BMGT110F Introduction to Business UMD

7/27/2019 BMGT110F Introduction to Business UMD

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BMGT110F Chapter 1 10/14/2012 5:28:00 PM

Goods: tangible products

Services: Intangible products

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 abusiness

Revenue: total amount a business takes in over a given period.

Profit: amount of money earned above upkeep costs

Loss: occurs when businesss expenses are more than revenue

Risk: is a chance entrepreneur takes at losing time and money on a business

Standard of living: amount of goods and services people can buy with their

money

Quality of life: general well being of a society in terms of political freedom,

natural environment, education, healthcare, safety, amount of leisure and

rewards.

Stakeholders: people who stand to gain or lose by the policies and activities

of a business and whose concerns the business needs to address.

Outsourcing: contracting with other companies to do the same or all

functions of a firm, like production or accounting

Insourcing: opposite of outsourcing

Non-Profit organization whose goals do not include making a personal profit

for its owners or organizations.Social Entrepreneur: people who use business principles to start and manage

not for profits and help address social issues.

Factors of production: land, labor, capital, entrepreneurship, knowledge

Management expert Peter Drucker states knowledge is mostimportant

Rich countries are due to a combination of entrepreneurship andknowledge.

Business environment consists of

Economic and legal environment Technological environment Competitive Environment Social Environment Global Business environment


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Good business leads to good foundation for social benefits

Governments can minimize spending and keep taxes and regulations low

which favor businesses

Governments can promote entrepreneurship by allowing for private

ownership of businessGovernments in developing countries should minimize interference with the

free exchange of goods and services.

Risks can be lessened when the government allows business people to write

enforceable contracts

EX. Uniform Commercial Code regulate business agreementsEstablishing a currency thats tradable in world markets

Government can minimize corruption in business and in its own ranks,

Unlawfully minimize competition .

Capitalist system relies heavily on honesty, integrity, and high ethical

standards.

Technology makes business processes more effective and efficient

Productivity: amount of output you generate given amount of input

E-commerce: buying and selling over the internet

Two types of businesses

Business to Consumer (B2C) Business to Business (B2B)

Businesses must be responsive to customer wants and needs to be

successful

Database: an electronic storage file for information

Companies trade databases which is why we get random catalogsand emails.

This identity collection can result in identity thefto Federal Trade Commission states millions of U.S consumers

are victims.

Businesses compete by exceeding customer expectations.

Being customer driven as opposed to management driven Since customers are king businesses must equip their workers

with the ability to respond to customers requests.


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o Empowerment: Giving front line workers the responsibility,authority, freedom, training, and equipment to respond to

customer requests.

Demography: statistical study of human population with regard to size,density and other characteristics such as age race gender and income

The need to manage diversity, dealing sensitively with workers and cultures

around the world.

People aged 65-74 are the richest demographicWorld trade or globalization grew to efficient distributive systems and

communication

War and terrorism helped some industries while harming others

Terrorism added to organizational costs.Climate change and global warming is an issue the business community has

taken note of saving energy and producing products that cause less harm to

the environment is known as greening

Technology has made farming efficient that farmers used to be 33% and

now 1%

Farm size has increased to 450 from 160. Loss to society is minimized if wealth created by increased

productivity and efficiency create new jobs.Fastest growing industries today are the service industries.

Makes up 70%


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BMGT110F Chapter 2 10/14/2012 5:28:00 PM

Collateral: Anything of significant value a borrower puts up as security for a

loan.

Major part of U.Ss business success is due to economic and social climate

that allows most businesses to operate freely.

Economics is the study of how society chooses to employ resources to

produce goods and services and distribute them for consumption among

various competing goods and individuals. Also study of the allocation of

scare resources.

Macro: view a nations economy as a whole Micro: looks at the behavior of people and organizations in

particular interests

Resource Development: study of how to increase resources and create

conditions that will make better use of them.

Businesses can contribute to economic system by inventing products that

greatly increase available resources

Discover new energy sources New ways of growing food New ways of creating needed goods and services.

Economist Thomas Malthus argued peasants would outpopulate available

food and resources. Believed that poverty was birth control Thomas Carlyle called economics the disnormal science

Studies about population growth on economy falls under macroeconomics.

Secret to economic development are business owners that provide jobs and

economic growth for their employees and communities.

Adam Smith believed in creating more resources so that everyone could

become wealthier.

Freedom was vital because he believed people worked hard if there were

incentives leading to prosperous economies.

Identified the concept known as Invisible Hand: process that turns self

directed gain into social and economic benefits for all.


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Capitalism: an economic system where all or most factors of production and

distribution are privately owned and operated for profit. It is the foundation

of the economic systems of the U.S, England, Canada. And other developed

countries.

Four Basic rights under capitalism

Own Property Own business and keep businesss profits Right to freedom of competition Freedom of choice Pres FDR additional 4

o Speech and expressiono Worshipo From wanto From fear

Free market decision about what and how much to produce are determined

by the market, price tells producers how much to produce.

Supply: quantity of products that manufacturers or owners arewilling to sell at different prices at a specific time.

Demand: the quantity of products that people are willing to buy atdifferent prices at a specific time

Equilibrium point or market price: where supply and demandintersect

Free market proponents argue laissez fair since supply and demanddetermine prices

o In countries without free market business often producesurpluses or shortages.

Four different types of Free Marketso Perfect Competition: degree of competition in which there are

many sellers in a market and are price takers.

o Monopolisitic competition: degree of competition in which alarge number of sellers produce very similar products that

buyers perceive as different.

Product differentiation is key to success ex. Brandingpackaging


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o Oligopoly: few sellers dominate the market, high barrier toentry in the market

Tobacco gasoline automobile aluminum aircrafto Monopoly: one seller controls total supply of a product or

service and sets the price. US allows monopolies in public utilities but the prices

and profits are controlled by public service commissions

Deregulation is used to increase competition amongutility companies.

Capitalism allows for opportunities and encourages business efficiency. Some

times people abuse free market to gain intense profits through slavery and

child labor.

