EXAM REVIEW Chapters 1-5, 7 and 8 EXAM REVIEW McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved

EXAM REVIEW

Chapters 1-5, 7 and 8

EXAM REVIEW

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Taking Risks and Making Profits within the Dynamic

Business Environment

Chapter 01


Entrepreneurship and Wealth Building

• 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.

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

BUSINESS and ENTREPRENEURSHIPLG1

1-3

Matching Risk with Profit

• Risk -- The chance an entrepreneur takes of losing time and money on a business that may not prove profitable.

• Not all businesses make the same amount of profit.

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

RISKLG1

1-4

Dualstar worth $1B

The Competitive Environment

• 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.

USING EMPOWERMENT to COMPETE in TODAY’S MARKETLG5

1-5

Responding to the Various Business Stakeholders

• 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- Bankers- Environmentalists

STAKEHOLDERSLG1

1-6

The Importance of Entrepreneurs to the Creation of Wealth

1. Land

2. Labor

3. Capital – examples tools, machinery, buildings

4. Entrepreneurship

5. Knowledge

• Entrepreneurs use what they’ve learned to grow their businesses and increase wealth.

FIVE FACTORS of PRODUCTIONLG2

1-7

Responding to the Various Business Stakeholders

• Outsourcing -- Contracting with other companies (often in other countries) to do some of the firm’s functions, like production or accounting. Jobs are often lost.

• Insourcing -- Foreign companies opening offices and factories in the United States.

OUTSOURCING and INSOURCINGLG1

1-8

Businesses Add to the Standard of Living and Quality of Life

• Standard of Living -- The amount of goods and services people can buy with the money they have.

• The U.S. has one of the highest standards of living in the world.

• Workers in other countries may make more money, but prices for products are higher.

STANDARD of LIVINGLG1

Photo courtesy of Walmart Stores

1-9

• 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.

QUALITY of LIFELG1

Businesses Add to the Standard of Living and Quality of Life

1-10

Understanding Economics

and How It Affects

Business

Chapter 02


What Is Economics?

• Economics -- The study of how society employs resources to produce goods and services for consumption among various groups and individuals.

• Macroeconomics -- Concentrates on the operation of a nation’s economy as a whole. (exp. effects of population growth on the economy.)

• Microeconomics -- Concentrates on the behavior of people and organizations in markets for particular products or services.

The MAJOR BRANCHES of ECONOMICSLG1

2-12

• Resource Development -- The study of how to increase resources and create conditions that will make better use of them.

What Is Economics? RESOURCE DEVELOPMENT

LG1

2-13

How Businesses Benefit the Community

• As people improve their own situation in life, they help the economy prosper through the production of goods, services and ideas.

• Invisible Hand -- When self-directed gain leads to social and economic benefits for the whole community.

Adam Smith’s INVISIBLE HAND THEORY

LG1

2-14

Understanding Free-Market Capitalism

• Capitalism -- All or most of the land, factories and stores are owned by individuals, not the government, and operated for profit.

CAPITALISMLG2

2-15

How Free Markets Work

• Free Market -- Decisions about what and how much to produce are made by the market.

• Consumers send signals about what they like and how they like it.

• Price tells companies how much of a product they should produce.

• If something is wanted but hard to get, the price will rise until more products are available.

FREE MARKETS in Capitalist Countries

LG2

2-16

Key Economic Indicators

• Gross Domestic Product (GDP) -- Total value of final goods and services produced in a country in a given year. As long as a company is within a country’s border, their numbers go into the country’s GDP (even if they are foreign-owned).

Three important economic indicators for the United States

LG5

2-17

• Unemployment Rate -- The percentage of civilians at least 16-years-old who are unemployed and tried to find a job within the prior four weeks.

• Consumer Price Index (CPI) -- Monthly statistics that measure the pace of inflation or deflation.

• Inflation -- The general rise in the prices of goods and services over time.

• Disinflation -- When the price increases are slowing (inflation rate declining).

• Deflation -- Prices are declining because too few dollars are chasing too many goods.

• Stagflation -- Economy is slowing, but prices are going up.

INFLATIONKey Economic Indicators

LG5

2-18

Doing Business in

Global Markets

Chapter 03


Measuring Global Trade

• Balance of Trade -- The total value of a nation’s exports compared to its imports measured over a particular period.

• Trade Surplus (Favorable) -- When the value of a country’s exports is more than that of its imports.

• Trade Deficit (Unfavorable) -- When the value of a country’s exports is less than that of its imports.

HOW to MEASURE GLOBAL TRADELG2

3-20

Strategies for Reaching Global Markets

Least Amount of commitment, control, risk and profit potential Most

Licensing Exporting FranchisingContract

Manufacturing

International joint ventures and strategic

alliances

Foreign direct

investment

KEY STRATEGIES for REACHING GLOBAL MARKETSLG3

3-21

Licensing

• 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).

• Licensing can benefit a firm by:- Gaining revenues it wouldn’t have otherwise

generated.

