Digital Management 1 - Business & Economics PDF

chapter 1) the dynamics of business and economics ================================================= the nature of business ---------------------- A **business** produces products that satisfy people's needs to earn a profit. The outcomes of its efforts are **products** that have both tangible and...

chapter 1) the dynamics of business and economics ================================================= the nature of business ---------------------- A **business** produces products that satisfy people's needs to earn a profit. The outcomes of its efforts are **products** that have both tangible and intangible characteristics that provide value and benefits. Most people associate the word product with tangible goods---an automobile, smartphone, jeans, or some other tangible item. However, a product can also be a service. *The goal of business* The goal of business is to earn a profit while maintaining social responsibility. A profit is the difference between what it costs to make and sell a product and what a customer pays for it. In addition, a business has to pay for all expenses necessary to operate. Businesses have the right to keep and use their profits as they choose---within legal limits.\ Nonprofit organizations do not have the fundamental purpose of earning profits. To earn a profit requires management skills to plan, organize, and control the activities of the business and to find and develop employees so that it can make products consumers will buy.\ To achieve and maintain profitability, businesses have found that they must produce quality products, operate efficiently, and be socially responsible and ethical in dealing with customers, employees, investors, government regulators, and the community. Because these groups have a stake in the success and outcomes of a business, they are sometimes called stakeholders. *The people and activities of business* Owners, employees, and customers are in the centre; the outer circle includes the primary business activities---management, marketing, and finance. **Management:** management involves developing plans, coordinating employees' actions to achieve the firm's goals, organizing people to work efficiently and motivating them to achieve the business's goals. Management involves the functions of planning, organizing, leading, and controlling. **Marketing:** the focus of all marketing activities is satisfying customers. Marketing includes all the activities designed to provide goods and services that satisfy consumers' needs and wants. **Finance:** it is the primary responsibility of the owners to provide financial resources for the operation of the business. The economic foundations of business ------------------------------------ **Economics** is the study of how resources are distributed for the production of goods and services within a social system. Resources include natural resources, human resource (or labour), financial resources (or capital) and intangible resources such as good reputation for quality products or being socially responsible. *Economic Systems* An economic system describes how a particular society distributes its resources to produce goods and services. A central issue of economics is how to fulfill an unlimited demand for goods and services in a world with a limited supply of resources.\ Communism, socialism, and capitalism, the basic economic systems found in the world today have fundamental differences. *The Free-Enterprise System* Many economies---including those of the United States, Canada, and Japan---are based on free enterprise, and many communist and socialist countries, such as China and Russia, are applying more principles of free enterprise to their own economic systems. Free enterprise provides an opportunity for a business to succeed or fail on the basis of market demand. In a free-enterprise system, companies that can efficiently manufacture and sell products that consumers desire will probably succeed. A number of basic individual and business rights must exist for free enterprise to work. 1. Individuals must have the right to own property and to pass this property on to their heirs. This right motivates people to work hard and save to buy property. 2. Individuals and businesses must have the right to earn profits and to use the profits as they wish, within the constraints of their society's laws, principles, and values. 3. Individuals and businesses must have the right to make decisions that determine the way the business operates. Although there is government regulation, the philosophy in countries like the United States and Australia is to permit maximum freedom within a set of rules of fairness. 4. Individuals must have the right to choose what career to pursue, where to live, what goods and services to purchase, and more. Businesses must have the right to choose where to locate, what goods and services to produce, what resources to use in the production process, and so on. Without these rights, businesses cannot function effectively because they are not motivated to succeed. *The Forces of Supply and Demand* In the United States and in other free-enterprise systems, the distribution of resources and products is determined by supply and demand. **Demand** is the number of goods and services that consumers are willing to buy at different prices at a specific time. **Supply** is the number of products that businesses are willing to sell at different prices at a specific time.\ The price at which the number of products that businesses are willing to supply equals the amount of products that consumers are willing to buy at a specific point in time is the **equilibrium price**. *The Nature of Competition* Competition, the rivalry among businesses for consumers' dollars, is another vital element in free enterprise. According to Adam Smith, competition fosters efficiency and low prices by forcing producers to offer the best products at the most reasonable price.\ Within a free-enterprise system, there are four types of competitive environments: 1. **Pure competition**, which exists when there are many small businesses selling one standardized product, such as agricultural commodities like wheat, corn, and cotton. 2. **Monopolistic competition**, which exists when there are fewer businesses than in a pure-competition environment and the differences among the goods they sell are small. 3. **Oligopoly**, which exists when there are very few businesses selling a product. In an oligopoly, individual businesses have control over their products' prices because each business supplies a large portion of the products sold in the marketplace. 4. **Monopoly**, when there is one business providing a product in a given market. Utility companies that supply electricity, natural gas, and water are monopolies. *Economic Cycles and Productivity* Economies are not stagnant; they expand and contract. **Economic expansion** occurs when an economy is growing, and people are spending more money. Rapid expansions of the economy, however, may result in **inflation**, a continuing rise in prices.\ **Economic contraction** occurs when spending declines. A recession is a decline in production, employment, and income. Recessions are often characterized by rising levels of **unemployment**. A severe recession may turn into a **depression**, in which unemployment is very high, consumer spending is low, and business output is sharply reduced. *Measuring the Economy* Countries measure the state of their economies to determine whether they are expanding or contracting and whether corrective action is necessary to minimize the fluctuations. One commonly used measure is gross domestic product (GDP)---the sum of all goods and services produced in a country during a year.\ When a nation spends more than it takes in from taxes, it has a budget deficit. the american economy -------------------- *A Brief History of the American Economy* Before North America was colonized, Native Americans lived as hunter-gatherers and farmers, trading among tribes. Colonists primarily had an agricultural economy, producing most necessities like food and furniture at home. Industries like farming, fishing, and fur trading thrived due to natural resources and a favorable climate. As the nation expanded westward, resources such as coal and iron were used to produce goods like tools and utensils. Farm families often sold surplus goods or made household items from raw materials, a system known as the domestic system. *The Industrial Revolution* The Industrial Revolution (19^th^ century) brought factories, specialized labor, and increased efficiency, lowering costs. Railroads enabled nationwide distribution and spurred factory growth. Innovations like Whitney\'s cotton gin and Deere\'s farm equipment boosted productivity, leading farmers to move to cities for factory jobs. Ford\'s assembly line made cars affordable for many. *The Manufacturing and Marketing Economies* Industrialization transformed the U.S. into a manufacturing economy, focused on producing goods and services for consumers rather than agriculture. Innovations such as department stores and mail-order catalogs increased demand for products, while advertising helped inform consumers about features and prices. Companies began researching consumer needs, and in the free-enterprise system, consumers influenced production by purchasing desired goods. This led to economic growth and one of the highest standards of living in the world. *The Service and New Digital Economy* After World War II, Americans had more money and time, leading to increased demand for services like childcare, cooking, and landscaping. As more women joined the workforce and population dynamics shifted, the U.S. transitioned to a service economy, with industries like finance, IT, and health care growing rapidly. The rise of e-commerce transformed business with platforms like Amazon and eBay. The COVID-19 pandemic in 2020 accelerated shifts, including remote work, online shopping, telemedicine, and the adoption of technologies like cloud computing and AI. *Technology and the Economy* Technology is rapidly accelerating and is changing the environment of business. Technology includes the methods and processes creating applications to solve problems, perform tasks, and make decisions.\ **Artificial intelligence (AI)** relates to machine (computer) learning that is able to perform activities and tasks that usually require human intelligence such as decisions, visual perception, and speech recognition.\ **Big data** refers to large volumes of structured and unstructured data that are transmitted at very fast speeds. Big Data refers to the increasing complexity and granularity of information with key characteristics (7Vs): volume (the quantity of data); velocity (the speed at which data is created); variety (the different types of data); veracity (the accuracy and trustworthiness of the data); variability (how insights vary or change over time as data is reinterpreted); visualization (the patterns and trends that can be seen in the data); value (how data generates business value through useful insight).\ **Blockchain** is a decentralized record-keeping technology that stores linked blocks of ordered transactions over time.