Socialism: some or all businesses are owned by government to evenly

distribute profit. Top personal income tax in US was 35% in socialist 60%.

They believe government should be more involved in the economy. Benefit is social equality

o Tax goes to government social programs. Cons

o Takes away business peoples incentives.o Brain Drain: loss of the best and brightest peopleo Fewer inventions and innovations

Communism: an economic and political system in which the government

makes almost all economic decisions and owns almost all major factors of

production.

Governments do not know what produce since price wont reflectsupply and demand.

Russia has flat tax of only 13% but increased revenue by 30% sinemore people were willing to pay.

Free Market Economies vs. Command Economies

Free market mechanism dont help the poor, old or disabled (respond to

their needs)

Capitalist move towards socialism while socialist the other

Mixed Economies: allocation of resources made by market and government


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Three major indicators of economic conditions

Gross Domestic Product (GDP) the total value of final goods andservices produced in a country in a given year.

o Based largely on the productivity of its workforce. Unemployment rate: civilians elder than 16 who try to find a job

within the prior 4 weeks. 2000 3.9% -> 2009 9%

o Frictional Unemployment: quit and looking for new job orentering work force for the first time

o Structural Unemployment: restructuring of firms or mismatchin skills

o Cyclical Unemployment: due to recession or a similardownturn in business cycle

o Seasonal Unemployment: occurs when labor varies over theyear.

Price indexes help gauge the health of the economyo Inflation: general rise in the prices of good and services over

time.

o Disinflation- price increase are slowingo Deflation- prices are declining.o Stagflation-economy is slowing down but prices are still risingo Consumer price index (CPI) monthly statistics that measure

the pace of inflation or deflationo Core Inflation- CPI minus food and energy costs, usually

lower than CPI

o Chained consumer price index (CCPI) takes into considerationthat customers shift their purchases as prices go up and down

o Producer Price Index (PPI) measures prices at wholesalelevel.

o Other indicators include housing starts, retail sales, change inpersonal incomes.

Productivity in US rise due to technology. High productivity can result in high

unemployment,

In the service sector technology adds to quality but not necessarily the

actual output per worker.


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Business cycle: periodic rises and falls that occur in economies overtime.

Joseph Schumpter identified 4 long term phaseso Economic Boomo Recession 2 or more consecutive quarters of decline in GDP

Brings high unemployment increased business failures,drop in living standards

o Depression severe recession accompanied with deflation Depression is a rare phase

o Recovery: economy stabilizes and starts to grow.Fiscal Policy: Federal governments efforts to keep the economy stable by

increasing or decreasing taxes or government spending.

Percentage of GDP government takes through taxes is 28.2%National deficit amount spent beyond tax revenues

National Debt: sum of government deficits

John Maynard Keynes- The General Theory of Employment Interest and

worly

Increased spending less taxes can stimulate an economy inrecession

Short term solution to wide swings in business cycle.Federal Reserve Bank- controls money supply

Monetary Policy: management of money supply and interest rates by theFED


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BMGT110F Chapter 4 10/14/2012 5:28:00 PM

Ethics is more than legality

How to restore trust in free market system and leaders in general

Those who broke laws must be punishedo New laws make accounting records more transparent and

others more accountable Can lead to measure of behavior becomes legal Ethics reflects peoples proper relationships with one

another

Ethics: standards of moral behavior, that is behavior accepted by society as

right versus wrong

Common basics moral values: integrity, respect for human life, self control,

honesty courage and self sacrifice are right.

When facing ethical dilemma ask the following

Is my proposed action legal Is it balanced How will it make me feel about myself WTF?

Ethics is learned more from observation than being taught

Organizational ethics begins at the top

Ethic of justice based on principles like justice, fairness, equality orauthority.

Ethic of care based on a sense of responsibility to reduce actualharm of suffering

Trust and cooperation between workers and managers must be based on

fairness, honesty openness and moral integrity.

Manage ethically so

Maintain good reputation keep customers avoid lawsuit reduceemployee turnover

Compliance based ethics code emphasizes preventing unlawful behavior by

increasing control and penalizing wrongdoers.


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Integrity based ethics code define the organizations guiding values create an

environment that supports ethically sound behavior and stress shared

accountability.

Top management must adopt and unconditionally support anexplicit code of conduct.

Employees must understand that expectations for ethical behaviorsbegin at the top and that senior management expects all employees

to act accordingly.

Managers and others must be trained to consider the ethicalimplications of all business decisions

An ethics office must be set up with which employees cancommunicate anonymously. Whistleblowers must feel protected

Outsiders must be told about ethics program. Ethics code must be enforced with timely action if rules are broken

o Most critical step Need reliable ethics officer that set a positive tone,

communicate effectively

Corporate Social Responsibility (CSR) concern businesses have for welfare

of society not just for their owners

Based on commitment to integrity fairness and respect Critics such as Milton Friedman believed businesses should only

work to earn money for stockholders

Advocates believe that businesses need the societies they serveSocial performances have several dimensions.

Corporate philanthropy, charitable donations Corporate social initiatives, enhanced forms of corporate

philanthropy directly relating to companys competencies

Corporate responsibility includes hiring minority workers to makesafe products

Corporate policy stance firms take on social and political issues.Many companies give paid leave for volunteer projects

Responsibility to Customers

JFK proposed 4 rights


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o Right to safetyo To be informedo To chooseo To be heard

Companies earn customers trust by demonstrating credibility over time.

Responsibility to investors

Ethical behavior helps in the long run

Investing money into companies that vie back helps investors and society

Insider trading- Using private company information to further ones personal

fortune

In 2000, SEC adopted regulation FD (fair disclosure) if companygives info to anyone it must tell everyone else

Responsibility to employees

Respect for themo Done through salaries and other benefitso Employee fraud costs 5% in annual revenue an 30% of

business failures.

Responsibility to society and environment

Green movement reduce carbon foot printo Lowering environmental costs can also add value to business

Social Audit: systematic evaluation of an organizations progress towards

implementing socially responsible and responsive programs.