- Spending little or no money to produce or market their products.

LICENSINGLG3

3-22

International Joint Ventures and Strategic Alliances

• Joint Venture -- A partnership in which two or more companies join to undertake a major project.

JOINT VENTURESLG3

3-23

• 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.

Foreign Direct Investment

• 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.

FOREIGN DIRECT INVESTMENTLG3

3-24

Trade Protectionism

• 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.

TRADE PROTECTIONISMLG5

3-25

Trade Protectionism

• Tariffs -- Taxes on imports, making imported goods more expensive.

• Two kinds of tariffs:- Protective – Raise the

retail price of imports so domestic goods are competitively priced.

- Revenue – Raise money for governments.

TARIFFSLG5

3-26

The World Trade Organization

• World Trade Organization (WTO) -- Headquartered in Geneva, the WTO is an independent entity of 153 member nations whose purpose is to oversee cross-border trade issues and global business practices. Mediate trade disputes.

WORLD TRADE ORGANIZATIONLG5

3-27

http://www.wto.org/

Demanding Ethical and

Socially Responsible

Behavior

Chapter 04


Ethics Begins with Each of Us

• Ask yourself these questions:

- Is it legal?

- Is it balanced?

- How will it make me feel about myself?

FACING ETHICAL DILEMMASIt can be a hard balance…with

equally unsatisfactory alternativesLG2

4-29

Managing Businesses Ethically and Responsibly

• Organizational ethics begin at the top.

• Effective corporate values start with top managers and develop throughout the organization to include employees.

• ethics-based approach to decision making will normally lead to higher tru.st and cooperation

ETHICS START at the TOPLG3

4-30

Setting Corporate Ethical Standards

• Not all US companies practices the same ethical standards.

• 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 organization’s guiding values, create an environment that supports ethically sound behavior and stress a shared accountability.

Integrity- based approach example: Budweiser’s campaign “Drink responsibly” WHY????

ETHICS CODESLG4

4-31

• Corporate Philanthropy -- Includes charitable donations.

• Corporate Social Initiatives -- Include enhanced forms of corporate philanthropy.

Examples of Corporate Social Responsibility

CORPORATE PHILANTHROPY and SOCIAL INITIATIVES

LG5

Corporate Social Responsibility

4-32

• 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.

Example – IBM Lotus development

INSIDER TRADINGLG5

Responsibility to Investors

4-33

Social Auditing

• Social Audit -- A systematic evaluation of an organization’s progress toward implementing socially responsible and responsive programs.

• Five Types of Social Audit Watchdogs – • i.e outside groups

1) Socially conscious investors

2) Socially conscious research organizations

3) Environmentalists

4) Union officials

5) Customers

SOCIAL AUDITINGLG5

4-34

How to Form a

Business

Chapter 05


Basic Forms of Business Ownership

• Sole Proprietorship -- A business owned, and usually managed, by one person. Generally the easiest to establish.

• 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.

MAJOR FORMS of OWNERSHIP

5-36

Partnerships

• General Partnership -- All owners share in operating the business and in assuming liability for the business’s debts.

MAJOR TYPES of PARTNERSHIPSLG2

• Limited Partnership -- A partnership with one or more general partners and one or more limited partners.

5-37

• General Partner -- An owner (partner) who has unlimited liability and is active in managing the firm.

• Limited Partner -- An owner who invests money in the business, but enjoys limited liability. Limited Liability means that liability for the debts of the business is limited to the amount the limited partner puts into the company; personal assets are not at risk.

• Limited partner also means that the degree of profit is limited to the amount of investment. Based on partnership agreement

TYPES OF PARTNERSLG2

Partnerships

5-38

• Vertical Merger -- Joins two firms in different stages of related businesses.

• Horizontal Merger -- Joins two firms in the same industry and allows them to diversify or expand their products.

• Conglomerate Merger -- Unites firms in completely unrelated industries in order to diversify business operations and investments.

TYPES of MERGERSLG4

Corporate Expansion: Mergers and Acquisitions

5-39

Franchises

• 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 825,000 franchised businesses operate in the U.S., employing approximately 17.5 million people.

FRANCHISINGLG5

5-40

• Large start-up costs

• Shared profit

• Management regulation

• Coattail effects - actions of other franchisees can have an impact on the success or failure of a particular franchisee's business.

• Restrictions on selling

• Fraudulent franchisors

DISADVANTAGES of FRANCHISINGLG5

Disadvantages of Franchises

5-41

Cooperatives

• Cooperatives -- Businesses owned and controlled by the people who use them– producers, consumers, or workers with similar needs who pool their resources for mutual gain. Common type is a farm cooperative – like a vineyard!

• Worldwide, 750,000 co-ops serve 730 million members – 120 million in the U.S.

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

COOPERATIVESLG6

5-42

Management and

Leadership

Chapter 07


Managers’ Roles Are Evolving

• Younger and more progressive.- Growing numbers of women.

- Fewer from elite universities.

- more like facilitators than supervisors.

• Emphasis is on teams and team building.