\ **Drones**, unmanned aerial devices, can be programmed with AI to perform human tasks such as delivering products or collecting environmental data and imagery. *The Role of the Entrepreneur* An entrepreneur is an individual who risks money, time, and effort to develop for profit an innovative product or way of doing something. The free-enterprise system provides the conditions necessary for entrepreneurs to succeed. Entrepreneurs are constantly changing American business practices with new technology and innovative management techniques. *The Role of Ethics and Social Responsibility in Business* While most businesses are ethical and socially responsible, there are incidences of misconduct. This misconduct undermines public confidence in corporate America and creates debates about ethics in business. Business ethics generally refers to the standards and principles used by society to define appropriate and inappropriate conduct in the workplace. To promote socially responsible and ethical behavior while achieving organizational goals, businesses can monitor changes and trends in society's values. chapter 2) business ethics and social responsibility ==================================================== business ethics and social responsibility ----------------------------------------- We define **business ethics** as the principles and standards that determine acceptable conduct in business organizations. Personal ethics, on the other hand, relates to an individual's values, principles, and standards of conduct. Acceptable behavior in business is determined not only by the organization, but also by stakeholders such as employees, customers, competitors, government regulators, interest groups, and the public. An organization's culture influences its ethical behavior. We define **social responsibility** as a business's obligation to maximize its positive impact and minimize its negative impact on society. Although many people use the terms social responsibility and ethics interchangeably, they do not mean the same thing. Business ethics relates to an individual's or a work group's decisions that society evaluates as right or wrong, whereas social responsibility is a broader concept that concerns the impact of the entire business's activities on society.\ The most basic ethical and social responsibility concerns have been codified by laws and regulations that encourage businesses to conform to society's standards, values, and attitudes.\ Many problems and conflicts in business could be avoided if owners, managers, and employees knew more about business law and the legal system. the role of ethics in business ------------------------------ Regardless of what an individual believes about a particular action, if society judges it to be unethical or wrong, whether correctly or not, that judgment directly affects the organization's ability to achieve its business goals.\ Often, misconduct starts as ethical conflicts but evolves into legal disputes when cooperative conflict resolution cannot be accomplished.\ it is important to understand that business ethics goes beyond legal issues.\ Ethical issues are not limited to for-profit organizations either. *Recognizing Ethical Issues in Business* Recognizing ethical issues is the most important step in understanding business ethics. An ethical issue is an identifiable problem, situation, or opportunity that requires a person to choose from among several actions that may be evaluated as right or wrong, ethical or unethical. **Bribery:** it is considered improper to give or accept bribes, which are payments, gifts, or special favors intended to influence the outcome of a decision. **Misuse of Company Time**: It is widely believed that the average employee "steals" 4.5 hours a week with late arrivals, leaving early, long lunch breaks, inappropriate sick days, excessive socializing, and engaging in personal activities such as online shopping and watching sports while on the job. **Abusive and Intimidating Behavior:** Abusive or intimidating behavior is the most common ethical problem for employees. These concepts can mean anything from physical threats, false accusations, profanity, insults, yelling, harshness, and unreasonableness to ignoring someone or simply being annoying.\ Within the concept of abusive behavior, intent should be a consideration.\ Bullying is associated with a hostile workplace when a person or group is targeted and is threatened, harassed, belittled, verbally abused, or overly criticized. **Misuse of Company Resources:** Issues might include spending an excessive amount of time on personal emails, submitting personal expenses on company expense reports, or using the company copier for personal use. Because misuse of company resources is such a widespread problem, many companies have implemented official policies delineating acceptable use of company resources. **Conflict of Interest**: A conflict of interest, one of the most common ethical issues identified by employees, exists when an individual must choose whether to advance the individual's own personal interests or those of others. To avoid conflicts of interest, employees must be able to separate their personal financial interests from their business dealings. *Fairness and Honesty* Fairness and honesty are at the heart of business ethics and relate to the general values of decision makers. At a minimum, businesspersons are expected to follow all applicable laws and regulations. But beyond obeying the law, they are expected not to harm customers, employees, clients, or competitors knowingly through deception, misrepresentation, coercion, or discrimination. Communications is another area in which ethical concerns may arise. False and misleading advertising, as well as deceptive personal-selling tactics, anger consumers and can lead to the failure of a business.  *Improving Ethical Behavior in Business* Understanding how people make ethical choices and what prompts a person to act unethically may result in better ethical decisions. Ethical decisions in an organization are influenced by three key factors: individual moral standards and values, the influence of managers and co-workers, and the opportunity to engage in misconduct. Professional **codes of ethics** are formalized rules and standards that describe what the company expects of its employees. Codes of ethics do not have to be so detailed that they take into account every situation, but they should provide guidelines and principles that can help employees achieve organizational objectives and address risks in an acceptable and ethical way. **Whistleblowing** occurs when an employee exposes an employer's wrongdoing to outsiders, such as the media or government regulatory agencies. More companies are establishing programs to encourage employees to report illegal or unethical practices internally so that they can take steps to remedy problems before they result in legal action or generate negative publicity. the nature of social responsibility ----------------------------------- We classify four stages of social responsibility: financial, legal compliance, ethics, and philanthropy. **Corporate citizenship** is the extent to which businesses meet the legal, ethical, economic, and voluntary responsibilities placed on them by their various stakeholders. For example, companies introducing eco-friendly products and marketing efforts. Part of the answer to climate change issues is alternative energy such as solar, wind, biofuels, and hydro applications. *Social Responsibility Issues* Managers consider and make social responsibility decisions on a daily basis. Among the many social issues that managers must consider are their firms' relations with stakeholders, including owners and stockholders, employees, consumers, regulators, communities, and environmental and social advocates **Relations with Owners and Stakeholders**: a business's obligations to its owners and investors, as well as to the financial community at large, include maintaining proper accounting procedures, providing all relevant information to investors about the current and projected performance of the firm, and protecting the owners' rights and investments. In short, the business must maximize the owners' investments in the firm. **Employee Relations:** without employees, a business cannot carry out its goals. Employees expect businesses to provide a safe workplace, pay them adequately for their work, and keep them informed of what is happening in their company.\ Healthy, satisfied employees also supply more than just labor to their employers. Employers are beginning to realize the importance of obtaining input from even the lowest-level employees to help the company reach its objectives.\ Now more than ever, companies are focusing on diversity, inclusion, and equity **Consumer Relations:** a critical issue in business today is business's responsibility to customers, who look to business to provide them with satisfying, safe products and to respect their rights as consumers. The activities that independent individuals, groups, and organizations undertake to protect their rights as consumers are known as **consumerism**. To achieve their objectives, consumers and their advocates write letters to companies, lobby government agencies, make public service announcements, and boycott companies whose activities they deem irresponsible. A lot of rights are included here: right to safety, right to be informed, right to choose and right to be heard. **Sustainability Issues:** we define sustainability as conducting activities in such a way as to provide for the long-term well-being of the natural environment, including all biological entities. Sustainability involves the interaction among nature and individuals, organizations, and business strategies and includes the assessment and improvement of business strategies, economic sectors, work practices, technologies, and lifestyles so that they maintain the health of the natural environment. Environmental protection issues include pollution, uncontrolled use of natural resources, and population growth putting pressure on the long-term sustainability of these resources.\ Environmentalists are concerned that some companies are merely greenwashing, or deceptively creating a positive association with environmental issues for an unsuitable product, service, or practice. Indeed, a growing number of businesses and consumers are choosing green power sources where available. Many businesses have turned to recycling, the reprocessing of materials---aluminum, paper, glass, and some plastic---for reuse. Such efforts to make products, packaging, and processes more environmentally friendly have been labeled "green" business or marketing by the public and media. **Community Relations:** many businesses simply want to make their communities better places for everyone to live and work. The most common way that businesses exercise their community responsibility is through donations to local and national charitable organizations. unemployment ------------ Although most would argue that unemployment is an economic issue, it also carries ethical implications. Protests often occur in areas where unemployment is high, particularly when there seems to be a large gap between rich and poor.\ Factory closures are another ethical issue because factories usually employ hundreds of workers.\ Some employers have been accused of having unreasonable hiring standards that most applicants cannot meet, often leaving these jobs unfilled.\ Several businesses are working to reduce employment. CHAPTER 3) business in a borderless world ========================================= introduction ------------ Many U.S. firms are finding that international markets provide tremendous opportunities for growth. Accessing these markets can promote innovation, while intensifying global competition spurs companies to market better and less expensive products. the role of international business ---------------------------------- International business refers to the buying, selling, and trading of goods and services across national boundaries. Falling political barriers and new technology are making it possible for more and more companies to sell their products overseas as well as at home. *Why Nations Trade* Nations and businesses engage in international trade to obtain raw materials and goods that are otherwise unavailable to them or are available elsewhere at a lower price than what they can produce.\ Some nations have a monopoly on the production of a particular resource or product. Such a monopoly, or **absolute advantage**, exists when a country is the most efficient producer of a unique item.\ Most international trade is based on **comparative advantage**, which occurs when a country specializes in products that it can supply more efficiently or at a lower cost than it can produce other items. U.S. companies are increasingly **outsourcing** or transferring manufacturing and other tasks to countries where labor and supplies are less expensive. Outsourcing has become a controversial practice in the United States because many jobs have moved overseas where those tasks can be accomplished for lower costs. *Trade between Countries* To obtain needed goods and services, nations trade by exporting and importing. **Exporting** is the sale of goods and services to foreign markets. The United States exports more than \$2.1 trillion in goods and services annually.