Socially conscious investors insist that a company extend its ownhigh standards to its suppliers

Environmentalist apply pressure by naming companies that dontabide by their standards

Union officials hunt down violations and force companies to comply Customers buy based on social conscience.

US businesses also demand socially responsible behavior from international

suppliers

International Organisation for Standardization (ISO)


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BMGT110F Chapter 7 10/14/2012 5:28:00 PM

Manager Roles are evolving

Managers are now more progressive; emphasize team and teambuilding

o Tend to guide, train, support, and motivate rather than tellemployees what to do

Emphasize teamwork and cooperation than disciplineand order giving

o Skilled communicator, team player, planner, organizer,motivator, leader

Management: process used to accomplish organizational goals through

planning organizing leading and controlling people

Planning: includes anticipating trends and determine the beststrategies and tactics to achieve organizational goals and objectives

o Set organizational goalso Develop strategies to reach those goalso Determine resources neededo Set precise standardso Planning teams monitor environment, find business

opportunities and watch for challenges

Organizing: includes designing the structure of the organization andcreating conditions and systems in which everyone and everythingworks together

o Allocate resources, assigning tasks, establish procedures foraccomplishing goals

o Prepare a structure showing lines of authority andresponsibility

o Recruiting, selecting training and developing employeeso Placing employees where they are most effective

Leading: creating a vision for the organization and guiding, training,coaching and motivating others to work effectively to achieve the

organizations goals and objectives

o Giving assignmentso Explaining routineso Clarifying policieso Providing feedback on performance


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Controlling: establishes clear standards to determine whether ornot an organization is progressing towards its goals and objectives

rewarding people for doing a good job and taking corrective action

o Measuring results against corporate objectiveso Monitoring performance relative to standardso Rewarding outstanding performanceo Taking corrective action when necessary

Planning and Decision Making

Vision: an encompassing explanation of why the organization existsand where its headed

Mission statement: outline of the fundamental purposes of anorganization

o Organizations self concept, philosophy long term survivalneeds, customer needs, social responsibility, nature of the

product or service.

o Goals- broad long term accomplishments an organizationwishes to attain

o Objectives specific short term statements detailing how toachieve goals.

Planning Answerso SWOT Analysis, Strenghts, weaknesses, opportunities and

threats it faces

o How to get goal from present stance. Four levels of Planning

o Strategic planning, process of determining the major goals ofthe organization and the policies and strategies for obtaining

and using resources to achieve these goals.

Policies are broad guidelines for action Strategies determine best way to use resources Top management

o Tactical planning, process of developing detailed, short termstatements about what is to be done, who is to do it and how

it is done

Lower level managers


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o Operational Planning: process of setting work standards andschedules necessary to implement the companys tactical

objectives

Setting of work standards and scheduleso Contingency Plan- process of preparing alternative courses of

action that may be used if the primary plans dont achieve the

organizations objectives.

Decision making choosing among two or more alternativeso Rational decision making model

Define the situation Describe and collect needed information Develop alternatives Develop agreement among those involved Decide which alternative is best Do what is indicated Determine whether decision was good

Problem solving, process of solving the everyday problems that occur.

Problem solving is less formal than decision making and usually calls for

quicker action

Brainstorming- coming up with as many solutions to a problem

PMI- list all the pluses and minuses and their implications

Organization chart- visual device that shows relationships among people and

divides the organizations work; shows who reports to whom

Top management: highest level of management

CEO, COO, Chief Info Officer (CIO), Chief Knowledge Officer (CKO),CFO,

o Intro change (CEO), put change to effect(COO), obtain funds(CFO)

Middle management- general division branch and plant managers

Supervisory management- managers who are directly responsible for

supervising workers and evaluating their daily performance

Skills


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Technical, ability to perform tasks in a specific discipline ordepartment

Human Relations, communication and motivation enable managersto work with and through people

Conceptual, let managers picture organizations as a whole andrelationship among its parts.

Staffing, hiring motivating and retaining the best people available toaccomplish the companys objectives.

Leaders:

Communicate a vision and rally others around it Establish corporate values Promote corporate ethics Embrace change Stress accountability and responsibility

o Transparency- presentation of a companys facts and figuresin a way that is clear and apparent to all stake holders

Autocratic leadership- making decisions without consulting others

Participative / democratic leadership- managers and employees working

together to make decisions

Free Rein leadership managers set objectives and employees are free todo whatever to accomplish those objectives

Directing- giving explicit directions to employees

Empowerment- giving employees the authority to make a decision

Enabling- giving workers the education and tools they need to make

decisions

Knowledge Management: Finding the right information keeping info in a

readily accessible place and making info known to everyone in the firm

Controlling

Establish clear performance standards Monitoring and recording performance Compare results against standards Communicate results


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If needed take corrective action and give feedbackExternal customers- dealers and ultimate customers

Internal customers- individuals and units within the firm that receives

services from other individuals or units.


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BMGT110F Chapter 10 10/14/2012 5:28:00 PM

Engaged workers work with passion and feel a connection to the company

Lowered productivity costs $300 billion a year Intrinsic rewards- personal satisfaction you feel when you perform

well and complete goods

Extrinsic rewards- something given to you by someone else asrecognition for good work.

Frederick Taylor wrote The Principles of Scientific Management

Scientific Management- studying workers to find the most efficientways of doing things and then teaching them the techniques

Time Motion Studies- tasks performed to do a job and time neededto complete those tasks

Frank and Lillian Gibreth

Principle of motion economy theory that every job an be brokendown into series of elementary motions known as therblig.

Scientific Management viewed people as machines that needed tobe programmed

Hawthorne Effect- tendency for people to behave differently when they know

they are being studied.

Abraham Maslow believed motivation arises from needs. Maslows Hierarchy of needs

o Physiological needs, safety needs, social needs, esteem andself actualization

To compete U.S firms must create a work environment thatincludes social contribution honesty, reliability, service quality

dependability and unity

Frederick Herebergs motivating factors

Sense of achievement Earned recognition Interesting work Opportunity for growth For advancement Importance of responsibility


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Peer and group relations Pay Supervisor fairness Company policy and rules Stans Job security Supervisor friendliness Working condition.

