MGMT2150 Final Review Notes PDF

lOMoARcPSD|17301701 MGMT2150 - Final Review - All Chapters - Introduction to Canadian Business Management Introduction to Canadian Business Management (University of Guelph) Scan to open on Studocu Studocu is not sponsored or endo...

lOMoARcPSD|17301701 MGMT2150 - Final Review - All Chapters - Introduction to Canadian Business Management Introduction to Canadian Business Management (University of Guelph) Scan to open on Studocu Studocu is not sponsored or endorsed by any college or university Downloaded by Nadir Khan ([email protected])  lOMoARcPSD|17301701 UNIT 01 – CHAPTERS 1 & 2 THE PURPOSE OR GOAL OF BUSINESS A business is an organization that strives for a profit by providing goods and services desired by its customers THE ROLE OF GOVERNMENT IN PROTECTING AND REGULATING BUSINESS AS WELL AS ITS VARIOUS OTHER ROLES Governments are ○ - Tax agents ○ - Regulators (e.g. laws) ○ - Providers of essential services (e.g. national defence and transportation) ○ - Providers of incentives used to stimulate the economy (e.g. student loans) ○ - Customers and competitors. Could also mention: ○ - The federal government overseeing the well-being of Canada ○ - Provincial and territorial governments protecting rights ○ - Municipal governments delivering services THE IMPORTANCE OF THE FACTORS OF PRODUCTION FOR BUSINESS Factors of production are building blocks of business - labour, capital, entrepreneurship, knowledge, and natural resources GLOBAL ECONOMIC SYSTEMS INCLUDING THE MARKET ECONOMY, THE COMMAND ECONOMY, SOCIALISM AND MIXED ECONOMIC SYSTEMS market economy An economic system based on competition in the marketplace and private ownership of the factors of production (resources); also known as the private enterprise system or capitalism command economy the government owns virtually all resources and controls all markets by central-government planning; also known as planned economy and central planning. Socialism A social and economic system in which the basic industries are owned either by the government (educ., health and transp.) or by the private sector under strong government control. mixed economies Economies that combine several economic systems; for example, an economy in which the government owns certain industries, but the private sector owns others. MARKET STRUCTURES, INCLUDING PERFECT COMPETITION, MONOPOLISTIC COMPETITION, OLIGOPOLY, AND PURE MONOPOLY (a)perfect competition perfect (pure) competition large number of small businesses sell similar products, buyers and sellers have good information, and businesses can be easily opened or closed. (b)monopolistic competition A market structure in which many businesses offer products that are close substitutes and in which entry is relatively easy (c)oligopoly a few companies produce most or all of the output, and in which large capital requirements or other factors limit the number of companies. (d)pure monopoly single company accounts for all industry sales and in which there are barriers to entry. HOW DEMAND AND SUPPLY DETERMINE PRICE Demand The quantity of a good or service that people are willing to buy at various prices. Supply The quantity of a good or service that businesses will make available at various prices Equilibrium The point at which quantity demanded equals quantity supplied. UNIT 02 – CHAPTERS 3 & 5 SOCIAL FACTORS LIKE DEMOGRAPHICS, MULTICULTURALISM AND IMMIGRATION AND THEIR IMPACT ON BUSINESS Demographics: the study of people’s vital statistics, such as their age, gender, race and ethnicity and location - Helps companies define the markets for their products and also determines the size and composition of the workforce - Uncontrollable factor in the business environment and extremely important to managers Multiculturalism: the fundamental belief that all citizens are equal regardless of their racial or ethnic backgrounds - Canada was the world's first country to enact an official Multiculturalism Policy in 1971, later affirmed by the Multiculturalism Act in 1988 - If an organization fails to monitor the changing demographics of their customers, they will not be able to respond to theses changes and will likely lose sales Immigration - One initiative to encourage immigration is the increased use of migrant workers in canada - Immigrant communities are revitalizing cities and older suburbs that would otherwise be suffering from a shrinking tax base - The immigrants' links to their countries of origin are boosting Canadian exports to fast - growing regions, such as Asia and Latin America THE IMPORTANCE OF ETHICS IN THE WORKPLACE AND THE SOCIAL RESPONSIBILITY OF BUSINESSES Utilitarianism (seeking the best for the majority): a philosophy that focuses on the consequences of an action to determine whether it is right or wrong and holds that an action that affects the majority adversely is morally wrong - Nearly impossible to determine accurately how a decision will affect a large number of people Rights serve as guides when individuals make ethical decisions Downloaded by Nadir Khan ([email protected])  lOMoARcPSD|17301701 Human rights are conveyed at birth and cannot be arbitrarily taken away - Denying the rights of an individual or a group is considered to be unethical and illegal - Canadian Charter of Rights and Freedoms: Legislation that guarantees the rights and freedoms of Canadians Justice: what is considered fair according to the prevailing standards of society; in the 21st century, an equitable distribution of the burdens and rewards that society has to offer Stages of ethical development 1. Preventional ethics - A stage in the ethical development of individuals in which people behave in a childlike manner and make ethical decisions in a calculating, self-centered, selfish way, based on the possibility of immediate punishment or reward; also known as self-centered ethics 2. Conventional ethics - The second stage in the ethical development of individuals in which people move from an egocentric viewpoint to consider the expectations of an organizations or society; also known as social ethics 3. Postconventional ethics - The third stage in the ethical development of individuals in which people adhere to the ethical standards of a mature adult and less concerned about how others view their behaviour than about how they will judge themselves in the long run; also known as principled ethics How organizations influence ethical conduct - Employees often follow the example set by their managers - Organizations provide formal training for employees to help them develop an awareness of questionable business activities and practices appropriate responses - Code of ethics: a set of guidelines prepared by company to provide its employees with the knowledge of what the company expects in terms of their responsibilities and behaviour toward fellow employees, customers, and suppliers Social responsibility: the concern of businesses for the welfare of society as a whole; consists of obligations beyond those required by law or contracts - Is voluntary - Obligations of social responsibility is broad Neoliberalism: a set of economic policies that believes that the economy (and therefore social policy) should be market - driven, not government driven Responsibility to employees, customers, investors, supplies, governments, and society - To provide jobs for employees - Satisfy customers and deliver what is promised - Investors are putting emphasis on actions as the company is acting within its legal responsibilities and at times, doing more than the laws mandate - Companies to provide products or perform services - Corporations are responsible for accurately reporting their earning and fulfilling their tax obligations - Responsible for maintaining a sustainable development and being good stewards of the environment STAKEHOLDERS AND THEIR IMPACT ON BUSINESS DECISIONS Stakeholders: individuals, groups, or organizations to whom a business has a responsibility: employees, customers, suppliers, investors, and the general public Corporate governance: the way in which an organization is governed, directed and administered Stakeholders are looking at the corporate governance and control systems of businesses to ensure that they are being managed with the interests of the stakeholders in mind Stakeholders now require that companies be committed to minimizing environmental disruption and to contribute to the economic and social advancement of the communities in which they operate When a multinational makes an investment in a foreign country it should commit to a long-term relationship - Must involve all stakeholders in the host country in decision making Multinational corporations must balance conflicting interest of stakeholders when making decisions regarding social responsibilities Increase in expectation by stakeholders that businesses will be more socially responsible, the increase to acknowledge that fair trade is simply fair and an increase of business ethics ENTERING THE GLOBAL MARKETPLACE AND BARRIERS TO ENTRY Exporting: the practice of selling domestically produced goods to buyers in another country - Least complicated and least risky Licensing and Franchising: the legal process whereby a company (the licensor) agrees to allow another company (the licensee) to use a manufacturing process, trademark, patent, trade secret, or other proprietary knowledge in exchange for the payment of royalty - Relatively little risk - Franchising is a form of licensing that has grown rapidly in recent years - The licensor must make sure it can exercise sufficient control over the licensee’s activities to ensure proper quality, pricing, distribution etc. - Licensing might also create a new competitor, if the licensee decides to void the licence agreement - Common ways in which a licensor can maintain effective control over its license are by shipping one or more critical components from canada and by registering patents and trademarks locally in its own name Contract manufacturing: the practice in which a foreign company manufactures private label goods under a domestic company’s brand name - Marketing may be handled by either the domestic company or the foreign manufacturer - Advantage is it lets a company test the water in a foriegn country, does not have to maintain production service facilities, purchase raw materials or hire labour Downloaded by Nadir Khan ([email protected])  lOMoARcPSD|17301701 - Limited to the production of goods and services