\ **Importing** is the purchase of goods and services from foreign sources. The United States imports more than \$2.8 trillion each year. *Balance of Trade* The United States has a trade deficit, but what is a trade deficit? A nation's **balance of trade** is the difference in value between its exports and imports. Because the United States (and some other nations as well) imports more products than it exports, it has a negative balance of trade, or **trade deficit**.\ The difference between the flow of money into and out of a country is called its **balance of payments**. international trade barriers ---------------------------- When a company decides to do business outside its own country, it will encounter a number of barriers to international trade. *Economic Barriers* When looking at doing business in another country, managers must consider a number of basic economic factors, such as economic development, infrastructure, and exchange rates. **Economic Development:** When considering doing business abroad, U.S. businesspeople need to recognize that they cannot take for granted that other countries offer the same things as are found in industrialized nations---economically advanced countries. Many countries in Africa, Asia, and South America, for example, are in general poorer and less economically advanced than those in North America and Europe; they are often called least-developed countries (LDCs). LDCs are characterized by low per-capita income (income generated by the nation's production of goods and services divided by the population), which means that consumers are less likely to purchase nonessential products. Nonetheless, LDCs represent a potentially huge and profitable market for many businesses because they may be buying technology to improve their infrastructures, health, and well-being.\ A country's level of development is determined in part by its infrastructure, the physical facilities that support its economic activities, such as communication, transportation, education, and health care systems as well as utilities. *Ethical, Legal, and Political Barriers* **Laws and Regulations:** The United States has a number of laws and regulations that govern the activities of U.S. firms engaged in international trade and has a variety of commerce and navigation treaties with other nations.\ A firm doing business abroad must understand and obey the laws of the host country. Some countries fail to honor U.S. laws.\ Thus, businesses engaging in foreign trade may have to take extra steps to protect their products because local laws and enforcement may be insufficient to do so. **Tariffs and trade restrictions:** An **import tariff** is a tax levied by a nation on goods imported into the country. A fixed tariff is a specific amount of money levied on each unit of a product brought into the country, while an ad valorem tariff is based on the value of the item.\ Countries sometimes levy tariffs for political reasons, as when they impose sanctions against other countries to protest their actions.\ However, import tariffs are more commonly imposed to protect domestic products by raising the price of imported ones. **Exchange controls** restrict the amount of currency that can be bought or sold.\ A **quota** limits the number of units of a particular product that can be imported into a country.\ An **embargo** prohibits trade in a particular country. Embargoes are generally directed at specific goods or countries and may be established for political, economic, health, or religious reasons.\ One common reason for setting quotas or tariffs is to prohibit **dumping**, which occurs when a country or business sells products at less than what it costs to produce them. **Political Barriers:** Unlike legal issues, political considerations are seldom written down and often change rapidly. Political concerns may lead a group of nations to form a cartel, a group of firms or nations that agrees to act as a monopoly and not compete with each other, to generate a competitive advantage in world markets. *Social and Cultural Barriers* Most businesspeople engaged in international trade underestimate the importance of social and cultural differences, but these differences can derail an important transaction.\ Cultural differences include differences in spoken and written language. Although it is certainly possible to translate words from one language to another, the true meaning is sometimes misinterpreted or lost.\ Translators cannot just translate slogans, advertising campaigns, and website language; they must know the cultural differences that could affect a company's success.\ Differences in body language and personal space also affect international trade.\ Additionally, gestures vary from culture to culture, and gestures considered acceptable in American society---pointing, for example---may be considered rude in others.\ Family roles also influence marketing activities. Many countries do not allow children to be used in advertising, for example.\ People from other countries quite often have a different perception of time as well.\ Companies engaged in foreign trade must observe the national and religious holidays and local customs of the host country *Technological Barriers* Lack of technological infrastructure can create opportunities for business. Technological advances are creating additional global marketing opportunities. Along with opportunities, changing technologies also create new challenges and competition. trade agreements, alliances, and organizations ---------------------------------------------- Although these economic, political, legal, and sociocultural issues may seem like daunting barriers to international trade, there are also organizations and agreements---such as the General Agreement on Tariffs and Trade that foster international trade and can help companies get involved in and succeed in global markets. *General Agreement of Tariffs and Trade* The General Agreement on Tariffs and Trade (GATT), originally signed by 23 nations in 1947, provided a forum for tariff negotiations and a place where international trade problems could be discussed and resolved. The **World Trade Organization (WTO)**, an international organization dealing with the rules of trade between nations, was created in 1995 by the Uruguay Round. *The United States-Mexico-Canada Agreement* The North American Free Trade Agreement (NAFTA) went into effect on January 1, 1994. NAFTA virtually eliminated all tariffs on goods produced and traded among Canada, Mexico, and the United States to create a free trade area.\ NAFTA was replaced by the **United States--Mexico--Canada Agreement (USMCA**), which includes major changes on auto manufacturing and new policies on labor and environmental standards, intellectual property protections, and some digital trade provisions. *The European Union* The European Union was established in 1958 to promote trade among members. It is one of the largest single markets today, and it is working toward standardization to facilitate free trade among members.\ Many countries in EU link their exchange rates to euro.\ The European Union has enacted some of the world's strictest laws concerning antitrust issues.\ The United Kingdom exited the EU. *Asia-Pacific Economic Cooperation* The Asia-Pacific Economic Cooperation was established in 1989, and it promotes open trade and economic and technical cooperation among member nations.\ It differs from other international trade alliances regarding the business and private sectors.\ Companies of the APEC have become increasingly competitive and sophisticated in global business in the past three decades.\ Increased industrialization has also caused China to become the world's largest emitter of greenhouse gases. *World Bank* The World Bank was established by industrialized nations in 1946, and it loans money to underdeveloped and developing countries. *International Monetary Fund* The International Monetary Fund (IMF) was established in 1947, and it promotes trade among member-nations by eliminating trade barriers and fostering financial cooperation. getting involved in international business ------------------------------------------ *Exporting and Importing* Many companies first get involved in international trade when they import goods from other countries for resale in their own businesses. Exporting sometimes takes place through **countertrade agreements**, which involve bartering products for other products instead of for currency.\ Although a company may export its products overseas directly or import products directly from their manufacturer, many choose to deal with an intermediary, commonly called an export agent. Export agents seldom produce products themselves; instead, they usually handle international transactions for other firms. *Trading Companies* A trading company buys goods in one country and sells them to buyers in another country. Trading companies handle all activities required to move products from one country to another. *Licensing and Franchising* **Licensing** is a trade arrangement in which one company---the licensor---allows another company---the licensee---to use its company name, products, patents, brands, trademarks, raw materials, and/or production processes in exchange for a fee or royalty. **Franchising** is a form of licensing in which a company---the franchiser---agrees to provide a franchisee the name, logo, methods of operation, advertising, products, and other elements associated with the franchiser's business, in return for a financial commitment and the agreement to conduct business in accordance with the franchiser's standard of operations. *Contract Manufacturing* Contract manufacturing occurs when a company hires a foreign company to produce a specified volume of the firm's product to specification; the final product carries the domestic firm's name. *Outsourcing* We define **outsourcing** as transferring manufacturing or other tasks (such as information technology operations) to companies in countries where labor and supplies are less expensive. Although outsourcing has become politically controversial in recent years amid concerns over jobs lost to overseas workers, foreign companies transfer tasks and jobs to U.S. companies---sometimes called insourcing far more often than U.S. companies outsource tasks and jobs abroad. *Offshoring* Offshoring is the relocation of a business process by a company, or a subsidiary, to another country. *Joint Ventures and Alliances* A company that wants to do business in another country may set up a joint venture by finding a local partner (occasionally, the host nation itself) to share the costs and operation of the business. A strategic alliance is a partnership formed to create competitive advantage on a worldwide basis. international business strategies --------------------------------- Planning in a global economy requires businesspeople to understand the economic, legal, political, and sociocultural realities of the countries in which they will operate. These factors will affect the strategy a business chooses to use outside its own borders. *Developing strategies* Companies doing business internationally have traditionally used a **multinational strategy**, customizing their products, promotion, and distribution according to cultural, technological, regional, and national differences. More and more companies are moving from this customization strategy to a **global strategy** (globalization), which involves standardizing products (and, as much as possible, their promotion and distribution) for the whole world, as if it were a single entity. *Managing the Challenges of Global Business* Managers who can meet the challenges of creating and implementing effective and sensitive business strategies for the global marketplace can help lead their companies to success chapter 4) options for organizing a business ============================================ introduction ------------ All businesses must select a form of organization that is most appropriate for their owners and the scope of their business. A business's legal form of ownership affects how it operates, how much it pays in taxes, and how