Motivators factors: those that cause employees to be productive and relate

to the job

Hygiene Factors- cause dissatisfaction if missing but does not really motivate

the workers

Having them makes jobs seem interestingTheory XYZZZZZZ

Theory X managemento Average person dislikes work and will avoid it if possibleo Workers must be forced or threatened to worko Average worker likes being bossed around has little ambitiono Primary motivators are fear and money

Theory Yo People like to worko People work towards committed goalso Depth of persons commitment depends on rewardso People seek responsibilityo People are smarto In industry an average persons intellect is only partially

recognized

o People are stimulated by a reward unique to them Empowerment, how to use

o Ask people what problems in the organization areo Let them design solutiono Let them implement their solution

Ouchis Z Theoryo Type A (American)

Short term employment


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Individual decision making and responsibility Rapid evaluation and promotion Explicit formalized control Specialized career paths Segmented concern for employees

o Type J (Japanese) Life time employment Consensual decision making Collective responsibility Slow evaluation and promotion Implicit informal control Nonspecialized career paths Holistic concern for employees.

o Type Z (mix) Long term employment Collective decision making Individual responsibility Slow evaluation and promotion Implicit informal control with explicit control Moderately specialized career paths Holistic concerns for employees

Goal Setting Theory: setting ambitious but attainable goals can motivate

workers and improve performance if goals are accepted, accompanied by

feedback and facilitated by organizational conditions

Management by objectives (MBO)- system of goal setting and

implementation involves cycle of discussion review and evaluation of

objectives among top and middle level managers supervisors and employees

Developed by Peter DruckerVictor Vrooms Expectancy theory

Amount of effort employees exert on a task depends on theirexpectations of the outcome.

o Nadler and Lawler suggest the following steps Determine what rewards employees value


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Determine their desired performance standards Ensure standards are attainable Guarantee rewards tied to performance Bet certain employees consider rewards adequate.

Reinforcement theory- positive and negative reinforces motivate a person to

act in a certain way.

Publicly recognize or praise; positive Ignore completely; extinction Publicly reprimand; punishment

Equity Theory- employees try to maintain equity between inputs and outputs

compared to others in similar positions

Perceived inequity can lead to lower productivity, reduced quality,increased absenteeism and voluntary resignation

Job enrichment- strategy that motivates through job itself

Contrasted with job simplification, produces task efficiency bybreaking job into simple steps and assigning people to each

Advocates believe the following are importanto Skill varietyo Task identityo Task significanceo Autonomyo Feedback

Contributes to meaningfulness of the job Job enlargement combines a series of tasks into one challenging

and interesting assignment

Job rotation- move employees from on job to anotherProcedures to encourage open communication

Create an organizational culture that rewards listening Train supervisors and managers to listen Use effective questioning techniques Remove barriers to open communication Avoid vague and ambiguous communication Make it easy to communicate


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Ask employees what is important to themRecognition helps to motivate.

Highcontext culture- workers build personal relationships and develop group

trust before focusing on tasks

Low context culture- workers view relationships as a waste of time.


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BMGT110F Chapter 5 10/14/2012 5:28:00 PM

Basic forms of business ownership

Sole proprietorship owned by on person Partnership 2 or more owners Corporation legal entity with authority to act and have liability apart

from its owners

Sole Proprietorship

Advantageso Ease of starting and ending businesseso Being your own bosso Pride of ownershipo Learning a legacy wtf.. creating?o Retention of company profito Special taxes

Disadvantageso Unlimited liability- risk of personal losseso Limited financial resourceso Management difficultieso Overwhelming time commitmento Few fringe benefits (ex. Health insurance, pension plan)o Limited growtho Limited life span.

Partnerships

Typeso General Partnership all owners share in operating the

business and in assuming liability for the businesss debts

General partner an owner who has unlimited liabilityand is active in managing the firm.

o Limited Partnership: Partnership with one or more generalpartner and limited partner

Limited partner: owner who invest in business but doesnot hold any management responsibility or liability for

losses beyond the investment

Limited liability, debt of business limited toamount partner contributes


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o Master Limited Partnership (MLP) Looks much like a cooperation (acts and is traded on

stock exchange) but is taxed like a partnership and thus

avoids corporate income tax

o Limited Liability Partnership (LLP) Limits partners risk of losing their personal assets to

only their own acts and omissions of people under their

supervision

Excludes bank loans, leases and business debts.o Uniform Partnership Act (UPA) except Louisiana

Common ownership Shared profits and losses Right to participate in managing operations of the

business.

Advantageso More financial resourceso Shared management and pooled/ complementary skills and

knowledge

o Longer survivalo No special taxes.

Disadvantageso Unlimited liabilityo Division of profitso Disagreements among partnerso Difficulty of termination.

Corporations

Conventional corporation- state chartered legal entity with authorityto act and have liability separate from owners (Stock holders)

Advantageso Limited liabilityo Ability raise more money for investmento Size

Has access to more resourceso Perpetual lifeo Ease of ownership change


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o Ease of attracting talented employeeso Separation of ownership from management

Disadvantageso Initial costo Extensive paperworko Double taxationo Two tax returnso Size

Being too big affects ability to adjust quicklyo Difficulty of terminationo Conflict between board of directors and stockholders

Individuals can incorporateo Usually do not issue stock to otherso Advantages are limited liability and possible tax benefits

Usually takes 30 days to incorporate S-Corporations- government creation that is a corporation but is

taxed as a sole proprietorship and partnership

o Name due to being governed by subchapter s of IRS codeo Avoids double taxation of C corporationo To qualify

No more than 100 shareholders (onefamily = oneshareholder)

Shareholders are individuals or estates and who asindividuals are citizens or permanent residents of the

US

One class of stock Derive no more than 25% of income from passive

sources

Ex. Rent royalties and interesto If S status is lost cannot regain for 5 years.

