingent Workers -- Include part-time and

temporary workers, seasonal workers, independent contractors, interns and co-op students.

There are about 5.7 million contingent workers in the U.S.

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WHY HIRE CONTINGENT WORKERS?

Companies hire contingent workers:
- When full-time workers are on leave

*Hiring
Contingent Workers LG5

- During periods of peak demand

- In uncertain economic times - To save on employee benefits

- To screen candidates for future employment

11-135

TRAINING and DEVELOPING EMPLOYEES

Training and Developing Employees for Optimum Performance

LG6

Training and Development -- All attempts to

improve productivity by increasing an employees ability to perform.

Training focuses on short-term skills.

Development focuses on long-term abilities.

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MOST COMMONLY USED TRAINING and DEVELOPMENT ACTIVITIES

Orientation On-the-Job Training Apprenticeships Off-the-Job Training Online Training

Training and Developing Employees for Optimum Performance

LG6

Vestibule Training
(: near-the-job training)

Job Simulation

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DEVELOPING EFFECTIVE MANAGERS

*Management
Development LG6

Management Development -- The process of

training and educating employees to become good managers and tracking the progress of their skills over time.

Management training includes:

- On-the-job coaching - Understudy positions (assistants to higher-level managers) - Job rotation - Off-the-job courses and training
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USING NETWORKS and MENTORING

*Networking
LG6

Networking -- Establishing and maintaining

contacts with key managers in and out of the organization and using those contacts to develop relationships.

Mentors -- Managers who supervise, coach and

guide selected lower-level employees by acting as corporate sponsors.

Networking and mentoring go beyond the work environment.

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APPRAISING PERFORMANCE on the JOB

Appraising Employee Performance to Get Optimum Results

LG7

Performance Appraisal -- An evaluation that

measures employee performance against established standards in order to make decisions about promotions, compensation, training or termination.

A 360-degree review gives managers opinions from people at different levels to get a more accurate idea of the workers ability.
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*
TYPES of PAY SYSTEMS (p304)
Salary Hourly Wage/Day Work Piecework System
Pay Systems LG8

Commission Plans
Bonus Plans Profit Sharing Plans Gain-Sharing Plans Stock Options
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*
FRINGE BENEFITS on the JOB
Fringe Benefits -- Sick leave, vacation pay,
pension and health plans that provide additional compensation to employees beyond base wages.
Fringe Benefits LG8

In 1929, Fringe benefits accounted for less than 2% of payroll cost. Today its about 30%.
Healthcare has been the most significant increase in fringe benefit cost.
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CAFETERIA-STYLE and SOFT BENEFITS

Cafeteria-Style Fringe Benefits -- Allow

*
Fringe Benefits LG8

employees to choose the benefits they want (up to a certain dollar amount).

Soft Benefits include:

- Onsite haircuts and shoe repair - Concierge services

- Free meals at work

- Doggie daycare - Onsite farmers markets
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*
FLEXIBLE SCHEDULING PLANS

Scheduling Employees to Meet Organizational and Employee Needs

LG9

Flextime Plan -- Gives employees some freedom to

choose which hours to work as long as they work the required number.

Compressed Work Week -- Employees work the

full number of work hours, but in fewer than the standard number of days (10 hrs * 4 days VS 8 hrs * 5 days)

Job Sharing -- Lets two or more part-time

employees share on a full-time job.
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*
WHAT is ENTREPRENEURSHIP?

The Job-Creating Power of Entrepreneurship in the U.S.

Entrepreneurship -- Accepting the risk of starting

and running a business.

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*
WHAT DOES IT TAKE to be an ENTREPRENEUR?
Self-directed Self-nurturing Action-oriented

Why People Take the Entrepreneurial Challenge

LG1

Highly energetic
Tolerant of uncertainty

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*
ENTREPRENEURIAL TEAMS
Entrepreneurial team -- A
group of experienced people from different areas of business who join to form a managerial team with the skills to develop, make and market a new product.

Entrepreneurial Teams

LG1

An entrepreneurial team (Steve Jobs, Steve Wozniak and Mike Markkula) was key to Apples success.
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MICROPRENEURS ( )

Micropreneurs and Home-Based Businesses

LG1

Micropreneur -- Entrepreneurs willing to accept the

risk of starting and managing a business that remains small, lets them do the work they want to do, and offers a balanced lifestyle.

Many micropreneurs are home-based business owners writers, consultants, video producers, architects, bookkeepers, etc.

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*
INTRAPRENEURS
Entrepreneurship Within Firms

LG1

Intrapreneur -- A creative person who works as an

entrepreneur within a corporation.

Intrapreneurs use a companys existing resources to launch new products for the company. Art Fry of 3M developed PostIts when he was trying to mark pages of his hymnal without damage.
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*
SMALL BUSINESSES

Small Versus Big Business

LG2

Small Business -- Independently owned and operated, not dominant in its field of operation and meets certain standards of size.

Businesses are small in relationship to other businesses in their industries.

6-150

ADVANTAGES of SMALL OVER BIG BUSINESS

More personal customer service.

*
Importance of Small Business LG2

The ability to respond quickly to opportunities.

6-151

LEARNING ABOUT SMALL BUSINESS

Learning About Small Business Operations

LG3

Learn from Others Investigate your local

colleges for classes on small business and entrepreneurship; talk to and work for successful local entrepreneurs. Get Some Experience Gain three years experience in the field; then start a part-time small business. Take Over a Successful Firm Serve as an apprentice and eventually take over once the owner steps down.
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*
BUSINESS PLANS
Begin with Planning
LG4

Business Plan -- A detailed written statement that describes the nature of the business, the target market, the advantages the business will have over competition, and the resources and owners qualifications.

A business plan forces potential owners to be specific about what they will offer. A business plan is mandatory for talking with bankers or investors.
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SOURCES of CAPITAL
Personal savings Relatives Former employers Banks & finance companies Government agencies Angel investors

*Getting Money
to Fund a Small Business LG4

Venture capitalists -- Individuals or companies

that invest in new businesses in exchange for partial ownership.
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*
ACCOUNTING ASSISTANCE
Keeping Records

LG4

Computers simplify the process by helping with inventory control, customer records and payroll.
A good accountant can help in:
Deciding whether to buy or lease equipment. Deciding whether to own or rent a building. Tax planning. Financial forecasting. Choosing sources of financing. Writing requests for funds.
6-155

*
LEGAL HELP
Looking for Help LG4

Owners need outside consulting advice (for legal, tax, accounting, marketing, finance, etc) early in the process. Small and medium-sized firms cannot afford to hire such experts as employees.

A competent lawyer can help with:

Leases Contracts Partnership agreements Protection against liabilities
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*
MARKETING RESEARCH
Looking for Help LG4

Marketing decisions need to be made long before introducing a product or opening a store.
A marketing research study can help you:
Determine where to locate. Whom to select as your target market. What is an effective strategy for reaching the market.

6-157