much control its owners have. sole proprietorships -------------------- **Sole proprietorships**, businesses owned and operated by one individual, are the most common form of business organization in the United States. Sole proprietorships are typically small businesses employing fewer than 50 people, and they constitute approximately three-fourths of all businesses in the United States. *Advantages of Sole Proprietorships* Advantages of Sole Proprietorships include: - **Ease and cost of formation** (as forming a proprietorship is relatively easy and inexpensive) - **Secrecy** (as the proprietor does not have to discuss operating plans publicly, minimizing competition) - **Distribution and Use of Profits** (as all profits from a sole proprietorship belong exclusively to the owner, who can use them freely) - **Flexibility and Control of the Business** (as the sole proprietor has complete control over the business and can make decisions on the spot without anyone else's approval) - **Government Regulation** (as sole proprietorships have the most freedom from government regulation) - **Taxation** (as profits from sole proprietorships are considered personal income and are taxed at individual tax rates) - **Closing the Business** (as a sole proprietorship can be dissolved easily) *Disadvantages of Sole Proprietorships* Disadvantages of Sole Proprietorships include: - **Unlimited Liability** (as if the business cannot pay its creditors, the owner may be forced to use personal, nonbusiness holdings) - **Limited Sources of Funds** (as among the relatively few sources of money available to the sole proprietorship are banks, friends, family, the Small Business Administration, or the owner's own funds) - **Limited Skills** (as the sole proprietor must be able to perform many functions and possess skills in diverse fields) - **Lack of Continuity** (as the life expectancy of a sole proprietorship is directly linked to the owner's life and ability to work. Hence, the serious illness of the owner could result in failure of the business if competent help cannot be found) - **Lack of qualified employees** (as it is sometimes difficult for a small sole proprietorship to match the wages and benefits offered by a large competing corporation) - **Taxation (**as it can also be a disadvantage, depending on the proprietor's income) partnerships ------------ One way to minimize the disadvantages of a sole proprietorship and maximize its advantages is to have more than one owner. A **partnership** is a form of business organization defined by the Uniform Partnership Act as "an association of two or more persons who carry on as co-owners of a business for profit." It's the least used form of business and it's typically larger than sole proprietorships but smaller than corporations. *Types of Partnership* There are two basic types of partnership: general partnership and limited partnership.\ A **general partnership** involves a complete sharing in the management of a business. In a general partnership, each partner has unlimited liability for the debts of the business.\ A **limited partnership** has at least one general partner, who assumes unlimited liability, and at least one limited partner, whose liability is limited to their investment in the business. A master limited partnership (MLP) is a limited partnership traded on securities exchanges. MLPs have the tax benefits of a limited partnership but the liquidity (ability to convert assets into cash) of a corporation. *Articles of Partnership* **Articles of partnership** are legal documents that set forth the basic agreement between partners. Most states require articles of partnership, but even if they are not required, it makes good sense for partners to draw them up. Articles of partnership usually list the money or assets that each partner has contributed (called partnership capital), state each partner's individual management role or duty, specify how the profits and losses of the partnership will be divided among the partners, and describe how a partner may leave the partnership, as well as any other restrictions that might apply to the agreement. *Advantages of Partnerships* Advantages of Partnerships include: - **Ease of Organization** (as no legal charters have to be granted, but the name of the business should be registered with the state) - **Availability of Capital and Credit** (as when a business has several partners, it has the benefit of a combination of talents and skills and pooled financial resources) - **Combined Knowledge and Skills** (as partners in the most successful partnerships acknowledge each other's talents and avoid confusion and conflict by specializing in a particular area of expertise) - **Decision Making** (as small partnerships can react more quickly to changes in the business environment than can large partnerships and corporations) - **Regulatory Controls** (as a partnership has fewer regulatory controls affecting its activities than does a corporation) *Disadvantages of Partnerships* Disadvantages of Partnerships include: - **Unlimited Liability** (as unlimited liability can be a distinct disadvantage to one partner if their personal financial resources are greater than those of the others) - **Responsibilities and Conflicts** (as all partners are responsible for the business actions of all others. A bad decision by one partner may put the other partners' personal resources in jeopardy) - **Life of the Partnership** (as a partnership is terminated when a partner dies or withdraws. In a two-person partnership, if one partner withdraws, the firm's liabilities would be paid off and the assets divided between the partners. The partner who wishes to continue in the business would be at a serious disadvantage) - **Distribution of Profits** (as if the division of the profits does not reflect the work each partner puts into the business) - **Limited Sources of Funds** (as the sources of funds available to a partnership are limited) *Taxation of Partnerships* Partnerships are quasi-taxable organizations. This means that partnerships do not pay taxes when submitting the partnership tax return to the Internal Revenue Service. The tax return simply provides information about the profitability of the organization and the distribution of profits among the partners. Partners must report their share of profits on their individual tax returns and pay taxes at the income tax rate for individuals. corporations ------------ A **corporation** is a legal entity, created by the state, whose assets and liabilities are separate from its owners. As a legal entity, a corporation has many of the rights, duties, and powers of a person, such as the right to receive, own, and transfer property.\ Corporations can enter into contracts with individuals or with other legal entities, and they can sue and be sued in court. Corporations are typically owned by many individuals and organizations who own shares of the business, called **stock**. Stockholders can buy, sell, give or receive as gifts, or inherit their shares of stock.\ As owners, the stockholders are entitled to all profits that are left after all the corporation's other obligations have been paid. These profits may be distributed in the form of cash payments called **dividends**. *Creating a Corporation* A corporation is created, or incorporated, under the laws of the state in which it incorporates. The individuals creating the corporation are known as incorporators. Each state has a specific procedure, sometimes called chartering the corporation, for incorporating a business.\ The incorporators must file legal documents generally referred to **as articles of incorporation** with the appropriate state office.\ Based on the information in the articles of incorporation, the state issues a **corporate charter** to the company.\ After securing this charter, the owners hold an organizational meeting at which they establish the corporation's bylaws and elect a **board of directors**. *Types of Corporations* If the corporation does business in the state in which it is chartered, it is known as a domestic corporation. In other states where the corporation does business, it is known as a foreign corporation. If a corporation does business outside the nation in which it is incorporated, it is called an alien corporation. A corporation may be privately or publicly owned. A **private corporation** is owned by just one or a few people who are closely involved in managing the business. These people, often a family, own all the corporation's stock, and no stock is sold to the public.\ Privately owned corporations are not required to disclose financial information publicly, but they must, of course, pay taxes.\ They may become public via **initial public offering (IPO)** that is becoming a public corporation by selling stock so that it can be traded in public markets. A **public corporation** is one whose stock anyone may buy, sell, or trade. Public corporations can be "taken private" when one or a few individuals (perhaps the management of the firm) purchase all the firm's stock so that it can no longer be sold publicly. Taking a corporation private may be desirable when owners want to exert more control over the firm, or they want the flexibility to make decisions for restructuring operations.\ Quasi-public corporations and nonprofits are two types of public corporations. **Quasi-public corporations** are owned and operated by the federal, state, or local government. The focus of these entities is to provide a service to citizens, such as mail delivery, rather than earning a profit.\ Like quasi-public corporations, **nonprofit corporations** focus on providing a service rather than earning a profit, but they are not owned by a government entity. *Elements of a Corporation* A **board of directors**, elected by the stockholders to oversee the general operation of the corporation, sets the long-range objectives of the corporation. It is the board's responsibility to ensure that the objectives are achieved on schedule. Board members have a duty of care and loyalty to oversee the management of the firm or for any misuse of funds. An important duty of the board of directors is to hire corporate officers, such as the president and the chief executive officer (CEO), who are responsible to the directors for the management and daily operations of the firm. Directors can be employees of the company (inside directors) or people unaffiliated with the company (outside directors). Inside directors are usually the officers responsible for running the company. Outside directors are often top executives from other companies, lawyers, bankers, even professors.\ There is a growing shortage of available and qualified board members Corporations issue two types of stock: preferred and common.\ Owners of **preferred stock** are a special class of owners because, although they generally do not have any say in running the company, they have a claim to profits before any other stockholders.\ Although owners of **common stock** do not get such preferential treatment with regard to dividends, they do get some say in the operation of the corporation. Their ownership gives them the right to vote for members of the board of directors and on other important issues. Common stockholders may vote by proxy, which is a written authorization by which stockholders assign their voting privilege to someone else, who then votes at the stockholders' meeting.