Limited Liability Companies (LLC) is like a S corp but w/o specialeligibility requirements

o Began 1977 in Wyoming and recognized by IRS in 1988 Advantages

o Limited liabilityo Choice of taxation


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o Flexible ownership ruleso Flexible distribution of profits and losseso Operation flexibility

Disadvantageso No stocko Limited life spano Fewer incentives cant deduct fringe benefits cost for those

with more than 2% shares

o Taxeso Paperwork

Corporate Expansions: mergers acquisitions

Merger: result of two firms forming one companyo Vertical merger joins companies involved in different stageso Horizontal merger joins within same industryo Conglomerate joins those completely unrelated

Acquisition: one companys purchase of the property andobligations of another company

Taking a firm private: management or group of stockholders buy allof the shares to their firm

Leverage buyouts (LBO) an attempt buy employees management ora group of investors to purchase an organization primarily throughborrowing.

Franchises

Franchise agreement: an arrangement where someone with goodidea for a business sells rights to use business name and sell

product or service to others

o Franchisor company that developed ideao Franchise: right to use a specific businesss ame and sell its

products

o Franchisee person who busy franchise Advantages

o Management and marketing assistanceo Nationally recognized nameo Financial advice and assistance


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o Personal ownershipo Lower failure rate

Disadvantageso Large setup costo Shared profit

Percentage commission based on sales = royaltieso Management regulationo Coattail effects

Other franchises actions affect you tooo Restrictions on sellingo Fraudulent franchisors

Home based, work from homeo E-commerce in franchisingo Computer networking in franchises to improve communicationo International franchising counter balanced by less competition

and expanding consumer base

Cooperative or coop- business owned and controlled by the people who use

it. Products consumers or workers with similar needs who pool their

resources for mutual gains

Farm co-ops work together for better price.


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BMGT110F Chapter 6 10/14/2012 5:28:00 PM

Entrepreneurship is accepting the risk of starting and running a business

Many startup through borrowing money from friends and familyWhy people take the entrepreneurial challenge

Opportunity Profit Independence Challenge

What does it take

Self-directed Self-nurturing Action oriented Highly energetic Tolerant of uncertainty

Business idea is good opportunity if

It fills customers needs You have skills and resources to start business Can sell at a profit Can deliver before window of opportunity closes You can keep the business going

Entrepreneurial teams

Group of experienced people from different areas of business whojoin together to form a managerial team with the skills needed to

develop make and market a new product

Micropreneurs

Entrepreneurs willing to accept the risk of starting and managingthe type of business that remains small lets them do the kind of

work they want to do and offers a more balanced lifestyle

o More than 66% of self employed run businesses from theirhomes

Growth of home business due too Computer technologyo Corporate downsizingo Changed social attitudes

Challenges


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o Getting new customerso Managing timeo Keeping work and family separateo Abiding by city ordinanceso Managing risk

Web based businesses must

Offer unique merchandise Affiliate marketing: internet based marketing strategy in which a

business rewards individuals or other businesses for each visitor or

customer it sends to its website

Intrapreneurs: creative people who work as entrepreneurs within

corporations.

Encouraging Entrepreneurship

Immigration act 1990: 10000 people who invest 1 million dollarscan come

Enterprise zones specific geographic areas governments want toattract businesses to by offering lower taxes

o Empowerment zones: enterprise communities Incubators: centers that offer new businesses low cost offices with

basic business services

Small Business Association (SBA): a U.S government agency that advises

and assists small businesses by providing management training and financial

advice and loans up to 35000

defines a small business as independently owned and operated, isnot dominant in its field of operation and meets certain standards of

size in terms of employees and receipts.

o Account for 50% of GDPo 60-80% of new jobso 56% dont last four years

failure rate is only 18% over eight yearso To succeed

Learn from others Get experience Take over successful firm


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Small business investment company program: private investmentcompanies licensed by SBA lend money

Small business development centers Provides

o Guaranteed loans max 1 million dollarso Micro loans 100- 35000o Export express for exporting companies 250000o Community adjustment and investment programo Pollution control loans 1milliono 504 certified development company 1.3 million

Managing:

Begin with plano Business plan: detailed written statement that describes the

nature of the business target market, advantages the

business will have in relation to competition and the resources

and qualifications of the owners.

Write plano Executive summary needs to catch interesto Parts include

Cover letter, executive summary, company background,management team, financial plan, capital required,marketing plan, location analysis, manufacturing plan,

appendix

Angel Investors: Private individuals who invest before company goes public

Venture Capitalists: individuals or companies that invest for partial

ownership

Market: people with unsatisfied needs and wants who have resources and

willingness to buy

Know your market Manage employees Keep recods Look for help

Service corps of retired executives (SCORE) can also help those in small

businesses out


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International trade advantage

Overseas buyers prefer individuals Faster shipping and wide variety of suppliers Personal service and good attention


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BMGT110F Chapter 8 10/14/2012 5:28:00 PM

Building an Organization from the bottom up

Organizing: determining what work needs to get done

Dividing tasks, division of labor Job specialization dividing even further Departmentalization- setting up individual departments to do

specialized tasks.

Organization chart- relationships among peopleBureaucracy- reliance on rules

Economics of scale: companies can reduce their production costs if they can

purchase raw materials in bulk average cost of goods goes down as

production levels increase

Fayols Principles of Organization

General and industrial managemento Unity of commando Hierarchy of authorityo Division of laboro Authorityo Ordero Equityo Clear communication channelso Degree of centralizationo Subordination of individual interests to general interestso Spirit de corps (pride)

Max Weber and Organization

Theory of Social and Economic Organisationso Like Fayols but added

Job descriptions Written rules, decision guidelines and detailed records Consistent procedures regulations and policies Staffing and promotion based on qualifications

o Supported bureaucracy


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Hierarchy: a system in which one person is at the top of the organization

and there is a ranked or sequential ordering from top down of managers are

responsible to that person

Chain of command: line of authority that moves from the top of hierarchy to

bottomBureaucracy: organization with many layers of mangers who set rules and

oversee all decisions

Centralized Authority: decision making is maintained at top level

management

Decentralized authority decision making authority is delegated to lower level

managers more familiar with local conditions than headquarter management

could be.

Span of Control: optimal number of subordinates a manager supervises or

should supervise

Tall organization structure pyramid

Flat organization fewer layers and broad span of control.

Departmentalization

Advantageso Employees can develop skills in deptho Achieve economies of scaleo Employees can coordinate work within the fuctnion

Disadvantageso No interdepartemental communicationo Employees identify with department rather than organizationo External change response slowso People become narrow specialistso Engage in group think, less creative.

Ways to departmentalizeo Producto Functiono Customer groupo Geographic locationo Process

Organizational models


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Line organizations has direct two way lines of responsibilityauthority and communication running from top to bottom of

organization with all people reporting to one supervisor

Line and staffo Line personnel employees who are part of the chain of

command that is responsible for achieving organistational

goals

o Staff personnel employees who advise and assist linepersonnel in meeting their goals

Matrix style organisationso Specialists from different parts of organization are brought

together to work on specific projects but still remain a part of

a line-staff

o Advantages Gives manager flexibility Encourages interorganizational cooperation and

teamwork

Produce creative solutions to product developmentproblems

Makes efficient use of organizational resourceso Disadvantages

Costly and complex Confuse employee loyalty Good interpersonal skills are needed Only a temp solution to long term problems

Cross functional self manage teamso Groups of employees from different departments who work

together on a long term basis

Self managed means empowered to make owndecisions.

Networking: using communications technology and other means to link

organizations and allow them to work together on common objectives

Virtual corporation: temporary networked organization made up of

replaceable firms that join and leave as needed


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Benchmarking: comparing an organisations practices, processes and

products against the worlds best

Core competencies functions the organization can do as well or better than

any other organization in the world

Digital natives: people who grew up with the internet

Restructuring: redesigning an organization so that it can more effectively

and efficiently serve its customers

Inverted organization: contact people at the top and chief executive officer

at the bottom of organizational chart.

Organisational (corporate) culture: widely shared values within an

organization that provide unity and cooperation to achieve common goals

Formal organization: structure details lines of responsibility authority and

position that is the structure shown on organization carts

Informal organization: develops spontaneously as employees meet and form

cliques and relationships


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BMGT110F Chapter 17 10/14/2012 5:28:00 PM

Accounting: recording classifying, summarizing and interpreting economic

events for interested users

Managerial for those inside the businesso Certified management accountant (CMA) professional

accountant certified by Institute of Certified ManagementAccountants

Financial for those outsideo Private accountatns: accountants who work for a single firm

government agency or nonprofit organization

o Public accountant provides services for a feeo Certified public accountant (CPA) passes exams of American

institute of certified public accounting

Auditing: job of reviewing and evaluating the information used to prepare

financial statements

Independent: evaluation and unbiased opinion about the accuracyof a companys financial statement

Certified internal auditor (CIA) Bachelors degree and 2 yrsexperience in internal auditin and passes institute of internal

auditors.

Tax Accountant: trained in tax law responsible for preparing tax returns ordeveloping tax strategies.

Government and not for profit accounting: system for those who serve rate

payers, tax payers and others according to a duly approved budget.

Accounting cycle

Economic event Bookkeeping Post to ledger Trial balance Financial statements Analyze financial statements

Financial statements: balance sheet, income statement, statement of cash

flows

Fundamental accounting equation: Assets = Liabilites + Stockholders equity


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Liquidity easiness to convert to cash

Current assets: can or will be converted to cash within a year

Fixed assets relatively permanent

Intangible: long-term no physicality ex patents, trademark, copyright.Gross profit: how much firm made from goods

Statement of cash flows

Operations cash transactions to run investments Financing cash made from gaining debt

Ratio analysis: assessment of a firms financial condition using calculations

and interpretations of financial ratios developed from the firms financial

statements

Liquidity ratio

Current ratio = current assets / current liability Acid test / quick ratio = (cash+ accounts receivable+ marketable

securities) / current liability

Leverage Debt

Debt to owners equity ratio = Total liabilities / owners equity Profitability (Performance ratio)

EPS, basic earnings per share = net income after tax / # commonstock share outstanding

Return on essays = net income / net sales Return on equity= net income after tax / total owners equity

Inventory turnover ratio: COGS / average inventory


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BMGT Chapter 18 Financial Management10/14/2012 5:28:00 PM

Finance: the function in a business that acquires funds for the firms and

manages those funds within the firm

Financial management: manage firms resource to meet itsobjectives

o Managers examine financial data prepped by accountants andrecommend strategies for improving the financial

performance of the firm

o Comptrollers are chief accounting officer as opposed to CFOso Managers need to

Audit Plan Budget Obtain funds Fund and credits management Manage tax Advise top management on financial matters

Three reasons firms failo Undercapitalizationo Poor control over cash flowo Inadequate expense control

Financial planning Forecasting financial needs

o Short-term forecast predicts revenues costs and expenses fora period of one year or less

Cash flow forecast predicts the cash inflows andoutflows in future periods, usually months or quarters

Long term forecast predicts revenue costs and expensesfor a period longer than one year and as far as 5-10

years

Working with budget processo Budget: financial plan that sets forth managements

expectations and on the basis of those expectations allocates

the use of specific resources throughout the firm.


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Capital budget highlights firms spending plans formajor assets purchases that often require large sums of

money

Cash budget estimates cash inflows & outflows during aperiod

Operating (master) budget ties together other budgetsand summarizes its proposed financial activities.

Establish financial Controlo Process in which firm periodically compares its actual

revenues costs and expenses with its budgets.

Need for operating Funds:

Managing day by day needs of businesso Financial managers need to make sure there are enough

funds for day to day ops since money has time-value

Try to minimize cash expenditures Controlling credit operations

o Need to speed up to get needed cash Acquire needed inventory Making capital expenditures

o Major investments in either tangible long term assets such asland buildings and equipment or intangible assets such aspatents trademarks.

Alternative sources of fundingo Debt finance, funds raised through various farms of borrowing

must be repaid

o Equity financing: money raised from within the firm fromoperations or through the sale of stock

o Short term financing funds for less than one yearo Long term financing usually 2-10 years.

Obtaining Short term financing

Trade credit practice of buying goods and services now and payingfor them later

o Promissory note: written contract with a promise to pay asupplier a specific sum of money at a definite time.


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o Family and friendso Commercial bankso Commercial bankso Different forms of short-term loans

Secured loan is backed by collateral Unsecured loans dont need collateral

Line of credit a given amount of unsecured funds a bankwill lend to a business

Revolving credit agreement line of credit but usuallywith a fee

Commercial finance companies: organisations thatmake short term loans to borrowers who offer tangible

assets as collateral.

Factoring Accounts Receivable

Factoring process of selling accounts receivable for casho Factor is market intermediary

Commercial paper unsecured promissory notes of 100 thougsanddollars and up that mature in 270 days or less

Credit cardsObtaining long term financing

Debt financingo Borrowing from lenders

Term loan agreement a promissory note that requiresthe borrower to repay the loan in specified installments.

Risk / return tradeoff: the greater the risk alender takes in making a loan the higher the

interest rate required

Issuing bondso Indenture terms: terms of agreement in a bond issueo Secured bonds has collateralo Unsecured or debenture bond backed only by reputation of

issuer

Equity financingo Sell stock


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IPO, initial public offeringo Retained earnings

Profits reinvested in timeo Venture capital

Invested in new or emerging companies that areperceived as having great profit potential

Comparing debt and equity financing

Leverage, raising funds through borrowing to increase a firms rateof return

Cost of capital rate of return a company must earn in order to meetthe demands of its lenders and expectations of its equity holders.


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BMGT110F Chapter 19 10/14/2012 5:28:00 PM

The Function of Securities Markets

Two Functionso Assist businesses in finding long-term funding to finance

capital needs.

o Provide private investors a place to buy and sell securities Primary markets handle sale of new securities

o Corporations make money only once from securities (stocks) The IPO, initial public offering.

Secondary market handles trading of these securities betweeninvestors

Role of Investment Bankerso Investment Bankers, specialists who assist in the issue and

sale of new securities

Can underwrite new issues of stock, IB buys all stocksat discount price and sells for full price

o Institutional investors: large organizations such as pensionfunds mutual funds and insurance companies that invest

their own funds or funds of others.

Stock Exchanges

An organization whose members can buy and sell (exchange)securities for companies and individual investors

o New York Stock Exchange (NYSE) 1792, floor based Electronic in 2005 archipelago 2007 euronext 2008 took amex, American stock exchange.

Over the counter market (OTC): exchange that provides a means totrade stocks not listed on the national exchanges.

o NASDAQ evolved from OTC, a national electronic system thatlinks dealers across the nation so that they can buy and sell

securities electronically

Securities regulations and the SECo SEC; securities and exchange commission a federal agency

that has responsibility for regulating various stocks exchanges

o Prospectus: a condensed version of economic and financialinformation that a company must file with the SEC before


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issuing stock; the prospectus must be sent to prosepective

investors

o Insider Trading: using knowledge or information thatindividuals gain through their position that allows them to

benefit unfairly from fluctuations in security prices Foreign stock exchanges exist

How businesses raise capital by selling stock

Stocks are shares of ownership in a company Stock certificates are evidence of stock ownership that specifies the

name of the company, the number of shares it represents and the

type of stock being issued

o Parvalue dollar amount assigned to earn share Dividends, part of a firms profits that the firm may distribute to

stockholders as either cash payments or additional shares of stock

Advantageso Stockholders never have to be repaido Selling stock can improve the condition of firms balance

sheet since issuing stock creates no debt

Disadvantageso Alters control of firmo Dividends paid after tax and non tax deductible

Two Classes of Stocko Common Stock; most basic form of ownership in a firm, it

confers voting rights and the right to share in the firms

profits through dividends it approved by the firms board of

directors

Holders have preemptive right to purchase new shareso Preferred stock: stock that gives its owners preference in

payment of dividends and an earlier claim on assets than

common stockholders if the company is force out of business

and its assets sold.

Callable, stockholders need t sell shares back Cumulative: stock becomes common stock.

How businesses raise capital by issuing bonds


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Bond: a corporate certificate indicating that a person has lentmoney to a firm

o Principal: face value of bond required to payo Maturity date: exact date issuer of bond must pay to principalo Interest payment issuer of ond makes to bond holder

Bond interest dependent on coupon rate Advantages

o Bond interest is tax deductibleo Temporary source of fundingo Can be paid before maturity if call provision exists

Disadvantageso Increase debto Interest legal obligationo Face value must be repaid by maturity dateo Debenture/ unsecured bond not backed by collateralo Mortgage / secure bond are backed by collateralo Special bond features

Sinking fund: reserve account in which issuer of a bondperiodically reties some part of the bond principle prior

to maturity

Callable bond lets issuer pay off principleHow investor buy securities

Stockbroker: a registered representative who works as a marketintermediary to buy and sell securities for clients

Investment strategyo Investment risk , yield, duration, liquidity, tax consequences

Diversification; buying several different investment alternatives tospread risk of investing.

Investing in Stocks

Bulls believe that stock prices will rise Bears believe that stock prices will decline Capital gains: the positive difference between the purchase price of

a stock and its sale price


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Blue chip stocks: pay regular dividends and consistent stockappreciation

Growth stocks: grow at faster rate Income stocks high dividend yields Penny stocks cheap stocks that are super risky usually under $5 Market order tells a broker to buy or sell a stock immediately Limit order buy at a specific price Round lots :100 shares Odd lots: fewer than 100 shares Stock splits gives shareholders 2 or more stocks per stock they own Buying stock on margin: purchasing stock by borrowing some of the

purchase cost from the brokerage firm.

Investing in Bonds

When selling early may sell at discount, prices less than face valueo Premium sell at price higher than face valueo As interest rates go up bond prices fall and vice versa.

Investing in High Risk (Junk) Bondso These are high risk high interest bonds

S&P says they also have high default rateInvesting in Mutual funds and Exchange traded funds

A mutual fund, organization that buys stocks and bonds and thensells shares in those securities of the public.

Index funds that invest in a certain kind of stocks or bonds or in themarket as a whole.

Easily transferable from bond fund to stock fund and you can avoidbroker fees or commissions

A load fund charges investors a commission to buy or sell its shares A no load fund charges no commission Open end funds accept the investments of any interested investor Closed end funds limit the number of shares once the fund reaches

its target number

Exchange traded funds (ETFs) is collections of stocks and bondsthat are traded on exchanges but are traded more like individual

stocks than like mutual funds.


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Stock market indicators

Dow jones industrial average (the DOW) is the average cost of 30selected industrial stocks.

o S&P uses 500 400 industrial, 40 financial, 40 public utility and 20

transportation stocks.

Some say market crashes due to program tradingo Giving instructions to computers to automatically sell if the

price of a stock dips to a certain point to avoid potential

losses.

Curbs, when program trading is halted Circuit breakers triggered when dow falls 10,20,30

percent in a day, stops trading for half an hour to 2

hours.


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BMGT110F Chapter 20 10/14/2012 5:28:00 PM

Money is anything people generally accept as payment for goods and

services

Barter is the direct trading of goods and services for other goods or services

Five standards for useful from of money is

Portability Divisibility Stability Durability Uniqueness

What is the Money Supply

The money supply is the amount of money the federal reserve bankmakes available for people to buy goods and services

o M1, money that can be accessed quickly and easilyo M-2 is everything in M1 plus money in savings accounts,

money market accounts, mutual funds and certificates of

deposit

o M3 is M2 plus big deposits like institutional money marketfunds.

Inflation, too much money chasing too few goods Falling dollar values means that the amount of goods and services

you can buy with a dollar decreaseso RSING DOLLAR VALUE IS THE OPPOSITE

When economy is strong the demand for dollars declines and thevalue of the dollar falls.

Control of money supply

FED consists of 5 majors partso Board of governors

Administers and super vises the 12 Federal reservebanks

7 members are appointed by president and confirmedby senate

set monetary policyo Federal Open Market Committee (FOMC)

12 voting members and is policy making body


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o 12 Federal Reserve Bankso three advisory councilso member banks of the system

Fed buys and sells foreign currencies regulates various types ofcredit

Buys and sells government securities known as open marketoperation

Lends money to member banks at interest rate known as discountrate

Three basic tools use to manage supplyo Reserve Requirement

A percentage of commercial banks checking andsavings accounts tat must be physically kept in the

bank

Increase in money supply can stimulate theeconomy but can create inflation

o Open market operations The buyng and selling of us government bonds by the

Fed with the goal of regulating the money supply.

To decrease money supply it would sell U.Sgovernment bonds to public.

o Discount Rate The interest rate charge for loans to member banks.

Increase in the rate decreases available loansdecreasing money supply.

Rate banks charge each other is the federal fundsrate.

Also has Check Clearing Role.o Goes from local banks to the federal banks

History of Banking and the Need for the Fed

Land banks were established to lend money to farmers. Alexander Hamilton created central bank in 1791. Under Federal reserve act of 1913 all federally chartered banks had

to join the federal reserve.


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U.S Banking System

Commercial bank a profit seeking organization that receivesdeposits from individuals and corporations in the form of checking

and savings accounts and then uses some of these funds to make

loans.o Two types of customers

Depositor, whose money goes to interest bearing loans And borrowers

o Services provided Demand deposit, technical name for checking account,

the money in this deposit can be withdrawn anytime on

demand from the depositor

Time deposit, technical name for savings account, thebank can require prior notice before owner withdraws

money from a time deposit

Certificate of Deposit (CD) a time deposit that earnsinterest to be delivered at the end of the certificates

maturity date. Depositor cannot withdraw money until

that date.

Can give loans too. Savings and Loan Associations (S&Ls)

o A financial institution that accepts both savings and checkingdeposits and provides home mortgage loans.

Credit unions nonprofit member owned financial cooperatives thatoffer the full variety of banking services to their members.

Nonbanks: financial organizations that accept no deposits but offermany services like pension funds, insurance companies, commercial

finance companies, consumer finance companies and brokerage

house.)

o Pension funds are monies put aside by corporations, npos, orunions to cover part of the financial needs of members when

they retire.

Current banking crisis

Protecting your fundso Federal Deposit Insurance Corporation


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Independent agency of the U.S government that insuresbank deposits.

Up to 100,000 250,000 until December 31 2013

o Savings Association Insurance Fund part of FDIC that insures holders of accounts in savings

and loan associations.

o National credit union administration. Provides up to 100,00 coverage per individual depositor

per institution , covers all accounts.

IRA, individual accounts are up to 250,000Electronic fund transfer system, a computerized system that electronically

performs financial transactions such as making purchases, paying bills and

receiving paychecks,

Debit card, an electronic funds transfer tool that serves the samefunction as checks, it withdraws funds from a checking account.

Pay roll debit cards are an efficient way some firms to pay theirworkers, and an alternative to cash, for those that are unbanked.

Smart card, electronic funds transfer tool that is a combinationcredit card, debit card, phone card, drivers license card and more.

Direct deposit is a credit made directly to a checking or savingsaccount in place of a paycheck

Direct payment is a preauthorized electronic payment.International Banking and Banking Services

Letter of credit, promise by the bank to pay the seller a givenamount if certain conditions are met

Bankers acceptance promises that the bank will pay some specifiedamount at a particular time.

World Banks and the IMF (international monetary fund)o World bank, primarily responsible for financing economic

development; also known as the international bank for

reconstruction and development.


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o IMF created as an organization that assists the smooth flow ofmoney among nations, it established to foster cooperative

monetary polices that sta bilize exchange.

Documents

BMGT110F Introduction to Business UMD