Joint ventures: a business agreement in which two or more businesses agree to pool their resources for a specific project of business venture - Quick and relatively inexpensive, but can be very risky - Many joint ventures fail - In a successful joint venture, both parties gain valuable skills from the alliance Direct foreign investment: active ownership of a foreign company or of manufacturing or marketing facilities in a foreign country - Receive the greatest potential reward but also face the greatest potential risk - Company may make an FDI by acquiring an interest in an existing company or by building new facilities - Help businesses avoid the communication problems and conflicts of interests that can arise with joint ventures Countertrade: a form of international trade in which part or all of the payment for goods or services is in the form of other goods and services ADVANTAGES AND DISADVANTAGES OF MULTINATIONAL CORPORATIONS Multinational Corporations: Corporations that move resources, goods, services, and skills across national boundaries without regard to the country in which their headquarters are located Advantages - Can overcome trade problems and have better access to customers - Control costs and are able to take advantage of tax variations - Shift production from one plant to another as market conditions change or situations warrant it - Can also tap new technology from around the world - Can often save a lot in labour costs, even in highly unionized countries Disadvantages - Political consideration: the political structure of a country can jeopardize a foreign producers success in the international ➔ Nationalism: a sense of national consciousness that boosts the culture and interests of one country over those of all other countries ➔ Strongly nationalistic countries often discourage investment by foreign companies - Cultural Differences ➔ values and roles have a tremendous effect on people’s preferences and thus on marketers’ options ➔ Language is an important aspect of culture - marketers must take care in selecting product names and translating slogans and promotional messages so as not to convey the wrong meaning ➔ Each country has its own customs and traditions that determine business practices and influence negotiations with foregin customers - Economic Environment ➔ Business opportunities are usually better in countries that have an economic infrastructure in place ➔ Infrastructure: the basic institutions and public facilities on which an economy’s development depends - Natural Barriers ➔ Can be physical or cultural ➔ Language differences ➔ Cultural differences ➔ Legal and regulatory differences - Tariff Barriers ➔ Tariff: a tax imposed on imported goods ➔ Protective tariffs: tariffs that are imposed to make imports less attractive to buyers than domestic products - Non tariff Barriers ➔ Import quota: a limit on the quantity of a certain good that can be imported; also known as a quantitative restraints ➔ Embargo: a total ban on imports or exports of a product ➔ Customs regulation: regulation on products that are different from generally accepted international standards ➔ Exchange controls: laws that require a company earning foreign exchange (foreighn currency) from its exports to sell the foreign exchange to a control agency, such as a central bank UNIT 03 – CHAPTERS 6 & 7 HOW SMALL BUSINESS CONTRIBUTE TO THE CANADIAN ECONOMY Small business: a business that is independently managed, is owned by an individual or a small group of investors, is based locally, and is not a domiat company in its industry Small business account for 98% of all employer business Small business employ 48% of the workforce Approx. 77.7% of all new jobs in the private sector economy were created by small business sector Over half of all small businesses are in 4 industry 1. Wholesale and retail trade 2. Construction 3. Professional, scientific and technical sales 4. Other services Why small business continue to thrive in Canada - Independence and a better life style - Personal satisfaction from work - Rapidly changing technology - Outsourcing - Major corporate restructuring and downsizing Small businesses are resilient. Downloaded by Nadir Khan ([email protected])  lOMoARcPSD|17301701 - Able to respond to fairly quickly to changing economic conditions by refocusing their operations THE OPPORTUNITIES AND CHALLENGES FACING OWNERS OF SMALL BUSINESSES Opportunities - Greater flexibility and an uncomplicated company structure allow small businesses to reach more quickly to changing market force - Product innovations can be developed and brought to market faster, using fewer financial resources and personnel than would be needed in a larger company - Operating efficiently keeps cost down - Can also serve specialized markets that may not be cost-effective for large companies - Opportunity to provide a higher level of personal service Challenges - Encounter difficulties in obtaining adequate financing - Complying with regulations is more expensive for small businesses - Starting and managing a small business requires a major commitment by the owner - Responsibility to hiring and managing employees - Must constantly evaluate company performance and policies in light of changing market and economic conditions and develop new policies are required - Must nurture a continual flow of ideas to keep the business growing - Types of employees may need to change as the company grows THE CHARACTERISTICS OF SUCCESSFUL ENTREPRENEURS Personality - Ambitious - Self confident Risk taking - Visionary - Creative - Energetic - Committed Managerial ability and technical knowledge - Technical knowledge to carry out their ideas and the managerial ability to organize a company, develop operating strategies, obtain financing, and supervise day to day activities - Good interpersonal and communication skills THE BASIC FRAMEWORK FOR ANALYZING A BUSINESS Determine competencies and competitive advantage - Important to understand what the company has to compete with at its most basic level - Core competence: a strength that it has, anything it can do well - Distinctive competence: a unique core competence, something that it can do better than the competition - Competitive advantage: a distinctive competence that consumers value and that it has the resource to exploit - Sustainable competitive advantage: a competitive advantage that can continue to exploit overtime as it is not easily duplicated Analyze the corporate level strategy - Understand its vision statement and mission statement ➔ Vision statement: a clear, concise picture of the company’s future direction in terms of its value and purpose that is used to guide and inspire ➔ Mission statement: a clear, concise articulation of how the company intends to achieve its vision - how it is different from its competition and the keys to its success - To determine the corporate level strategy, need to look at its line(s) of business and the nature of its subsidiaries and acquisitions - Important to analyze the relationship among the company’s business - Analysis should enable you to define the corporate strategy that the company is pursuing. Possibilities include: ➔ Concentration in one product, market or technology ➔ Integration vertically along the supply chain ➔ Integration horizontally with a similar business ➔ Growth through different combinations of product and market penetration or expansion Analyze the business level strategy - Outlines how the company has decided to compete in the business it has chosen to be in - Describes its competitive positions - the market, product and service emphasis it has chosen - Company may market different products by using different business level strategy - Important to identify the functional strategies the company uses internally to build competitive advantage to achieve its business level strategy - SWOT analysis will provide information on the company’s functional competencies ➔ But investigation is required regarding the company’s operations, marketing, or research and development strategy to gain a picture of where the company is going and if it makes sense - It is useful to look at Porter’s five forces model in the context of business level strategy ➔ Model will reveal threats to the company from the environment Analyze the structure and control system - Aim of this analysis is to identify what structure and control systems the company is using to implement its strategy and to evaluate whether the structure is the appropriate one for the company Make recommendations Downloaded by Nadir Khan ([email protected])  lOMoARcPSD|17301701 - Quality of the recommendation is a direct result of the thoroughness with which you have prepared the analysis - Recommendations from a SWOT analysis should be directed at solving whatever strategic problems the company is facing to increase its future profitability, directly or indirectly, through the success factors - Recommendations should be in line with your analysis - Important to make sure the recommendations are mutually consistent and are written in the form of an action plan TOOLS OF ANALYSIS INCLUDING SWOT AND PORTER’S FIVE FORCES SWOT analysis: a SWOT analysis looks at the Strengths and Weakness of the company itself and the Opportunities and Threats for the company in its external environment Analyzing the external environment - Porter’s FIve Forces: a model that focuses on the five forces that shape competition within an industry 1. The risk of new entry by potential competitors 2. The degree of rivalry among established companies within an industry 3. The bargaining power of buyers 4. The bargaining power of suppliers 5. The threat of substitute products - Industry life cycle model: a useful tool for analyzing the effects of an industry’s evolution on competitive forces 1. Introduction 2. Growth 3. Cost or shakeout 4. Maturity 5. Decline UNIT 04 – CHAPTER 9 & 10 THE PRIMARY FUNCTIONS MANAGERS PERFORM Management: the process of guiding and directing the development, maintenance, and allocation of resources to attain organizational goals -management is dynamic by nature and evolves to meet needs and constraints in the organization's internal and external environments Four key management functions/activities: 1. Planning 2. Organizing 3. Leading 4. Controlling Interdependent , usually performing more than one at a time Can help managers increase organizational: o efficiency (using the least amount of resources to accomplish the organization's goals (doing things right) and o effectiveness (ability to produce the desired results of good (doing the right things) Managerial Process: Designing plans to achieve company goals and objectives Coordinating and allocating the resources needed to implement plans Leading personnel through the implementation process-directing, guiding, and motivating people toward achieving the plans Reviewing results and making any necessary changes o Then cycle starts over again Leadership is connected to management- relationship between a leader and the followers who want real changes, resulting in outcomes that reflect their shared purposes -not all managers are good leaders -managers should learn to be good leaders - manage tasks and leading people by gaining commitment towards goals -leadership involves developing strategies for producing the changes needed to reach vision Planning- the process of deciding what needs to be done to achieve organizational objectives, knowing what is needed to accomplish these objectives , identifying how it will be done, and determining by whom it should be done -effective planning requires info about external environment, and internal 4 types of planning 1. Strategic- process of creating a long-range (1-5 years) broad goals for the organization and determining what resources will be needed to accomplish those goals ex. Attending graduate school after uni Formulated by top level managers and put into action by lower level, broad and general 2. Tactical- being implementation of strategic plan by addressing issues of coordination and allocation of resources to different parts of the organization , has a shorter time frame (less than one year) with more specific objectives Middle management, more specific 3. Operational- specific standards, methods, policies and procedures that are used in specific functional areas of the organization helps guide and control the implementation of tactical plans Current narrow and research focused -supervisory management , specific and concrete 4. Contingency- plans that identify courses of action for very unusual or unforeseen situations and simply when the assumptions on which the original plan is built do not hold true Downloaded by Nadir Khan ([email protected])  lOMoARcPSD|17301701 Top and middle management, both broad and detailed ***plans and goals at the tactical and operational level should support the organization's mission statement Organizing- the process of coordinating and allocating a company's resources to carry out its plan Managers can arrange the structural elements of the company to maximize the flow of information and the efficient of work processes by: Dividing up tasks (division of labour) Grouping jo and employees (departmentalization Assigning authority and responsibility (delegation) Managerial Hierarchy levels: -top management -small group of people at the head of the org (CEO, president) -develop strategic plans and address long range issues -represent company to other orgs and define values and ethics to set tone for employees -Middle management- design and carry out tactical plans (division heads, regional manager, plant manager, director) -Supervisory (operational management) - managers who design and carry out operational plans for the ongoing daily activities of the company (supervisor, team leader) -most people in the hierarchy, carry out ongoing daily activities and motivate/guide others who produce goods and services Leading- process of directing guiding, and motivating others toward the achievement of organizational goals -to be effective leaders, managers must influence others behaviour: Power- ability to influence others to behave in a particular way o 5 primary sources of power: 1. Legitimate power- derived from individuals position 2. Reward power- derived from an individual's control over rewards 3. Coercive power- individual ability to threaten negative outcomes 4. Expert power- individuals extensive knowledge in one or more area 5. Referent power- individuals personal charisma and the respect or admiration of the individual inspires Many leaders use a combination of these powers to influence others Leadership Styles Leadership style- the relatively consistent way in which individuals in leadership positions attempt to influence the behaviour of others Autocratic leaders-directive leaders who prefer to make decisions and solve problems on their own with little input from subordinates, narrow minded and unwilling to share power Info flows in one direction- manager to subordinate Ex. The military Participative (democratic, consensual, consultative) - leaders share decision making with group members and encourage discussion of issues and alternatives Goal is to make place where employees are passionately involved in their work o Democratic leaders- leaders who solicit input from all members of the groups and then allow the members to make the final decision through a vote- works with highly trained professionals o Consensual leaders- leaders who encourage discussion about issues and then require that all parties involved agree to a final decision- o Consultative leaders- leaders who confer with subordinates before making a decision but retain the final decision-making authority - helps increase productivity dramatically Free rein(laissez faire)- leadership style in which the leader turns over all authority and control to the subordinates Manager won't get involved unless asked and then just acts as a facilitator giving support or advice Used with highly trained professionals who are very competent o Can be negative If there are unclear expectations and lack of feedback from manager Manger may be perceived as being uninvolved and indifferent to what is happening *** NO ONE BEST STYLE OF LEADERSHIP - depends on situation and characteristics of employees THE DECISION-MAKING PROCESS Decision making occurs in response to the identification of a problem or an opportunity Managers make decisions in two categories: o Programmed decisions: decisions made in response to frequently occurring routine situations o Non-programmed decisions: responses to unseen, infrequent or very unusual problems and opportunities where the manager does not have a precedent to follow in decision making Two primary forms of decision making: analytical and creative Analytical (rational)- used when it is a programmed decision a. 4 steps Downloaded by Nadir Khan ([email protected])  lOMoARcPSD|17301701 1. Recognize/define problem or opportunity 2. Gather info and generate a list of potential alternatives 3. Evaluate and select one or more alternatives 4. Implement and evaluate the effectiveness Creative- used in a non-programmed situation a. 4 steps: 1. Problem or opportunity recognition 2. Incubation- unconsciously thinking about the situation 3. Illumination (insight) solution simply presents itself 4. Verify and implement THE IMPORTANCE CORPORATE CULTURE Corporate culture - set of attitudes, values and standards of behaviour that distinguishes one org from another Evolves over time and is based on accumulated history of the org, including the vision of the founders Also influenced by dominant leadership style Corporate culture seen in its heros, myths, symbols and ceremonies Managers must try to influence culture so it will contribute to company's success HOW LEADERSHIP AND MANAGEMENT DIFFER Similar to what is mentioned up in the first question THE PURPOSE OF AN ORGANIZATIONAL STRUCTURE AND HOW ORGANIZATION STRUCTURE VARIES AMONG FIRMS Purpose: Organizing function of managers involves coordinating and allocating a company's resources so that the company can carry out its plan and achieve its goals Organizing process is accomplished by: · Determining work activities and dividing up tasks (division of labor) · Groups jobs and employees (departmentalization) · Assigning authority and responsibilities (delegation) Division of Labour: Process of dividing work into separate jobs and assigning tasks to workers Formal organization: the order and design of relationships within a company; consists of two or more people working together with a common objective and clarity of purpose. Traditional structures are more rigid and group employees by function, products, process, customers or regions Contemporary and team-based structures: more flexible and assemble employees to respond quickly to dynamic business environments. Specialization: degree to which tasks are subdivided into smaller jobs · Highly specialized workers can result in greater consistency and efficiency in production but may employees become uninterested or bored DIFFERENT DEPARTMENTALIZATION TYPES COMMONLY FOUND IN ORGANIZATIONS Departmentalization: process of grouping jobs together so that similar or associate tasks and activities can be coordinated The different types of departmentalization types are functional, product, customer, geographical and process. Functional - individuals are grouped based on similar tasks and responsibilities. A company may have departments in Human Resource, Management, Accounting, & Technical. Product - individuals are grouped based on their involvement in a specific product/service It would be logical for Unilever, who sells Hellman’s mayonnaise, Vaseline, Dove, and Ben and Jerry’s, to use product organisation in its business. Customer - individuals are grouped based on the type of customer/clients they serve A civil engineering firm may service private and public organisations, and may need to be departmentalized for their differences. Geographical - individuals are grouped based on their customers in different geographical regions This type is beneficial for a multi-national company where the laws and policies, funding and taxes, and social trends may differ between countries. Process - individuals are grouped based on a specific process or procedure. Automotive car companies are often grouped by process. There are a variety of teams including design, testing, constructing, selling, etc. Most companies use a variety of departmentalization. It is important to ensure that all employees know their role and place within the business. HOW CENTRALIZED AND DECENTRALIZED ORGANIZATIONAL STRUCTURE DIFFER Degree of Centralization the degree to which formal authority is concentrated in one area or level of the organization Centralized Organisational Structure Top Down Authority, and consist of a chain of command, with all decisions stemming from a concentrated decision making individual or group usually the top management team. ○ Advantages Specific individuals are responsible for outcomes. All individuals in the business follow the same policies and procedures, this can cut costs and ensure all standards are met. Employees know exactly who to direct questions, concerns, and suggestions to. Downloaded by Nadir Khan ([email protected])  lOMoARcPSD|17301701 Employee roles and responsibilities are clear and concise giving structure to employees workday ○ Disadvantages Usually results in a slow decision process, which may affect workload. The lack of responsibility in employees may cause boredom or unmotivation and discourages initiative taking No opportunity for employees to share their thoughts on business improvement, potentially missing out on progressive ideas. Decentralized Organisational Structure Decentralization process of pushing decision-making authority down the organizational hierarchy Authority is pushed down lower to enable multiple individuals to make decisions on policy, procedures, next steps, etc. ○ Advantages Team environment, leads to a broader range of input and improved idea and solution creation All employees, regardless of level, are empowered to make decisions, which can increase loyalty and commitment from employees. ○ Disadvantages Top Management have less control and must forfeit certain decisions to workers who may not be as experienced Employees with varying values than the organisation may disrupt the progress of completing the company’s mission The employees must have the skills and knowledge to make the right decisions A solid foundation is require so new companies may not be able to employ this structure Downloaded by Nadir Khan ([email protected])  UNIT 3 MANAGEMENT AND ORGANIZATION Chapter 6 Management: the process of coordinating people and other resources to achieve the goals of an organization 1. Material Resources - tangible, physical resources 2. Human Resources - employees * may be the most important 3. Financial Resources - funds used to meet obligations to investors and creditors 4. Informational Resources - economic changes and external forces Management Functions I) Planning Establishing organizational goals and deciding how to accomplish them - Mission: a statement of the basic purpose that differentiates an organization - Strategic Planning: the process of establishing an organization's major goals by allocating the resources to achieve them - Goal: an end result that an organization expects to achieve in a 1-10 year period - Objective: a specific statement detailing what the organization intends to accomplish over a shorter period of time - Optimization: balancing conflicting goals II) Organization Grouping of resources and activities to accomplish an end result efficiency III) Leading and Motivating - Leading: the process of influencing people to work toward a common goal - Motivating: the process of providing reason to work in the best interest of the organization - Directing: a combination of leading and motivating IV) Controlling The process of evaluating and regulating ongoing activity to ensure goals are achieved Steps: 1. Setting Standards 2. Measuring Actual Performance 3. Taking Corrective Action PLANNING Planning: establishing organizational goals and determining how to accomplish them Plan- an outline of the actions by which an organization intends to accomplish its goals and objectives Strategic Plan- the broadest plan ex major policy setting and decision making - Set by the board of directors and top management  - Generally designed to achieve long term goals of the organization - Defines what business the company is in Ex deciding to expand and diversify its main business units and accomplish this by dividing executive teams for various types of products Tactical Plan- a smaller scale plan developed to implement a strategy - Most occur in a 1-3 year period - May have multiple over the duration of a strategic plan, an may be updated periodically Ex acquiring a research technology to focus on faster growing, higher margin business Operational Plan- a plan designed to implement tactical plans - Established for Wider span= flatter height -> Narrow span, more levels required= taller height Taller height: - Administrative costs are higher - More managers required - Communication may become distorted Chain of Command- Line Management Position: a position in which a person makes decisions and gives orders to subordinates Line Authority: making decisions relating to the organization’s goals Staff Management Position: a position created to produce support, advice and expertise to someone in the chain of command *not part of the chain of command but have authority over their assistants Advisory Authority: the expectation that line managers will consult the appropriate stagg manager when making decisions Functional Authority: of staff managers to make decisions about the areas of their expertise - Ex a legal advisor can divide whether or not to retain a particular clause in a contract but not product pricing - Often have more formal education, younger in age Forms of Organizational Structure 1. Bureaucratic System: a management system based on formal framework of authority that is outlined carefully and followed precisely - High level of job specialization - Departmentalization by function - Formal patterns of delegation - High degree of centralization - Narrow spans of management - tall organization - Clearly defined line and staff positions with formal relationships between Ex government agencies, colleges, postal service  - Guarantee uniform treatment - Lack of flexibility- some organizations may find it does not keep up with the dynamic and complex business environment of today 2. Matrix Structure: combines both vertical and horizontal lines of authority, occurring when product departmentalization is superimposed on a functionally departmentalized organization - Authority flows both down and across Cross functional team: consists of individuals with varying specialties, expertise and skills brought together to achieve a goal - Can be temporary or permanent - Employees have >1 supervisor - Develops a sense of cohesiveness and good communication - Adds flexibility, productivity, morale, innovation and creativity - May cause confusion, tension between employees, higher costs 3. Cluster: (team/collaborative) a type of business that consists of teams with no or very few underlying compartments - Team members work together on a project until completion, determined by the needs of the organization - Flexibility to try new things and techniques - Increased stress due to continuous, spontaneous change 4. Network: (virtual) administration is the primary function, and other functions are contracted out to other organizations - Usually does not manufacture the products sold - Few permanent employees (top management and some clerical workers) - Limited formal structure - Allows quick adjustment to changes - May have issues controlling quality of work performed by other organizations - vulnerability Corporate Culture: the inner rites, heroes and values of a firm Has influence on how employees think and act, and determines public perception of the organization Types - Networked: base of trust and friendship among employees with a strong commitment to the organization and an informal environment - HIGH sociability - Mercenary: feelings of passion, energy, purpose and excitement for one’s work, with a culture of intense, focused determination - Fragmented: employees do not become friends- they work at the organization not for it. High degree of autonomy, flexibility, and equality - LOW sociability - Communal: combines positive traits of friendship, commitment, high focus, performance and energy Trust- important for growth, profit, productivity, job satisfaction, retention of employees, customer loyalty, development of new markets and increase of creativity Intrapreneur: an employee who pushes an innovation through an organization Committees 1. Ad Hoc Committee: created for specific, short term purposes, then disbands 2. Standing: a relatively permanent committee charged with performing a recurring task 3. Task Force: a committee established to investigate a major problem/pending decision Informal Organization: a pattern of behaviour and interaction that stems from personal relationships rather than official ones - Informal groups: greeted by group members themselves - Can restrict output, help managers - Grapevine: the informal communications network within an organization Chapter 8 Managers 1. Financial - accounting, interest rates, economic state 2. Operations - sales levels, inventory, availability 3. Administrative - overall management 4. HR - employees, wages etc 5. Marketing - products and competitors, promotions Collecting Data - INTERNAL - Manager and employee sources - Company records, reports etc - Transactions with customers, creditors and suppliers - Sales reports - HR records - EXTERNAL - Customers, suppliers, bankers, trade and financial publications, industry conferences, online computer services, government sources, external firms - Forecasts for product demand, consumer tastes, other marketing variables - Suppliers can provide information on the future availability and costs of raw material - Projections - Trade publications - Legal issues and court decisions ** 1. Cost of obtaining data from external sources ex marketing research firms, can be high 2. Outdated or incomplete data can yield inaccurate information 3. People who use computers can make or cause errors Storing Data- a management information system must be capable of storing data regularly to ensure that information presented to managers/employees is accurate, complete and up to date Processing Data- to extract, highlight or summarize the information contained in data - The TRANSMISSION of data into a form that is useful for a specific purpose Verbal Data- extracting pertinent material from storage and compiling into a report Business Data- data can be summarized in the form of statistics Statistics: a measure that summarizes a particular characteristic of a population (#’s) Presenting Information- the MIS must be capable of presenting information in the appropriate form - Usable  Verbal information- may be presented in list or paragraph form Formal Business Reports (employees) 1. Introduction - outlines the problem studied, research techniques, previews material to be presented 2. Body of report - objectively describes the facts that were discovered in the process of completion. Provides a foundation for the conclusions and recommendations 3. Conclusions - describe the findings contained in the report 4. Recommendations - present suggestions on problem resolution Conclusion and recommendations should be: - Specific - Practical - Based on evidence Visual Displays - Graphs - Bar charts - Pie charts Tabular Displays - presents verbal or numerical information in columns and rows - Most useful for 2+ related variables - Usually have less of an impact than visual displays Decision-Support System (DSS)= a type of computer program providing relevant data and information to help EMPLOYEES make informed decisions - Ex can be used to determine prices for new homes built in an upscale subdivision Enter the number of homes that will be built, along with costs, land, labour, material, permits etc Executive Information System (EIS)= a computer based system facilitating and supporting decision making needs of TOP MANAGERS and SENIOR EXECUTIVES by providing access to internal and external information - Needed data and information can be displayed in graphs, charts, spreadsheets Expert System= a type of computer program using artificial intelligence - Based on information supplied, the AI can analyze a particular activity and provide recommendations or suggestions for decision making Communication - Employees GROUPWARE= a type of software facilitating the management of large projects among geographically dispersed employees  - Ex problem solving and brainstorming COLLABORATIVE LEARNING SYSTEM= a work environment that allows problem solving and participation by all team members - Post a question or problem to the groupware site, inviting all members who may be located anywhere, to submit responses Customer Relationship Management (CRM)- focuses on the special informational needs of sales personnel - Ex organized databases with names of clients, information on orders, sales, opportunities etc Recruiting + Training Employees ->Cost of organizing and processing information can be high -- software can reduce this expense Integrated Software- combines many functions in a single package - Linking of text, numerical data, graphs, photos, audiovisual data Ex. Improving Productivity via: Word processing, desktop processing, accounting, database management, graphics, spreadsheets Computers and Networks- Obtaining Information The Internet- worldwide network linked through telecommunications WWW- the internet’s multimedia environment of data Internet Service Provider (ISP)- provide connections to the web - Digital Subscriber Lines (DSL)- carry larger amounts of data at quicker transfer speeds - Broadband technology- higher speed internet connections delivering data, and material INTRANET= smaller version of the internet used within a firm’s computer network Utilizes customized web pages to find internal and external information - Internal - policy documents, customer warranties, company designed courses - Usually protected Wide-Area Network (WAN)= network that connects computers over a large geographical area (city, state etc) - The most common is the internet - Can provide private corporate networks (virtual private networks, VPN) - Can also provide research networks Local-Area Network (LAN)= connects computers in close proximity to each other - Enable sharing of files, applications, information etc - Allow users to connect to the internet Uniform Resource Locator (URL)- acts as an address to locate a specific website  Web Browser- a software that helps users navigate around the internet and connect HyperText Transfer Protocol (Http) E-Business= the organized effort of individuals to produce/sell for profit, the products and services that satisfy society’s needs through the facilities available on the internet 1. Theme 2. How much information 3. Layout 4. Graphics 5. Material for each page 6. Plans to update 7. Ease of use The Cloud- a third party processing power, applications, databases and storage available for use on demand from anywhere via the internet - Benefits- firms do not need to worry about upgrading applications to deal with load, storage E-Business and Resources - Human Resources - Website designers, programmers and web masters - Material - Computers - Software - High speed internet connection lines - Informational - Customer tracking systems - Order fulfillment and tracking systems - Online content-monitoring systems - Financial - Investor support - Electronic payment from customers OUTSOURCING= the process of finding outside vendors and suppliers that provide services/products at a lower cost Assumptions - Internet - The internet has created new customer needs - E-businesses can satisfy those needs, as well as traditional ones Benefits - Allow user access to sourcing at a time convenient to them - Opportunity for 2 way interaction between online programming and the viewer  - Response opportunity to programming by requesting more information about a product- may lead to repurchase - Allows customers to choose content offered E-Business Profit Revenue Stream= a source of revenue flowing into a firm Goal: to reach new customers and generate new sales such that TOTAL REVENUES are increased - Using Intelligent Information Systems - Targeted ads etc Reducing Expenses - - Providing demanded information reduces need for customer interaction - Maintenance of physical locations is eliminated BUSINESS MODEL - represents a group of common characteristics and methods of doing business to generate sales revenue and reduce expenses E-Business Models: 1. Business-to-Business Model (B2B)- Firms that conduct business with other businesses - Focus is on facilitating sales transactions between businesses Ex dell manufactures computers to specifications entered on the website- usually well informed clients with clear demands for products??? - Reduced storage and carrying costs - rarely unsold inventory - Customers eliminate need for dealing with wholesalers and retailers - reducing equipment costs 2. Business-to-Consumer Model (B2C)- Firms that focus on conducting business with individual consumers - Firms must address: - Will consumers use websites to simplify and speed up comparison shopping - Will they purchase goods and services online - What types of products are best suited online - Which products are not good choices for this stage of online development - Often attempt to build long-term relationships with their customers - special attention, personalized and analyzed data as an investment for customers 3. Advertising E-Business Model- ads are displayed on a firm’s website in return for a fee 4. Brokerage E-Business Model- buyers and sellers are brought together to facilitate exchange of goods and services Ex Ebay  5. Consumer-to-Consumer- Peer to peer software that allows individuals to share information over the internet 6. Subscription and Pay-per-View Model- Availability is only gained to users who pay a fee Forces Affecting E-Business INTERNAL ENVIRONMENTAL- those that are closely associated with the actions and decisions taking place within a firm - Planning activities - Organizational structures - Human resources - Management decisions - Information database - Available financing - Are more likely to be under direct management control EXTERNAL ENVIRONMENT- forces affecting e-business planning that originate outside the organization - Globalization - Demographic factors - Society - The economy - Competition - Technology political forces - Legal issues - Are less likely to be controllable by an e-business firm CHAPTER 17 USING ACCOUNTING INFORMATION Accounting- the process of systematically collecting, analyzing and reporting financial information Considering - How much PROFIT the firm earned in the last year - How much TAX the business owes the IRS (Internal Revenue Service) - How much CASH does a business have on hand  Accounting Practices can Impact - Appearance to Wall Street Analysts and Investors - Drops in financial numbers can drop the company’s stock value Audited Financial Statements- an examination of a company’s financial statements and the accounting practices that produced them - Ensures that the statements have been prepared in accordance with the Generally Accepted Accounting Principles (GAAP) “In our opinion, the financial statements... present fairly, in all material respects... in conformity with generally accepted accounting principles.” - Indicates overall that the company has followed GAAP Which bankers, creditors, government agencies and investors are willing to rely on for ethical reputation SARBANES-OXLEY ACT 2002 1. SEC is required to establish a full-time 5-member federal oversight board that will police the accounting industry 2. Chief executive and financial officers are required to certify periodic financial reports, and are subject to criminal penalties for violations of securities reporting requirements 3. Accounting firms are prohibited from providing many types of non-audit and consulting services to the companies they audit 4. Auditors must maintain financial documents and audit work papers for 5 years 5. Auditors, accountants and employees can be imprisoned for up to 20 years for destroying financial documents and will violations of the securities laws 6. A public corporation must change its lead auditing firm every 5 years 7. There is added protection for whistleblowers who report violations under the C-SOA Users of Accounting Information - MANAGERS Top managers are interested in total sales, national sales, figures and other relevant information - Information is proprietary: Not divulged to anyone outside the firm - Only used by the firm’s employees and managers to set goals, organize, lead, motivate and control etc - Non proprietary information: Supplied to the public - LENDERS Require information in order to commit themselves to short term or long term loans  - SUPPLIERS Provide raw materials, component parts or finished goods will require information before they extend credit to a firm - STOCKHOLDERS/POTENTIAL INVESTORS Concerned not only about a company’s current financial health, but also about financial risk associated with an investment in its stock - GOVERNMENT AGENCIES Require information on the firm’s tax liabilities, payroll deductions, new issues of stocks and bonds Types of Accounting 1. Managerial - provides managers and employees with the information needed to make decisions about the firm’s financing, investing and operating activities 2. Financial - generates financial statements and reports for public interest Typically used by: - Financial analysts - Stockholders - Bankers - Creditors - Suppliers - Government agencies 3. Cost - determining the cost of production 4. Tax - planning tax strategy and preparing returns for firms/individuals 5. Government - providing basic services to ensure that tax revenues are collected and used to meet the goals of the crown 6. Non-profit - accounts for all non profit donations and expenditures Characteristics of Accountants - Responsible, honest, ethical - Strong background in financial management - Knowledge in computer and software to process data into accounting information - Be able to communicate accounting information PRIVATE ACCOUNTANTS - employed by a specific organization, and often has multiple tasks (medium and large firms) PUBLIC ACCOUNTANTS - employed by smaller firms and self-employed business owners Work on a fee basis for clients and may be self employed or be the employee of an accounting firm - Certified Public Accountant (CPA): an individual who has met certain qualifications enabling public work - Regulation, taxation, business law and professional responsibilities - Auditing - Business environment and concepts  - Financial accounting and reporting - Planning and preparing tax returns - Determining true cost of production - Marketing a firm’s goods or services - Compiling the financial information needed to make major management decisions - Certified Management Accountant (CMA): an accountant who has met education/experience requirements, passed a rigorous exam and is certified by IMA - More likely to work within a large organization Assets- resources owned by a business Liabilities- the firm’s debts Owner’s Equity- the difference between total assets and total liabilities ACCOUNTING EQUATION: ASSETS = LIABILITIES + SHAREHOLDERS’ EQUITY - Assets must equal the sum of liabilities and equity - A firm’s accountants must record raw data using the DOUBLE ENTRY BOOKKEEPING SYSTEM Double Entry Accounting: A system in which each financial transaction is recorded as two separate accounting entries to maintain the balance shown in the accounting equation The Accounting Cycle (the first 3 are performed on a regular basis- the final 2 are performed at the end of the accounting period) 1. Analyzing Source Documents - Source Documents: receipts, invoices, sales slips, other documents that show the dollar amounts of transactions - Determines which accounts are affected by the documents and how they are affected 2. Recording Transactions - Each financial transaction is then recorded in a JOURNAL - In the firm’s general journal or specialized journal - Recorded in order of occurrence - May be recorded for frequent transactions of a specific type 3. Posting Transactions - Information recorded in the journal is posted to the GENERAL LEDGER - A book of accounts containing a separate sheet/section for each account 4. Posting the Trial Balance - TRIAL BALANCE: a summary of the balances of all general ledger accounts at the end of the accounting period - Determine all the balances for all ledger accounts at the end of the accounting period  - The accountant can prepare the final financial statements if the information is correct and the accounting equation is still in balance - Mistakes must be corrected before proceeding 5. Preparing Financial Statements and Closing the Books - Information in the trial balance is transferred to the financial statements - Standardized format - Prepared at least ONCE A YEAR in the firm’s ANNUAL REPORT - A report distributed to stockholders, describing the firm’s operating activities and its financial condition - Most have financial statements prepared semi-annually or quarterly - CLOSING - Once statements are prepared and checked, they are closed and a post closing trial balance is prepared - Generally prepared after all the accounting work is completed for that period - Accounting equation must still be in balance - Then a new accounting cycle can commence BALANCE SHEET (statement of financial position) - a summary of the dollar amounts of a firm’s assets, liabilities and shareholders’ equity accounts at the end of a specific accounting period - Demonstrates the accounting equation ASSETS- listed in order of liquidity (most to least)- ability to be converted into cash - Current Assets: assets that can be converted into cash used COST OF GOODS SOLD = Beginning Inventory + Net Purchases (-discounts) - Ending Inventory ->GROSS PROFIT = Net Sales - Cost of Goods Sold EXPENSES Operating - business costs other than the COGS, expenses incurred in normal business operations - Selling Expenses: costs related to the firm’s marketing activities - General Expenses - costs incurred in managing a business - Ex Selling - Sales salaries, promotions - Advertising  - Depreciation on store and delivery equipment - Ex General - Office salaries - Rent - Depreciation on office furniture and supplies - Utilities, insurance expense Ex other - Interest expense (financial) - Federal income taxes Net Income- when Revenues exceed Expenses Net Loss- when Expenses exceed Revenues -> Net Income = Gross Profit - Total Operating Expense STATEMENT OF CASH FLOWS - illustrates how investing, operating and financing activities of a company affect cash flow during an accounting period OPERATING ACTIVITIES (1st Section) - addresses the primary revenue source of providing goods and services - Subtract amounts paid out to suppliers, employees, interest, tax - Add dividends and interest received INVESTING ACTIVITIES (2) - addresses the purchase and sale of land, equipment and other assets and investments FINANCING ACTIVITIES (3) - reports changes in debt obligation and owners’ equity accounts - Loans and repayments - Sale and repurchase of the company’s own stock - Cash dividends - Add these 3 sections to the beginning cash balance = ending cash balance Evaluating Financial Statements Within a Firm - Income statement can identify profitability of a company - Letters from the chairman and CEO can describe the operations, future prospects, new products, strengths and potential problems of a firm - Comparing current and past income statements/balance sheets can help identify trends with sales, expenses, profits, losses, assets, liabilities, equity etc - Footnotes can contain and hide important information about finance information - Financial ratios are useful for determining efficiency and strengths etc Financial Ratios - A number that shows the relationship between 2 elements of the balance sheet or income statement - Profitability Ratios - Short Term Financial Ratios - Activity Ratios - Debt-to-Owners’-Equity Ratio PROFITABILITY RATIOS - 1. Return on Sales = Net Income After Taxes / Net Sales Indicates how effectively the firm transforms sales into profits - Higher is better - The average is 4-5% - Can be increased by reducing expenses, increasing sales, or both 2. Return on Owners’ Equity = Net Income After Taxes / Owners’ Equity Indicates how much income is generated by each dollar of equity - Higher is better - The average is 12-15 cents - Can be increased by reducing expenses, increasing sales, or both 3. Earning Per Share = Net Income After Taxes / Common Stock Shares Outstanding This is the most meaningful indicator of success for shareholders - Increase in earnings per share is generally healthy for any corporation SHORT-TERM FINANCIAL RATIOS (think Current) 1. Working Capital = Current Assets - Current Liabilities 2. Current Ratio = Current Assets / Current Liabilities Can be INCREASED by: - Paying off current liabilities - Reducing dividend payments to stockholders (increases cash) - Obtaining additional cash from investors 3. Acid-Test Raio (Quick Ratio) = (Cash + Marketable Securities + Receivables) / Current Liabilities A measure of the firm’s ability to pay current liabilities quickly - Desrible ratio = 1.0 ACTIVITY RATIOS 1. Accounts Receivable Turnover = Net Sales / Accounts Recceivable Measures the number of times AR are colelcted in one year (usually using credit sales) - High is best 2. Inventory Turnover = COGS / Average Inventory Meausres the number of times merchandise inventory is sold in one year 3. Debt-to-Owners’-Equity Ratio = Total Liabilities / Owners’ Equity Indicates borrowing and how much debt a firm may have  Financial management consists of all activities related to generating and raising money and using it effectively. Financial managers must ensure that funds are available when needed, they are obtained at the lowest possible cost, and they are used as efficiently as possible. A financial plan is necessary to secure money and properly allocate the funds needed to implement an organization’s strategic and operational plans. To create a financial plan, a company must translate its strategic and operational plans into dollar costs. Funding options fall into two basic categories, debt or equity financing. Each has characteristics that make it more appropriate for certain situations than others. Typically, short-term debt financing is money that will be repaid within one year. A company seeking short-term financing has three common alternatives: trade credit, unsecured loans, and secured loans. Sources of long-term financing vary with the size and type of business. The three primary sources of long-term financing are long-term loans (loans from commercial banks and other financial institutions that must be repaid with interest), corporate bonds (long-term debt obligations issued by corporations that promise to make payments over a specified period), and company stock (shares of ownership in a company that can be sold to investors). Before making specific investment choices, you must assess your investment situation. The four common factors that will influence your choice of investments are: 1) Investment horizon, 2) Risk tolerance, 3) Liquidity needs, and 4) Asset allocation goals. Common investment goals are capital preservation, income, growth, diversification, and speculation. To calculate rate of return, divide the dollar amount of the investment gain or loss by the original amount invested CHAPTER 18 UNDERSTANDING MONEY. BANKING AND CREDIT Banks, savings and loans association - a place to deposit or loan money - DEPOSIT You receive interest - BORROW You pay interest - Can be of future sales revenue (firm) - Can be of salary (individual) Functions of Money 1. Medium of exchange - anything accepted as payment for goods and services 2. Measure of Value - common denominator 3. Store of Value - retaining and accumulating wealth Characteristics of Money 1. Divisibility - must be able to accommodate smaller purchases, as well as large ones 2. Portability - small and light enough to be carried easily 3. Stability - should retain its value over time 4. Durability - strong enough to last reuse 5. Difficulty of counterfeit - hard to reproduce or imitate Supply of Money Demand Deposit - an amount on deposit in a chequeing account - Claimed immediately and on ‘demand’ Time Deposit - an amount on deposit in an interest bearing savings account - Include - Government securities - Money market mutual fund shares - Cash surrender values - insurance policies 1. M1 - Currency - Demand deposits - Traveler’s checks 2. M2 - Savings accounts - Certain money market securities - Small denomination time deposits - Certificates of deposit further deposits - Controlling money supply has potent and far reaching effects Deposit Multiplier = 1 / Reserve Ratio Discount Rate - interest rate set by the central bank for loans to member banks - Set by the Board of Directors for each period - LOWERING the discount rate It becomes easier and cheaper for banks to obtain money - RAISING the discount rate - Banks begin to restrict loans - Increases interest rates Open Market Operations - buying and selling of national securities - SELLING will REDUCE the money supply - BUYING will INCREASE the money supply Federal Funds Rate - the Interest Rate at which a bank lends immediately available funds on deposit at the Fed of another bank OVERNIGHT in order to meet their reserve requirements Controlling the Money Supply 1. Reserve Requirement - Increasing the reserve requirement = reduction in supply - Less money for banks to lend - Decreasing the reserve requirement = increase in supply - More money for banks to lend 2. Discount Rate - Increasing the discount rate = reduction in supply - Less money for banks to lend - Decreasing the ediscosunt rate = increase in supply - More money for bans to lend to customers 3. Open-Market Operations - Selling government securities = reduction in overall money supply - Buying government securities = increase in overall money supply  *overall, increasing supply stimulates economic activity BANK OF CANADA - a central bank providing banking services on behalf of the federal government 1. Manages the country’s money supply 2. Act as the federal government’s agent in issuing bonds and managing its holdings of foreig currencies 3. Manage various monetary policies that can influence the performance of the economy - Interest rates - Money supply - Moral suasion 4. Manage the overall financial industry in Canada and economic relations with other countries and international organizations Fed Responsibilites (American?) - Serving as a government bank - Clearing checks and electronic transfers - Inspection of currency - Selective credit controls MARGIN - the minimum amount of the purchase price that must be paid in cash or eligible securities (the remainder can be borrowed) - The difference between the selling price and the cost of a product or service Economic Problems - The ability to borrow money becomes more difficult - Individuals are worried about losing their jobs - Businesses are worried about sales revenues and losing money - Reluctance to borrow more money - Lenders may tighten requirements for borrowers - they want to be repaid COMMERCIAL BANKS - profit making organizations that accept deposits, make loans and provide services to customers Goal: to meet needs of its customers while earning a profit - Accepting money in the form of deposits - Lending that deposited money to borrowers who pay interest - Income that is greater than expenses will gain a profit - They are heavily regulated (they deal with individuals rather than business firms) Must meet certain requirements before receiving a charter, or permission to operate NATIONAL BANK - a commercial bank chartered by the federal government which must conform to federal banking regulations, and are subject to unannounced inspections by federal auditors SAVINGS AND LOAN ASSOCIATIONS (S&L) (Thrift Institution) - a financial institution that offers checking and savings accounts, and CDs that invest most of its assets in home mortgage and other consumer loads - Basically, they accept savings deposits and make mortgage loans and other loans CREDIT UNIONS - a financial institution that accepts deposits, and lends money to only those that are its members - Membership includes that of the employees of a specific firm, or people of a profession, members of a community - May pay higher interest on deposits than other options, and may provide loans at a lower cost Other Banking Activities 1. Mutual Savings Banks - financial institutions that are owned by the depositors and offer many of the same services as other financial institutions - Can fund mortgages, commercial and consumer loans - Profits of a mutual savings bank are distributed to the depositors in the form of DIVIDENDS, or a slightly higher interest rate on savings 2. Insurance Companies - provide long term financing for office buildings, shopping centres and other commercial real estate projects throughout the US. - Funds for this type are obtained from policyholders’ insurance premiums 3. Pension Funds - established by employers to guarantee their employees a regular monthly income after retirement - Contributions to this fund may come from the employer, employee or both - Can earn additional income through conservative investments in corporate stocks, bonds and government securities - Can also come from financing real estate developments 4. Brokerage Firms - offer combination saving and chequeing accounts that pay higher than usual interest rates (money markets) 5. Finance Companies - provide financing to individuals and business firms that may not be able to get financing from banks, S&Ls, or credit unions - Provide loans to both individuals and business firms - Can provide short term loans to individuals - Interest rates charged may be higher than interest rates elsewhere 6. Investment Banking Firms - organizations that assist corporations in raising funds - Usually by assisting them sell new issues of stock, bonds and other securities - They do not accept deposits or make loans - Help companies raise millions Banking Traits - Honesty - Customer interaction and service skills - Accounting background - Appreciate the relationship between banking and finance - Basic computer skills ACCOUNTS Checking - firms and individuals deposit money (demand deposits) into these accounts so that they can write checks to pay for purchases - Check - a written order for a bank or other financial institution to pay a stated dollar amount ot the business for that person on the face of the check - Fees and monthly charges for business accounts are generally higher than that of individual accounts NOW (negotiable order of withdrawal) - interest paying checking accounts - Usual interest rates vary - A minimum balance before any interest is paid - Monthly fees for accounts falling below a certain balance - Restrictions on the number of checks writted/transactions Saving - provide a conservative and safe store of money and investment - Passbook savings account - commercial banks > so far CERTIFICATE OF DEPOSIT (CD) - a document stating that the bank will pay the depositor a guaranteed interest rate on money left on deposi for a specified period of time - Depend on how much in invested and for how long - Longer the period of time until maturity, the higher the rate - Early withdrawal will be penalized Loans - Short term business loans: must be repaid in one year or less - Uses - Solving cash flow problems - Purchasing inventory - Financing promotional needs - Meeting unexpected emergencies - LINE OF CREDIT: a loan that is approved before the money is actually eeded - Necessary paperwork is completed and the loan is preapproved - the business will have no problems obtaining the money later when required - Sometimes this may not even be possible if the bank does not have the funds available - REVOLVING CREDIT AGREEMENT: a guaranteed line of credit  - Long term business loans: repaid over a period of years (usually 3-7) - Uses - Finance expansion of buildings, facilities - Mergers and acquisitions - Replacement of equipment - Product development - Most lenders require COLLATERAL: real estate or property (stocks, equipment, assets etc) pledged as security for a loan - Repayment terms and interest rates are arranged by the borrower and lender - Businesses can be monthly, quarterly, semiannual, annual Credit Card Transactions - a short term line of credit extended to the user FINANCE CHARGES: charges placed on failure to repay the credit account Debit Card Transactions - electronically subtracts the amount of your purchase from your bank account at the moment of purchase Changes in the banking industry - More emphasis on evaluating creditworthiness of loan applicants - Increase in government regulation - Reduction in the number of institutions - Globalization of the banking industry - Importance of customer service - Increased use of credit and debit transactions - e transfers - Increased competition from nonbank entities that provide similar servies - Continued growth in online banking Online Banking Advantages: - Ability to obtain current account balances - Convenience of transferring funds between accounts - Ability to pay bills - Convenience of seeing cleared checks - Accessibility to current interest rates - Simplified loan application procedures Electronic Funds Transfer (EFT) - a means of performing financial transactions through a computer terminal or telephone  1. Automatic Teller Machines (ATM)- an electronic bank teller that provides almost any service of that institution Dispenses cash from the customer’s checking or savings account, or makes a cash advance charged to a credit card 2. Automated Clearinghouses (ACH)- designed to reduce the number of paper checks - Process checks - Recurring bill payments - Social security benefits - Employee salaries Large companies can transfer wages and salaries directly into employee bank accounts - eliminating the need for individual checks 3. Point-of-Sale (POS) Terminals - a computerized cash register connected to a bank’s computer Credit and debit information is input and the central processing centre notifies the bank computer - Amounts are either added or deducted based on transactions - Amount of purchase is added to the store account - Prints receipt Electronic Check Conversion- a process used to convert information from a paper check into an electronic payment for merchandise - Completed check is given to the clerk - It is processed through an e-system that captures the banking information, and dollar amount on the check - Sign the receipt - You receive a void check - Funds are transferred into the business firm’s account Bouncing Checks - insufficient funds in the account can lead to additional fees International Banking Services - extremely important for international business LETTER OF CREDIT- a legal document issued by a bank or financial institution guaranteeing to pay a seller a stated amount for a specific period time (usually 30-60 days) BANKER’S ACCEPTANCE- a written order for a bank to apy a third party a stated amount of money on a specific date - An order to pay without any strings attached - Both are methods of paying for import and export transactions - Alternatively, EFT can be utilized internationally as well Bank Currency-Exchange Service - the bank will exchange international currencies to complete the interaction Federal Deposit Insurance Corporation- insures deposits aagainst bank failures Restored confidence after the great depression in the banking industry - Economic Stabilization Act (2008) - deposits maintained in difference categories of legal ownership are insured separately - Single (individual) ownership - Joint Ownership - Retirement - Another method is to deposit at several different banking institutions - Works by receiving premiums from banks and S&Ls - Depends on - Amount of insured deposits - Degree of risk to insurance fraud - Also available for credit unions (National Credit Union Association) CREDIT - immediate purchasing power that is exchanged for a promise to repay borrow money, without interest, at a later date Reasons - Customers cannot afford to make some purchases in full, but can repay in smaller increments - Firms are forced to sell goods or services on credit to compete effectively with other firms - Firms can realize a profit from interest charges on borrowers Loans Questions - What is the loan going to be used for? - Can the applicant repay the loan as scheduled? Business Applications for Loans - Develop a relationship with the banker - Apply for a pre-approved line of credit - Prepare CPA financial statements and business tax returns for the last 3 years - Personal financial statements and tax returns for the saame period - Update your business plan and include sales estimates and realistic projections - Write a cover letter outlining the experience, operations and information you have 5 C’s of Credit Management 1. Character - the borrower’s attitude toward credit obligations Promptness, history of overdue notices, court notices, filings for bankruptcy  2. Capacity - the borrower’s financial ability to meet credit obligations Ex businesses will be analyzed for income statements Individuals will be analyzed for salary statements and other sources of income suc as dividends and interest, as well as monthly expenses and obligations 3. Capital - the borrower’s assets and net worth Greater capital = greater repaying ability Balance sheet for businesses Credit applications for individuals 4. Collateral - for large amounts of credit and long term loans Real estate or property pledged as security to satisfy the loan requirements 5. Conditions - general economic conditions that can affect the borrower’s ability to repay the loan or credit obligation Industry, product, trends, security Credit Information Provided via: - Global Credit reporting agencies - Locan credit reporting agencies - Industry associations - Other firms given application credit *every consumer has the right to know what information is contained int heir credit bureau file A copy of your report is required to be provided upon request A report that is suspected inaccurate may be verified and changed if correct Collection Procedures: Inability to follow lender terms Delinquent Accounts - Some firms handle on their own - Collection Agencies - Subtle reminders and duplicate statements like past due - Telephone calls to urge payment - Personal visits to business customers - Legal action CHAPTER 8 PRODUCING QUALITY GOODS AND SERVICES Operations Management= consists of all activities managers engage in to produce goods and services Responsibilities: - Control of operations to achieve organizational goals  - Planning production - Product quality - Performance standards - Invetonry of raw and finished material - Production costs Successful Firms Employ: (competition) - Motivational tactics for employees to cooperate with management and improve productivity - Reducing costs by selecting suppliers with high quality materials at a reasonable price - Replacing out dated equipment - Using computer aided and flexible manufacturing systems allowing higher degrees of customization - Improve control procedures to help ensure lower manufacturing costs - Build new facilities in foreign countries with cheaper labour Mass Production= the manufacturing process that lowers the cost required to produce a large number of identical or similar products over a long period of time Analytical Process= breaks raw materials into different component parts Ex breaking down a barrel of crude oil into gasoline, oil, lubricants etc Synthetic Process= combines raw materials or components to create a finished product Ex combining plastic, steel, batteries, to produce a cordless drill Conversion Process- converting ideas and resources into goods and services - Materials, finances, peoples, information UTILITY: the ability of a good/service to satisfy a human need 1. Form- created by people convereting resources into finished products 2. Place 3. Time 4. Possession Inputs -> Conversion -> Outputs - Concept for new goods/services + resources - Develop specifications to convert the resources into the goods/services - Planning for production - Actual production - Completed product FOCUS (input) - the resources that make up te major part - Ex financial resources are the focus of Citibank - Chemical and energy company focuses on material resources  - College focuses on information - Employment services focuses on human resources MAGNITUDE OF CHANGE - the degree to which the resources are physically changed - Ex cling wrap vs no physical change (airline) NUMBER OF PRODUCTION PROCESSES - - Larger firms employ more production processes UNIT 5 MARKETING Chapter 12 Marketing: the activity, set of institutions and processes for creating, communicating and exchanging offerings that have value for customers, clients, partners and society at large Major Marketing Functions -- Exchange Functions (all companies buy and sell to market goods/services) I) Buying- Includes - Obtaining raw material to make product - Knowing how much to keep on hand - Selecting suppliers II) Selling- creates possession utility by transferring the title of product Physical distribution functions- - Involves the flow of goods from producers to customers - Transportation and storage provide time utility and place utility - Require careful management of inventory III) Transporting- involves selecting a mode of transport that provides an acceptable delivery schedule for an acceptable price IV) Storing V) Financing- - Manufacturers often borrow from banks or receive credit from suppliers - Wholesalers may be financed by manufacturers, and retailers may receive financing from wholesalers or manufacturer - Retailers can provide funding to customers VI) Standardizing- sets uniform specifications for products/services - Grading classifies products VII) Risk Taking VIII) Gathering Market Information Relationship Marketing: marketing decisions and activities focused on achieving long term, satisfying relationships with customers Customer Relationship Management (CRM)- focuses on using information about customers to create strategies that will develop and sustain relationships - Goal= maintain long term profitability through loyalty Customer Lifetime Value- a combination of - Purchase frequency - Average value of purchases - Brand switching patterns *it may be more profitable to focus on satisfying existing customers - May refer other customers UTILITY Utility: the ability of a good or service to satisfy a human need Types 1. Form- created by converting production inputs into finished products 2. Time- created by making a product available when customers wish to purchase it 3. Place- created by making products available in locations that customers which to purchase 4. Possession- created by transferring the title/ownership to the buyer Marketing Concept: a business philosophy in that a firm should satisfy customers’ needs through a coordinated set of activities that allows achievement of objectives - Communicate to assess potential needs - Seek to improve customer satisfaction Production Orientation: emphasis is placed on increase output and production efficiency Ex industrial revolution until the early 20th century Sales Orientation: directing efforts toward selling goods, rather than just producing them - Advertising - Enlarged sales forces - High pressure selling techniques - Customer analysis for demand Mobilizing marketing resources 1. Provide a product that will satisfy customers 2. Price the product at a level that is acceptable to buyers and yield a profit 3. Prompt the product to build awareness and satisfy needs 4. Ensure that the product is distributed to the appropriate customers and regions 5. Obtain marketing information regarding the effectiveness - And be ready to modify any of the decisions MARKETS - People/organizations must have demand for the product - Must be able to purchase it by exchanging goods, money or services for it - Must be willing to use their buying power - Must be socially and legally authorized to purchase the product I) Consumer Markets- consist of purchasers and/or household members intending to consumer or benefit from the purchased product-- not to make a profit from them II) Business-to-Business Markets- (industrial) purchase for use in making other products - Produce