\ Common stockholders have another advantage over preferred shareholders. In most states, when the corporation decides to sell new shares of common stock in the marketplace, common stockholders have the first right, called a preemptive right, to purchase new shares of the stock from the corporation. A preemptive right is often included in the articles of incorporation. *Advantages of Corporations* Advantages of Corporations include: - **Limited Liability** (since because the corporation's assets like money and resources and liabilities like debts and other obligations) are separate from its owners', in most cases the stockholders are not held responsible for the firm's debts if it fails) - **Ease of Transfer of Ownership** (as shareholders can sell or trade shares of stock to other people without causing the termination of the corporation, and they can do this without the prior approval of other shareholders) - **Perpetual Life** (as a corporation usually is chartered to last forever unless its articles of incorporation stipulate otherwise) - **External Sources of Funds** (as of all the forms of business organization, the public corporation finds it easiest to raise money) - **Expansion Potential** (as corporations can easily expand into national and international markets thanks to external sources of funds) *Disadvantages of Corporations* Disadvantages of Corporations include: - **Taxation** (as when after-tax corporate profits are paid out as dividends to the stockholders, the dividends are taxed a second time as part of the individual owner's income, creating a double taxation process) - **Forming a Corporation** (as forming a corporation can be costly) - **Disclosure of Information** (as corporations must make information available to their owners, usually through an annual report to shareholders, enabling competitors' access to them). - **Employee-Owner Separation** (as many employees are not shareholders of the company for which they work. This separation of owners and employees may cause employees to feel that their work benefits only the owners) other types of ownership ------------------------ *Joint Ventures* A **joint venture** is a partnership established for a specific project or for a limited time. *S Corporations* An **S corporation** is a form of business ownership that is taxed as though it were a partnership. Net profits or losses of the corporation pass to the owners, thus eliminating double taxation. *Limited Liability Companies* A **limited liability company** (LLC) is a form of business ownership that provides limited liability, as in a corporation, but is taxed like a partnership. One of the major reasons for the LLC form of ownership is to protect the members' personal assets in case of lawsuits. LLCs are flexible, are simple to run, and do not require the members to hold meetings, keep minutes, or make resolutions, all of which are necessary in corporations. *Cooperatives* Another form of organization in business is the cooperative or co-op, an organization composed of individuals or small businesses that have banded together to reap the benefits of belonging to a larger organization. trends in business ownership: mergers and acquisitions ------------------------------------------------------ Companies grow (other than by expanding their operations) also by merging with or purchasing other companies. A **merger** occurs when two companies (usually corporations) combine to form a new company.\ An **acquisition** occurs when one company purchases another, generally by buying most of its stock.\ When firms that make and sell similar products to the same customers merge, it is known as a **horizontal merger.\ **When companies operating at different but related levels of an industry merge, it is known as a **vertical merge.\ **A **conglomerate merger** results when two firms in unrelated industries merge. In a **leveraged buyout (LBO)**, a group of investors borrows money from banks and other institutions to acquire a company (or a division of one), using the assets of the purchased company to guarantee repayment of the loan.  chapter 5) managing operations and supply chains ================================================ the nature of entrepreneurship and small business ------------------------------------------------- An entrepreneur is a person who risks money, time, and effort to develop for profit an innovative product or way of doing something. Entrepreneurship is the process of creating and managing a business to achieve desired objectives. Many entrepreneurs with five or fewer employees are considered **microentrepreneurs**, sometimes called micropreneurs.\ **Social entrepreneurs** are individuals who use entrepreneurship to address social problems. They operate by the same principles as other entrepreneurs but view their organizations as vehicles to create social change. *What Is a Small Business?* We define a **small business** as any independently owned and operated business that is not dominant in its competitive area and does not employ more than 500 people.\ This definition is similar to the one used by the U.S. Small Business Administration (SBA), an independent federal agency that offers managerial and financial assistance to small businesses. *The Role of Small Business in the American Economy* No matter how you define a small business, one fact is clear: They are vital to the American economy. As you can see in Table 5.2, more than 99 percent of all U.S. firms are classified as small businesses, and they employ about half of private workers. **Job Creation** The energy, creativity, and innovative abilities of small-business owners result in about 1.6 million net new jobs annually. **Innovation** Perhaps one of the most significant strengths of small businesses is their ability to innovate, bringing significant benefits to customers. Small firms produce more than half of all innovations. *Industries That Attract Small Business* Small businesses are found in nearly every industry, but retailing and wholesaling, services, manufacturing, and high technology are especially attractive to entrepreneurs. **Retailing** Retailers acquire goods from producers or wholesalers and sell them to consumers in-store. Also, retailing is rapidly shifting online without a fixed location. Many small businesses sell through their own website or as a third party on sites. **Wholesaling** Wholesalers provide both goods and services to producers and retailers. They can assist their customers with almost every business function. Wholesalers supply products to industrial, retail, and institutional users for resale or for use in making or providing other products. If eliminated, their functions must be passed on to another intermediary. **Services** The service sector includes businesses that do not actually produce tangible goods. Services include intangible products that involve a performance or any effort to provide something of value that cannot be physically possessed. Accounts for 80% of U.S. jobs. **Manufacturing** Manufacturing goods can provide unique opportunities for small businesses. Can customize products to meet specific consumer needs. **Technology** High technology is a broad term used to describe businesses that depend heavily on advanced scientific and engineering knowledge. **Sharing Economy** The past decade has seen a rise in the **sharing economy**, an economic model involving the sharing of underutilized resources. Under this model, entrepreneurs earn income by renting out an underutilized resource such as lodging or vehicles. The ride-sharing service Uber is the company most associated with the sharing economy. advantages of small-business ownership -------------------------------------- *Independence* Independence is probably one of the leading reasons that entrepreneurs choose to go into business for themselves. Being a small-business owner means being your own boss. *Costs* As already mentioned, small businesses often require less money to start and maintain than do large ones. *Flexibility* With small size comes the flexibility to adapt to changing market demands. Small businesses usually have only one layer of management---the owners. Decisions therefore can be made and executed quickly. *Focus* Small firms can focus their efforts on a precisely defined market niche---that is, a specific group of customers. *Reputation* Reputation, or how a firm is perceived by its various stakeholders, is highly significant to an organization's success. Small firms, because of their capacity to focus on narrow niches, can develop enviable reputations for quality and service.  disadvantages of small-business ownership ----------------------------------------- *High Stress Level* A small business is likely to provide a living for its owner, but not much more (although there are exceptions as some examples in this chapter have shown). There are ongoing worries about competition, employee problems, new equipment, expanding inventory, rent increases, or changing market demand. *High Failure Rate* Despite the importance of small businesses to our economy, there is no guarantee of success. **Undercapitalization** The shortest path to failure in business is undercapitalization, the lack of funds to operate a business normally. **Managerial Inexperience or Incompetence** Poor management is the cause of many business failures. Just because an entrepreneur has a brilliant vision for a small business does not mean the individual has the knowledge or experience to manage a growing business effectively. A person who is good at creating great product ideas and marketing them may lack the skills and experience to make good management decisions in hiring, negotiating, finance, and control. **Inability to Cope with Growth** Growth often requires the owner to give up a certain amount of direct authority, and it is frequently hard for someone who has called all the shots to give up control. Similarly, growth requires specialized management skills in areas such as credit analysis and promotion---skills that the founder may lack or not have time to apply. starting a small business ------------------------- How do you go about starting your own business in the first place? To start any business, large or small, you must have some kind of general idea. *The Business Plan* A key element of business success is a **business plan**---a precise statement of the rationale for the business and a step-by-step explanation of how it will achieve its goals. The business plan should include an explanation of the business, an analysis of the competition, estimates of income and expenses, and other information. It should also establish a strategy for acquiring sufficient funds to keep the business going. *Forms of Business Ownership* Sole proprietorship, partnership or corporation are forms of business ownership. *Financial Resources* To make money from a small business, the owner must first provide or obtain money (capital) to get started and to keep it running smoothly. **Equity Financing** The most important source of funds for any new business is the owner. Many owners include among their personal resources ownership of a home, the accumulated value in a life insurance policy, or a savings account. The owner may bring useful personal assets as part of their ownership interest in the firm. Such financing is referred to as equity financing because the owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business.\ **Venture capitalists** are persons or organizations that agree to provide some funds for a new business in exchange for an ownership interest or stock. **Debt Financing** New businesses can borrow more as they become established. Banks are the main suppliers of external financing to small businesses.\ The bank will often require the entrepreneur to put up collateral, a financial interest in the property or fixtures of the business, to guarantee payment of the debt. Additionally, the small-business owner may have to provide personal property as collateral, such as their home, in which case the loan is called a mortgage.\ Banks and other financial institutions can also grant a small business a line of credit---an agreement by which a financial institution promises to lend a business a predetermined sum on demand.\ Small businesses may obtain funding from their suppliers in the form of a trade credit---that is, suppliers allow the business to take possession of the needed goods and services and pay for them at a later date. Occasionally, small businesses engage in bartering---trading their own products for the goods and services offered by other businesses. *Approaches to Starting a Small Business* **Starting from Scratch versus Buying an Existing Business** Although entrepreneurs often start new small businesses from scratch, they may elect instead to buy an existing business. This has the advantage of providing a built-in network of customers, suppliers, and distributors and reducing some of the guesswork inherent in starting a new business from the ground up. The disadvantage is that of inheriting any problems the business already has. **Franchising** Many small-business owners find entry into the business world through franchising. A license to sell another's products or to use another's name in business, or both, is a franchise. The company that sells a franchise is the franchiser. The purchaser of a franchise is called a franchisee. *Technological and Economic Trends* Advances in technology have opened up many new markets to small businesses. Undoubtedly, the internet will continue to provide new opportunities for small businesses. Technological advances and an increase in service exports have created new opportunities for small companies to expand their operations abroad. making big businesses act "small" --------------------------------- The continuing success and competitiveness of small businesses through rapidly changing conditions in the business world have led many large corporations to take a closer look at what makes their smaller rivals tick. More and more firms are emulating small businesses in an effort to improve their own bottom line. The buzzword in business has been to downsize or right-size to reduce management layers, corporate staff, and work tasks in order to make the firm more flexible, resourceful, and innovative. In major corporations, **intrapreneurs**, like entrepreneurs, take responsibility for, or "champion," the development of innovations of any kind within the larger organization. Small businesses drive the economy and provide a role model for innovation in all types of business. chapter 6) the nature of management =================================== introduction ------------ For any organization---small or large, for profit or nonprofit---to achieve its objectives, it must have resources to support operations; employees to make and sell the products; and financial resources to purchase additional goods and services, pay employees, and generally operate the business. the importance of management ---------------------------- Management is a process designed to achieve an organization's objectives by using its resources effectively and efficiently in a changing environment. Effectively means having the intended result; efficiently means accomplishing the objectives with a minimum of resources. Managers make decisions about the use of the organization's resources and are concerned with planning, organizing, directing, and controlling the organization's activities so as to reach its objectives. Employees are one of the most important resources in helping a business attain its objectives. Hiring people to carry out the work of the organization is known as staffing. Beyond recruiting people for positions within the firm, managers must determine what skills are needed for specific jobs, how to motivate and train employees, how much to pay, what benefits to provide, and how to prepare employees for higher-level jobs in the firm at a later date. U.S companies are focusing more on increasing benefits and bonuses rather than salary. Sometimes, managers must also make the difficult decision to reduce the workforce. This is known as **downsizing**, the elimination of significant numbers of employees from an organization. Acquiring suppliers is another important part of managing resources and ensuring that products are made available to customers. A good supplier maximizes efficiencies and provides creative solutions to help the company reduce expenses and reach its objectives. Finally, the manager needs adequate financial resources to pay for essential activities. management functions -------------------- *Planning* Planning, the process of determining the organization's objectives and deciding how to accomplish them, is the first function of management. **Mission** A mission, or mission statement, is a declaration of an organization's fundamental purpose and basic philosophy. It seeks to answer the question: "What business are we in?". **Goals**. Goals are expressed in general terms and do not contain specific, quantifiable metrics of where the firm is now or where it is going. **Objectives** Objectives, the ends or results desired by an organization, derive from the organization's mission and goals. Common objectives relate to profit, competitive advantage, and growth. **Plans** There are three general types of plans for meeting objectives---strategic, tactical, and operational.\ A firm's highest managers develop its **strategic plans**, which establish the long-range objectives and overall strategy or course of action by which the firm fulfils its mission. Strategic plans generally cover periods of one year or longer.\ **Tactical plans** are short range and designed to implement the activities and objectives specified in the strategic plan. These plans, which usually cover a period of one year or less, help keep the organization on the course established in the strategic plan.\ **Operational plans** are very short term and specify what actions specific individuals, work groups, or departments need to accomplish in order to achieve the tactical plan and, ultimately, the strategic plan. Another element of planning is **crisis management** (contingency planning), which deals with potential disasters such as product tampering, oil spills, fire, earthquake, computer viruses, global pandemics, or even a reputation crisis due to unethical or illegal conduct by one or more employees. Unfortunately, many businesses do not have updated contingency plans to handle the types of crises that their companies might encounter. *Organizing* Rarely are individuals in an organization able to achieve common goals without some form of structure. **Organizing** is the structuring of resources and activities to accomplish objectives in an efficient and effective manner. Managers organize by reviewing plans and determining what activities are necessary to implement them; then, they divide the work into small units and assign it to specific individuals, groups, or departments. *Directing* During planning and organizing, staffing occurs, and management must direct the employees. **Directing** is motivating and leading employees to achieve organizational objectives. Good directing involves telling employees what to do and when to do it through the implementation of deadlines and then encouraging them to do their work. *Controlling* Planning, organizing, staffing, and directing are all important to the success of an organization, whether its objective is earning a profit or something else. But what happens when a firm fails to reach its goals despite a strong planning effort?\ **Controlling** is the process of evaluating and correcting activities to keep the organization on course. Control involves five activities: (1) measuring performance, (2) comparing present performance with standards or objectives, (3) identifying deviations from the standards, (4) investigating the causes of deviations, and (5) taking corrective action when necessary. types of management ------------------- *Levels of Management* Many organizations have multiple levels of management---high-level management, middle management, and front-line (or supervisory) management. **High-Level Management** In businesses, high-level managers include the president and other top executives, such as the chief executive officer (CEO), chief financial officer (CFO), and chief operations officer (COO), who have overall responsibility for the organization.\ High-level managers spend most of their time planning. They make the organization's strategic decisions, decisions that focus on an overall scheme or key idea for using resources to take advantage of opportunities. **Middle Management** Rather than making strategic decisions about the whole organization, middle managers are responsible for tactical and operational planning that will implement the general guidelines established by high-level management. Thus, their responsibility is more narrowly focused than that of high-level managers. Middle managers are involved in the specific operations of the organization and spend more time organizing than other managers. **Front-Line Management** Front-line managers are those who supervise workers and the daily operations of the organization. They are responsible for implementing the plans established by middle management and directing workers' daily performance on the job. They spend most of their time directing and controlling. *Areas of Management* At each level, there are managers who specialize in the basic functional areas of business: finance, production and operations, human resources (personnel), marketing, supply chain, IT, and administration.  skills needed by managers ------------------------- *Technical Expertise* Managers need **technical expertise**, the specialized knowledge and training required to perform jobs related to their area of management. *Conceptual Skills* Conceptual skills, the ability to think in abstract terms, and to see how parts fit together to form the whole, are needed by all managers, but particularly high-level managers. *Analytical Skills* **Analytical skills** refer to the ability to identify relevant issues and recognize their importance, understand the relationships between them, and perceive the underlying causes of a situation. *Human Relations Skills* People skills, or **human relations skills**, are the ability to deal with people, both inside and outside the organization. leadership ---------- Leadership is the ability to influence employees to work toward organizational goals. Strong leaders manage and pay attention to the culture of their organizations and the needs of their employees. Managers often can be classified into three types based on their leadership style.\ Autocratic leaders make all the decisions and then tell employees what must be done and how to do it.\ Democratic leaders involve their employees in decisions. The manager presents a situation and encourages subordinates to express opinions and contribute ideas.\ Free-rein leaders let their employees work without much interference. The manager sets performance standards and allows employees to find their own ways to meet them.\ Another type of leadership style that has been gaining in popularity is authentic leadership. Authentic leadership is a bit different from the other three leadership styles because it is not exclusive. *Employee Empowerment* Employee empowerment occurs when employees are provided with the ability to take on responsibilities and make decisions about their jobs. Employee empowerment does not mean that managers are not needed. Managers are important for guiding employees, setting goals, making major decisions, and other responsibilities. decision making --------------- A systematic approach using the following six steps usually leads to more effective decision making: (1) recognizing and defining the decision situation, (2) developing options to resolve the situation, (3) analyzing the options, (4) selecting the best option, (5) implementing the decision, and (6) monitoring the consequences of the decision. *Recognizing and Defining the Decision Situation* The first step in decision making is recognizing and defining the situation. The situation may be negative---for example, huge losses on a particular product---or positive---for example, an opportunity to increase sales.\ Situations calling for small-scale decisions often occur without warning. Situations requiring large-scale decisions, however, generally occur after some warning signs. Effective managers pay attention to such signals. If managers pay attention to such signals, problems can be contained.\ Once a situation has been recognized, management must define it. *Developing Options* Once the decision situation has been recognized and defined, the next step is to develop a list of possible courses of action. The best lists include both standard and creative plans. **Brainstorming**, a technique in which group members spontaneously suggest ideas to solve a problem, is an effective way to encourage creativity and explore a variety of options. *Analyzing Options* After developing a list of possible courses of action, management should analyze the practicality and appropriateness of each option. *Selecting the Best Option* When all courses of action have been analyzed, management must select the best one. Selection is often a subjective procedure because many situations do not lend themselves to quantitative analysis. The best option always relates to analyzing risks and trade-offs. *Implementing the Decision* To deal with the situation at hand, the selected option or options must be put into action. Implementation can be fairly simple or very complex, depending on the nature of the decision. For example, a new product launch requires a cross-functional team to ensure the plans are accomplished. management in practice ---------------------- Management is not exact and calculated.\ Managers spend as much as 75 percent of their time working with others.\ Managers spend a lot of time establishing and updating an agenda of goals and plans for carrying out their responsibilities. An **agenda** contains both specific and vague items, covering short-term goals and long-term objectives.\ Managers also spend a lot of time networking---building relationships and sharing information with colleagues who can help them achieve the items on their agendas.\ Finally, managers spend a great deal of time confronting the complex and difficult challenges of the business world today. chapter 7) organization, teamwork, and communication ==================================================== organizational culture ---------------------- One of the most important aspects of organizing a business is determining its **organizational culture**, a firm's shared values, beliefs, traditions, principles, rules, and role models for behavior. A firm's culture may be expressed formally through its mission statement, goals, codes of ethics, memos, manuals, and ceremonies, but it is more commonly expressed informally. Examples of informal expressions of culture include dress codes (or the lack thereof), work habits, extracurricular activities, and stories. Employees often learn the accepted standards through discussions with co-workers. Google's culture is focused more on metrics and sales of advertising than customer values. Organizational culture helps ensure that all members of a company share values and suggests rules for how to behave and deal with problems within the organization. developing organizational structure ----------------------------------- **Structure** is the arrangement or relationship of positions within an organization. Rarely is an organization, or any group of individuals working together, able to achieve common objectives without some form of structure, whether that structure is explicitly defined or only implied. An organization's structure develops when managers assign work tasks and activities to specific individuals or work groups and coordinate the diverse activities required to reach the firm's objectives. Organizational charts are visual displays of organizational structure, chain of command, and other relationships.  assigning tasks --------------- For a business to operate, its managers must first determine what activities are required to achieve its goals and objectives. *Specialization* After identifying all activities that must be accomplished, managers then break these activities down into specific tasks that can be handled by individual employees. This division of labor into small, specific tasks and the assignment of employees to do a single task is called specialization.\ The rationale for specialization is efficiency.\ Specialization means workers do not waste time shifting from one job to another, and training is easier.\ Overspecialization can have negative consequences. Employees may become bored and dissatisfied with their jobs. *Departmentalization* After assigning specialized tasks to individuals, managers and teams doing similar jobs are organized into groups. Departmentalization is the grouping of jobs into working units usually called departments, units, or divisions.\ Departments are commonly organized by function, product, geographic region, or customer. **Functional Departmentalization** Functional departmentalization groups jobs that perform similar functional activities, such as finance, manufacturing, marketing, and human resources. **Product Departmentalization** Product departmentalization, as you might guess, organizes jobs around the products of the firm. **Geographical Departmentalization** Geographical departmentalization groups jobs according to geographic location, such as a state, region, country, or continent. **Customer Departmentalization** Customer departmentalization arranges jobs around the needs of various types of customers. assigning responsibility ------------------------ After all employees have been assigned their tasks, they must be given the responsibility to carry them out. *Delegation of Authority* **Delegation of authority** means not only giving tasks to employees but also empowering them to make commitments, use resources, and take whatever actions are necessary to carry out those tasks.\ As a business grows, so do the number and complexity of decisions that must be made; no one manager can handle them all.\ Delegation also gives a **responsibility**, or obligation, to employees to carry out assigned tasks satisfactorily and holds them accountable for the proper execution of their assigned work. The principle of accountability means that employees who accept an assignment and the authority to carry it out are responsible to a superior for the outcome. *Degree of Centralization* The extent to which authority is delegated throughout an organization determines its degree of centralization. **Centralized Organizations** In a centralized organization, authority is concentrated at the top, and very little decision-making authority is delegated to lower levels. **Decentralized Organizations** A decentralized organization is one in which decision-making authority is delegated as far down the chain of command as possible. Decentralization is characteristic of organizations that operate in complex, unpredictable environments. Businesses that face intense competition often decentralize to improve responsiveness and enhance creativity. *Span of Management* **Span of management** (also called span of control) refers to the number of subordinates who report to a particular manager.\ A wide span of management or control exists when a manager directly supervises a very large number of employees.\ A narrow span of management or control exists when a manager directly supervises only a few subordinates. *Organizational Structure* Complementing the concept of span of management is **organizational structure**, the levels of management in an organization. Organizational structure relates to a description of the levels and number of levels in the organization.\ A company with many levels of managers is considered tall or hierarchical; in a tall organization, the span of management is narrow.\ Organizations with few levels are flat and have wide spans of management. forms of organizational structure --------------------------------- *Line Structure* The simplest organizational structure, line structure, has direct lines of authority that extend from the top manager to employees at the lowest level of the organization. It's the most common in small businesses. *Line-and-Staff Structure* The **line-and-staff** **structure** has a traditional line relationship between superiors and subordinates, and specialized managers---called staff managers---are available to assist line managers. Line-and-Staff structure may experience problems with overstaffing and ambiguous lines of communication. *Multidivisional Structure* **Multidivisional structure** organizes departments into larger groups called divisions. It permits delegation of decision-making authority. However, this structure inevitably creates work duplication. *Matrix Structure* A matrix structure, also called a project management structure, sets up teams from different departments, thereby creating two or more intersecting lines of authority. the role of groups and teams in organizations --------------------------------------------- Traditionally, a group has been defined as two or more individuals who communicate with one another, share a common identity, and have a common goal. A team is a small group whose members have complementary skills; have a common purpose, goals, and approach; and hold themselves mutually accountable.\ All teams are groups, but not all groups are teams.\ Virtual teams are employees in different locations who rely on email, audio conferencing, internet, videoconferencing (e.g., Zoom), or other collaboration tools to accomplish their goals. *Committees* A committee is usually a permanent, formal group that does some specific tasks. For example, many firms have a compensation or finance committee to examine the effectiveness of these areas of operation as well as the need for possible changes. *Task Forces* A task force is a temporary group of employees responsible for bringing about a particular change. Task force membership is usually based on expertise rather than organizational position. *Teams* Teams are becoming far more common in the U.S. workplace as businesses strive to enhance productivity and global competitiveness. In general, teams have the benefit of being able to pool members' knowledge and skills and make greater use of them than can individuals working alone. **Project Teams** Project teams are similar to task forces, but normally they run their operation and have total control of a specific work project. **Product-development teams** are a special type of project team formed to devise, design, and implement a new product. **Quality-Assurance Teams** Quality-assurance teams, sometimes called quality circles, are fairly small groups of workers brought together from throughout the organization to solve specific quality, productivity, or service problems. **Self-Directed Teams** A self-directed team (SDT) is a group of employees responsible for an entire work process or segment that delivers a product to an internal or external customer. communicating in organizations ------------------------------ Communication within an organization can flow in a variety of directions and from a number of sources, each using both oral and written forms of communication. The success of communication systems within the organization has a tremendous effect on the overall success of the firm. *Formal and Informal Communication* Formal channels of communication are intentionally defined and designed by the organization. They represent the flow of communication within the formal organizational structure, as shown on organizational charts.\ Communication between friends, cuts across department, division, and even management-subordinate boundaries. Such friendships and other nonwork social relationships comprise the informal organization of a firm, and their impact can be great.\ The most significant informal communication occurs through the **grapevine**, an informal channel of communication, separate from management's formal, official communication channels.  *Monitoring Communications* Technological advances and the increased use of electronic communication in the workplace have made monitoring its use necessary for most companies. Failing to monitor employees' use of email, social media, and the internet can be costly.\ Artificial intelligence (AI) is having a significant impact on workplace monitoring, benchmarking, and understanding how employees "feel" about their jobs. More than 40 percent of employers globally have implemented AI processes within their organization. *Improving Communication Effectiveness* One of the major issues of effective communication is in obtaining feedback. If feedback is not provided, then communication will be ineffective and can drag down overall performance. Managers should always encourage feedback, including concerns and challenges about issues.\ Interruptions can be a serious threat to effective communication. Various activities can interrupt the message.\ Strong and effective communication channels are a requirement for companiesto distribute information to different levels of the company. chapter 8) managing operations and supply chains ================================================ the nature of operations management ----------------------------------- Operations management (OM), the development and administration of the activities involved in transforming resources into goods and services, is of critical importance.\ Historically, operations management has been called "production" or "manufacturing". The change from "production" to "operations" recognizes the increasing importance of organizations that provide services and ideas. Additionally, the term "operations" represents an interest in viewing the operations function as a whole rather than simply as an analysis of inputs and outputs. We use the terms **manufacturing** and **production** interchangeably to represent the activities and processes used in making tangible products, whereas we use the broader term **operations** to describe those processes used in the making of both tangible and intangible products. *The Transformation Process* At the heart of operations management is the transformation process through which inputs (resources such as labor, money, materials, and energy) are converted into products (goods, services, and ideas). The transformation process combines inputs in predetermined ways using different equipment, administrative procedures, and technology to create a product. To ensure that this process generates quality products efficiently, operations managers control the process by taking measurements (feedback) at various points in the transformation process and comparing them to previously established standards. *Operations Management in Service Business* Different types of transformation processes take place in organizations that provide services, such as airlines, colleges, and most nonprofit organizations. Transformation processes occur in all organizations, regardless of what they produce or their objectives.\ Unlike tangible goods, services effectively are actions or performances that must be directed toward the consumers who use them. Thus, there is a significant customer-contact component to most services. The ideal service provider will be high tech and high touch.\ Another challenge related to service operations is that the final product is generally intangible and even perishable. **Services versus Tangible Products** First, manufacturers and service providers differ in the nature and consumption of their products. For example, the term manufacturer implies a firm that makes tangible products. A service provider, on the other hand, produces more intangible products such as U.S. Postal Service delivery of priority mail or a business stay in a Westin hotel.\ Services require more customer contact and performance of a service typically occurs at the point of consumption. **Uniformity of Inputs** A second way to classify differences between manufacturers and service providers has to do with the uniformity of inputs. Manufacturers typically have more control over the amount of variability of the resources they use than do service providers. Services are more customized to each customer. **Uniformity of Products** Manufacturers and service providers also differ in the uniformity of their final products. Because of the human element inherent in providing services, each service tends to be performed differently. Not all grocery checkers, for example, wait on customers in the same way. **Labor Required** Service providers are generally more labor-intensive (require more labor) because of the high level of customer contact, perishability of the product (must be consumed immediately), and high degree of variation of inputs and products (customization). **Measurement of Productivity**. The final distinction between service providers and manufacturers involves the measurement of productivity for each good or service produced. For manufacturers, measuring productivity is fairly straightforward because of the tangibility of the product and its high degree of uniformity. For the service provider, variations in demand (e.g., higher demand for air travel in some seasons than in others), variations in service requirements from job to job, and the intangibility of the product make productivity measurement more difficult. planning and designing operations systems ----------------------------------------- Before a company can produce any product, it must first decide what it will produce and for what group of customers. It must then determine what processes it will use to make these products as well as the facilities it needs to produce them. These decisions comprise operations planning. *Planning the Product* Before making any product, a company first must determine what consumers want and then design a product to satisfy that want. Most companies use marketing research to determine the kinds of goods and services to provide and the features they must possess.\ Developing a product can be a lengthy, expensive process. Most companies work to reduce development time and costs.\ By joining together, companies can pool their resources and reduce the time it takes to develop new products.\ Within a company, the engineering or research and development department is charged with turning a product idea into a workable design that can be produced economically. *Designing the Operations Processes* **Standardization** Most firms that manufacture products in large quantities for many customers have found that they can make them cheaper and faster by standardizing designs. Standardization is making identical, interchangeable components or even complete products. With standardization, a customer may not get exactly what they want, but the product generally costs less than a custom-designed product. **Modular Design** Modular design involves building an item in self-contained units, or modules, that can be combined or interchanged to create different products. Because many modular components are produced as integrated units, the failure of any portion of a modular component usually means replacing the entire component. **Customization** "Customization" is making products to meet a particular customer's needs or wants. Products produced in this way are generally unique. Mass customization relates to making products that meet the needs or wants of a large number of individual customers. **Blockchain** It is a secure, public database that records all transactions and is spread across multiple computers. It is very difficult to tamper with, and it is growing rapidly. *Planning Capacity* Planning the operational processes for the organization involves two important areas: capacity planning and facilities planning. The term **capacity** basically refers to the maximum load that an organizational unit can carry or operate. The unit of measurement may be a worker or machine, a department, a branch, or even an entire plant. Maximum capacity can be stated in terms of the inputs or products provided.\ Efficiently planning the organization's capacity needs is an important process for the operations manager. Capacity levels that fall short can result in unmet demand, and, consequently, lost customers. On the other hand, when there is more capacity available than needed, operating costs are driven up needlessly due to unused and often expensive resources. *Planning Facilities* **Facility Location** Where to locate a firm's facilities is a significant question because, once the decision has been made and implemented, the firm must live with it due to the high costs involved. When a company decides to relocate or open a facility at a new location, it must pay careful attention to factors such as proximity to market, availability of raw materials, availability of transportation, availability of power, climatic influences, availability of labor, community characteristics (quality of life), and taxes and inducements. **Facility Layout** Arranging the physical layout of a facility is a complex, highly technical task.\ A company using a **fixed-position layout** brings all resources required to create the product to a central location.\ Firms that use a **process layout** organize the transformation process into departments that group related processes.\ The **product layout** requires that production be broken down into relatively simple tasks assigned to workers, who are usually positioned along an assembly line. Workers remain in one location, and the product moves from one worker to another.  **Technology** Every industry has a basic, underlying technology that dictates the nature of its transformation process.\ **Computer-assisted design (CAD)**, for example, helps engineers design components, products, and processes on the computer instead of on paper. **Computer-assisted manufacturing (CAM)** goes a step further, employing specialized computer systems to actually guide and control the transformation processes. **Drones, Robotics, and AI** Using flexible manufacturing, computers can direct machinery to adapt to different versions of similar operations. When all these technologies---CAD/CAM, flexible manufacturing, robotics, AI, drones, and more---are integrated, the result is **computer-integrated manufacturing (CIM)**, a complete system that designs products, manages machines and materials, and controls the operations function. *Sustainability and Manufacturing* Manufacturing and operations systems are moving quickly to establish environmental sustainability and minimize negative impact on the natural environment.\ Sustainability deals with conducting activities in such a way as to provide for the long-term well-being of the natural environment, including all biological entities. Sustainability issues are becoming increasingly important to stakeholders and consumers, as they pertain to the future health of the planet.\ Much of the movement to green manufacturing and operations is the belief that global warming and climate change must decline, as well as pollution of land, air, water and deforestation. managing the supply chain ------------------------- A major function of operations is **supply chain management**, which refers to connecting and integrating all parties or members of the distribution system in order to satisfy customers.\ Procurement involves the processes to obtain resources to create value through sourcing, purchasing, and recycling materials and information\ Logistical concerns involve physical distribution and the selection of transportation modes. Inbound logistics involves the movement of the raw materials, packaging, information, and other goods and services from the suppliers to the producers. Similarly, outbound logistics follows the finished products and information from the business customers and then to the final consumer. In order to pull this transportation process together, some companies use third-party logistics, which involves employing outside firms to move goods because they can transport them more efficiently than the company can themselves. AI and blockchain are moving rapidly across supply chain functions. *Procurement* **Purchasing** is a part in procurement involved in the buying of all the materials needed by the organization. The purchasing department aims to obtain items of the desired quality in the right quantities at the lowest possible cost.\ Oftentimes, they can make some components more economically and efficiently than can an outside supplier. On the other hand, firms sometimes find that it is uneconomical to make or purchase an item, and instead arrange to lease it from another organization. Many organizations lease equipment such as copiers that are costly to own and maintain and where significant product improvements occur over time. *Managing Inventory* Every raw material, component, completed or partially completed product, and piece of equipment a firm uses---its **inventory**---must be accounted for, or controlled. There are three basic types of inventories.\ Finished-goods inventory includes those products that are ready for sale, such as a fully assembled automobile ready to ship to a dealer.\ Work-in-process inventory consists of those products that are partly completed or are in some stage of the transformation process.\ Raw materials inventory includes all the materials that have been purchased to be used as inputs for making other products.\ **Inventory control** is the process of determining how many supplies and goods are needed and keeping track of quantities on hand, where each item is, and who is responsible for it. Operations management must be closely coordinate