• Main goal is not watching over people to make sure they are doing what they are told

TODAY’S MANAGERSLG1

7-44

• Goals -- The broad, long-term accomplishments an organization wishes to attain.

• Objectives -- Specific, short-term statements detailing how to achieve the organization’s goals.

SETTING GOALS and OBJECTIVESLG3

Planning & Decision Making

7-45

• 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. These are long-range goals.

• Tactical Planning -- The process of developing detailed, short-term statements about what is to be done, who is to do it and how. – dealing with a specific market. These are operational goals

STRATEGIC and TACTICAL PLANNINGLG3


7-46

• Operational Planning -- The process of setting work standards and schedules necessary to implement the company’s tactical objectives. – work flow

OPERATIONAL and CONTINGENCY PLANNING

• Contingency Planning -- The process of preparing alternative courses of action the firm can use if its primary plans don’t work out.

LG3


7-47

Analyzes the organization’s Strengths, Weaknesses, Opportunities and Threats.

PLANNING ANSWERS FUNDAMENTAL QUESTIONSLG3


7-48

• What is the situation now?

SWOT Analysis – a planning tool

SWOT MATRIXLG3


7-49Allowing the company to plan…

Leadership Styles

• Autocratic Leadership -- Making managerial decisions without consulting others – most useful in emergency situations

• Free-Rein Leadership -- Managers set objectives and give employees a great deal of freedom to decide for themselves how to accomplish those objectives. .

LEADERSHIP STYLESLG5

7-50

Empowering Workers

• Progressive leaders give employees the authority to make decisions on their own without consulting a manager.

• Enabling -- Giving workers the education and tools they need to make decisions.

EMPOWERMENTLG5

7-51

Managing Knowledge

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

• First step in knowledge management is figuring out what knowledge is most important to the firm.

• Tries to keep people from reinventing the wheel.

MANAGING KNOWLEDGELG5

7-52

Structuring Organizations

for Today’s Challenges

Chapter 08


Building an Organization from the Bottom Up

• Create a division of labor

• Set up teams or departments

• Allocate resources

• Assign tasks

• Establish procedures

STRUCTURING an ORGANIZATIONLG1

8-54

• Division of labor

• Unity of command

• Hierarchy of authority

• Managers authority to make decisions

• Equity

Two Organization theoristsHENRI FAYOL’S PRINCIPLESLG2

Fayol’s Principles of Organization

8-55

Max Weber and Organizational Theory

• Employees just need to do what they’re told.

• In addition to Fayol’s principles, Weber emphasized:- Job descriptions- Strict written rules, decision

guidelines and detailed records- Bureaucracy…example UPS

MAX WEBER’S PRINCIPLESLG2

8-56

TYPICAL ORGANIZATION CHARTLG2

Turning Principles into Organization Design

8-57

Organization charts shows who is accountable for the completion of specific work and who reports to whom.

Benchmarking and Core Competencies

• Core Competencies -- The functions an organization can do as well as or better than any other organization in the world. It agrees to perform these functions in-house, rather than outsourcing

CORE COMPETENCIESLG5

8-58

Weighing the Advantages and Disadvantages of Departmentalization

• Departmentalization -- Divides organizations into separate units.

• Workers are grouped by skills and expertise to specialize their skills.

DEPARTMENTALIZATIONLG3

8-59

• 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 are not very responsive to customers can annoy customers.

BUREAUCRATIC ORGANIZATIONSLG2

Turning Principles into Organization Design

8-60

Restructuring for Empowerment

• Inverted Organization -- An organization that has contact people at the top and the CEO at the bottom of the organizational chart.

• The manager’s job is to assist and support frontline workers, not boss them.

LG5

8-61

Managing the Informal Organization

• Formal Organization -- Details lines of responsibility, authority and position.

• The formal system is often slow and bureaucratic, but it helps guide the lines of authority.

No organization can be effective without Formal and Informal Organization.

LG6

8-62

• Informal Organization -- The system of relationships that develop spontaneously as employees meet and form relationships.

FORMAL &INFORMAL ORGANIZATION

• Informal organization helps foster camaraderie and teamwork among employees.

LG6

Managing the Informal Organization

8-63

TRADITIONAL and INVERTED ORGANIZATIONSLG5

Restructuring for Empowerment

8-64

EXAM 1

58 questions total - 60 minutes to complete

300 points total

27 multiple choice x 6 pts each28 T/F x 3 pts each3 written x 18 pts each

Chap 1 : 3 x T/F and 3 x multiple choice Chap 2: 4x T/F and 4 x multiple choiceChap 3: 4x T/F and 4 x multiple choiceChap 4: 3 x T/F and 3 x multiple choiceChap 5: 4x T/F and 4 x multiple choiceChap 7: 5 x T/F and 5 x multiple choiceChap 8: 5 x T/F and 4 x multiple choice

EXAM 1 Structure

5-65

Documents

EXAM REVIEW Chapters 1-5, 7 and 8 EXAM REVIEW McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved