Michelle's Comm Study Guide + Notes.pdf

I organized all my notes and some friends (thanks Nina & Adrian!) into a Master Document of Study Guide and Class Notes. If there’s anything inaccurate (ignore grammar or spelling mistakes) or anything I missed that should be included, pls email me [email protected] Study Guide What is a Busines...

I organized all my notes and some friends (thanks Nina & Adrian!) into a Master Document of Study Guide and Class Notes. If there’s anything inaccurate (ignore grammar or spelling mistakes) or anything I missed that should be included, pls email me [email protected] Study Guide What is a Business? Definition: A business is a complex and dynamic system that creates value by strategically allocating resources (labor, capital, materials) to meet customer needs and achieve organizational objectives (profit, growth). Key Elements: ○ Value Creation: Providing goods or services that customers need. ○ Adaptation: Businesses operate in changing environments and must evolve to remain competitive. ○ Efficiency: Businesses aim to lower costs, improve quality, and make products easily accessible (e.g., McDonald’s offering low-cost, fast, consistent food). Why Organize a Business? Benefits of Organizing: ○ Division of Labor: Specializing tasks for efficiency (e.g., car assembly line). ○ Durability: Well-organized businesses survive despite staff turnover. ○ Accountability: Easier to trace mistakes back to specific parts of the organization. ○ Power and Control: Policies and procedures help maintain order (e.g., honor systems in schools). ○ Legal Benefits: Protects owners’ personal assets from business liabilities (e.g., owners can’t lose their homes if the business goes bankrupt). Costs: ○ Coordination Costs: Organizing requires time and effort to establish systems, train employees, and manage resources. ○ Loss of Flexibility: As organizations grow, they may become less flexible, requiring more oversight and formal structures. History of Business Thought  Socrates (5th Century BC): ○ Questioned whether leadership skills in one area (family or military) could translate to others, which is still debated today regarding leadership in business. Sun Tzu (5th Century BC): ○ Emphasized strategic positioning and the importance of good information in battle, which translates to modern business strategies on competitive positioning and market intelligence. Adam Smith (1776): ○ Introduced the concept of the division of labor, which led to the development of assembly lines in modern industries. Karl Marx (1860s): ○ Criticized capitalist systems for separating labor from the control of work, which led to the rise of labor unions still relevant in labor law today. Frederick Taylor (1915): ○ Developed scientific management, breaking tasks down into smaller, more efficient components. This is the basis for modern production and workplace efficiency. Max Weber (1922): ○ Bureaucracy Model: Introduced the concept of structured organizations with specialized departments and career paths based on merit. This model is used widely in today’s corporations. Mary Follett (1926): ○ Compliance is context-dependent: people follow orders based on the situation, not just because of what they are told ○ Humanism: Follett's ideas contributed to the rise of modern Human resources (HR) by emphasizing worker well-being and the recognition of employees as people, not tools Open Systems Model Model: ○ Inputs: Raw materials, money, people, ideas. ○ Throughputs: Transformation of inputs into products or services. ○ Outputs: The final product or service that goes to customers. ○ Feedback Loop: Outputs may return to the system to improve future inputs (e.g., customer feedback). Cyclical Nature: Businesses constantly interact with the environment and adjust based on feedback. Key Concepts: ○ Entropy: Businesses must continuously add energy (resources, labor) to avoid breakdowns.  ○ Homeostasis: Organizations seek to maintain stability by balancing inputs and outputs (e.g., managing inventory levels). ○ Equifinality: There is more than one way to succeed (e.g., different paths to earning a degree or running a successful business). Environments General Environment: ○ Broad factors that affect all businesses, such as political systems, economic conditions, social trends, and technological developments. ○ Example: COVID-19 affected every industry globally, either positively (Zoom) or negatively (restaurants). Specific Environment: ○ Unique factors that affect individual businesses, such as customer demographics, suppliers, competitors, and local laws. ○ Example: A tech company’s specific environment might include the availability of skilled workers, while a restaurant’s environment includes local health regulations. Impact on Businesses: ○ Organizations must monitor both general and specific environments to stay competitive, adapt to change, and manage risks. Ethics and Corporate Social Responsibility (CSR) Ethics: ○ A set of moral principles that guide business behavior. ○ Ethical issues include bribery, misuse of company time, and conflicts of interest. Corporate Social Responsibility (CSR): ○ Companies go beyond legal requirements to promote social good. ○ Triple Bottom Line: People, Planet, and Profit. Ethical companies invest in employees, the environment, and long-term profitability. Impact on Decline and Death: ○ Unethical practices can damage a company’s reputation and lead to a decline in customer trust and sales (e.g., Enron’s collapse due to accounting fraud). ○ Companies that ignore CSR may also face backlash from consumers and regulators, leading to a decline or even business failure. Leadership, Strategy, and Culture  Leadership: ○ Leaders set the ethical tone and strategic direction of the organization. ○ Ethical leadership is critical to creating a culture of trust and accountability. Strategy: ○ A business's strategy must align with its long-term goals, considering the changing environment and internal capabilities. Culture: ○ Organizational culture includes the shared values, beliefs, and practices within the company. A strong ethical culture can help prevent business decline by maintaining employee morale and customer trust. Creating a Business – Organizational Evolution Organizational Evolution: 1. Businesses evolve similarly to biological organisms, adapting to environmental changes. Stages: 1. Variation: A business may vary its products, processes, or strategies to adapt to new opportunities or challenges. Example: Coke tried reformulating its product, leading to the success of Coke Zero. 2. Selection: Some changes are successful, and others are not. Example: Coke Zero succeeded, while New Coke failed. 3. Retention: Successful innovations become part of the standard business process. Example: Airline baggage fees were retained across the industry after Delta introduced them. Business Life Cycles 1. Birth/Emergence: ○ Environmental Change creates new business opportunities. ○ Lower capital requirements lead to more competition (e.g., tech startups), while higher requirements limit entry (e.g., electric cars). ○ R vs. K Strategy: High-risk rapid entry vs. slow and steady market entry. 2. Midlife: ○ Businesses stabilize and grow, focusing on differentiation. ○ Functional Differentiation: Expanding into new services (e.g., Amazon from books to web services). ○ Geographical Differentiation: Expanding to new locations (e.g., IKEA moving to new countries).  ○ Divisionalization: Creating regional or specialized divisions (e.g., Starbucks' Asian division). 3. Decline: ○ Erosion: The market shrinks gradually (e.g., McDonald's market share). ○ Contraction: The market shrinks rapidly but may recover (e.g., Home Depot during the recession). ○ Collapse: The business fails to adapt to new technology or market conditions (e.g., OKI Data with dot matrix printers). 4. Death: ○ The Death Spiral: A business fails to respond effectively to environmental change and spirals toward failure (e.g., Circuit City failing to adapt to Best Buy). ○ Bankruptcy: Companies may either liquidate (Chapter 7) or reorganize (Chapter 11). Summary of Key Concepts Open Systems Theory: Businesses interact with their environment and must continuously adapt (inputs, throughputs, outputs). Leadership and Strategy: Ethical leadership and a strong strategy are essential for long-term success. Ethics and CSR: Ethical practices and social responsibility can prevent business decline and promote growth. Business Life Cycles: Understanding the stages of business life (birth, midlife, decline, death) helps predict challenges and opportunities. Organizational Evolution: Businesses evolve by adapting to environmental changes, selecting successful strategies, and retaining innovations. Class Notes Class #1: August 29 Understanding a business What is a business?  A complex and dynamic system that creates value by strategically allocating resources (such as labor, capital, and materials) to meet customer needs and achieve organizational objectives (like profits or growth) Businesses operate in changing environments ○ Must adapt to remain competitive ○ The environment forces businesses to evolve constantly ○ Competition and market forces drive decisions A system with moving parts that create value in different ways, such as: ○ Lower costs ○ Faster service ○ Higher quality ○ Convenient availability (being right in front of me) Example: McDonald’s, because they excel in offering low-cost, fast, accessible food, consistency across locations, and multiple ways to access their products Organizations Definition: organizations, like businesses, are complex and dynamic systems that are strategically allocate resources to create value. They aim to: ○ Meet customer needs ○ Achieve organization objectives (profit, growth, mission-drive outcomes) Who drives the strategy in businesses? President/CEO: the top decision maker overseeing the overall business strategy COO: manages day-to-day operations, ensuring effective strategy implementation Investors and Stockholders: hold voting rights in key business decisions Employees: contribute to the execution of strategies and the functioning of the organization Why Organize? Organizing a business provides value through increased efficiency, accountability, and durability. Advantages of organizing:  Division of Labor ○ Breaking down tasks into smaller, specialized parts allows for greater efficiency Ex: not doing every step in food production (planting seeds, growing crops, etc) and specializing in specific parts of the process ○ Durability: successful organizations function even with staff changes Ex: entry-level jobs (like cashiers in restaurants) have high turnover, but the business keeps running reliably ○ Reliability: consistency is maintained when tasks are broken into repeatable units ○ Accountability: If something goes wrong, easier to pinpoint issue Ex: car assembly line, if a part fails, can be traced back to a specific station Leverage large-scale technology ○ Businesses use advanced technology to increase productivity Ex: data centers and assembly lines allow companies to scale their operations efficiently Power and control ○ Policies and procedures help maintain control within an organization, limiting non-conforming behavior Ex: honor systems in schools or expulsion if rules are broken Legal benefits ○ Contracts: legal agreements protect both business and customer ○ Ownership and liability: if a business goes bankrupt, owners’ personal assets are protected (ex: their house/car won’t be seized) ○ When a new company buys an old one, they inherits the old company’s liabilities (such as lawsuits) ○ Business operations: can be involved in many functions, including: Joining, starting, building, managing, funding, tracking, marketing, and changing their operations Economic context Types of economic systems ○ Capitalism: individuals are free to buy and sell goods/services from whoever they want, driven by competition and private ownership ○ Socialism: the government owns most or all means of production. Everyone gets the same, but no one gets a great or terrible outcome ○ Hybrid: combination of both (like the US) Examples of hybrid systems Capitalistic sectors in the US: private companies like FedEx, Amazon, and UPS Government-owned sectors: USPS (postal service), utilities like gas and water are city-owned Whats the role of stakeholders? Consumers: purchase goods and services from businesses Academics: study business phenomena and market behavior Government: interested in collecting taxes from businesses Ethicists: monitor the behavior and ethics of businesses Types of organizations For-profit business ○ Small businesses: local restaurants, small-scale enterprises ○ Large corporations: big companies like Amazon ○ Both have leaders, strategy, marketing, and HR departments Non-profit organizations ○ Example: red cross or university of Virginia All earned money goes back into the organization to further its mission ○ Non-profits do not distribute profits to owners or shareholders UVA reinvests all revenue back into its educational mission and is not allowed to make a profit Social enterprises ○ A for-profit company that is legally required to reinvest a portion of its profits into a social cost ○ Ex: Hempel Foundation owns for-profit Hempel, but must allocate half of its profit to education for engineering students Business Fundamentals Businesses cannot provide everything at once ○ Restaurants might specialize in being quick, cheap, or fancy, but not all at once ○ Ex: Colleges specialize in different fields: Ohio State for ag George Washington for poli sci Fundamental business concepts Businesses are complex and dynamic: they must adapt and innovate continuously Value Creation: businesses meet consumer needs through strategic allocation of resources Organizational objectives: include profit, growth, or specific missions Class #2: September 3 Objectivist vs. Subjectivist Perspectives Objectivist Mindset ○ Believes that the phenomena can be quantified, measured, and studied objectively ○ Emphasizes data, statistics, and empirical evidence in understanding and managing businesses Subjectivist mindset ○ Hold that some aspects are impossible or difficult to measure objectively ○ Focuses on interpretations, experiences, and qualitative insights ○ Recognizes that not everything in business can be captured through numbers along For Profit Companies vs. Nonprofit organizations For profit companies ○ Aim to earn profits for owners or shareholders ○ Flexibility in how they use their profits, they can choose to reinvest, distribute to shareholders, or even donate to charity ○ Key point: giving away money does not change their status to non-profit Non-profit organization ○ Must use their income to further their organizational mission ○ Restriction on funds: Cannot distribute profits to owners or shareholders Must spend money in ways that align with their state objectives ○ Can hold onto extra money (reserves), but cannot use it fo personal gain or purposes outside their mission Social enterprises ○ Hybrid entities combine elements of for-profit and nonprofit ○ Legally required to allocate a portion of profits to charitable causes or reinvest in the community ○ Balance generating profits with achieving social and environmental goals Bankruptcy and Reorganization Bankruptcy  ○ Occurs when a company owes more money than it can repay ○ Process: Company files for bankruptcy protection Assets are sold off to repay creditors as much as possible Remaining debts are typically discharged ○ Reorganization Alternative to liquidation in bankruptcy Example: A company has $5 billion in debt but $6 billion in cash Paying off all debt immediately would leave insufficient funds to continue operations Solution: restructure debt to pay some now and the rest over time, allowing the company to survive and potentially repay more in the long term ○ Case study: General Motors (GM) Filed for bankruptcy and eliminated its debt Created a new company to continue operations Creditors received limited repayment due to bankruptcy proceeding ○ Legal implications Bankruptcy courts oversee the process Creditors may have to accept terms set by the court Bankruptcy allows for the shift of liability away from individuals to the corporation Legal Benefits of Organizing a Business Liability protection ○ Organizing as a corporation or limited partnership shields personal assets of the wonders ○ If the business is sued or incurs debt, personal assets like homes or cars are typically protected Shifting responsibility ○ The legal structure allows the business entity to assume risks and liabilities, not the individual wonders ○ Essential for encouraging entrepreneurship by limiting personal financial risk Ownership of Means of Production Capitalism ○ Individuals or groups own the means of production ○ Emphasizes private ownership, free markets, and profit motives  Socialism ○ The government owns major industries and resources ○ Common ownership of utilities, transportation, and natural resources ○ Aims for more equitable distribution of wealth and resources Communism ○ Collective ownership where everyone owns everything equally ○ In practice, pure communism has not been fully realized ○ The theoretical goal is to eliminate class distinction and share resources equally Note: no economic system exists in pure form, most countries operate with a hybrid model combining elements from different systems Different Kinds of Organization Governmental agencies ○ Operated by the government to provide public services ○ Examples Fire departments Securities and Exchange Commission (SEC) Social organizations ○ More informal, temporary, and community-based groups ○ Often focus on social, recreational, or local initiatives ○ Examples Kickball leagues Softball leagues ○ Even though they are informal, they still require budgets, strategies, and sometimes marketing Different Kinds of Businesses Sole proprietorships ○ Owned and operated by one individual ○ Advantages: Maximum flexibility: full control over decisions, operations, and profits Simple to establish with minimal legal formalities ○ Disadvantages Maximum risk: owner is personally liable for all debts and obligations All work, responsiblity, and financial burden rest on the owner Partnerships ○ Two or more people share ownership ○ Types General partnerhisps  All partners are involved in managing the business Shared respnosibilities, profits, and liabilities Example: early stages of ben & jerry’s Limited partnership Includes both general and limited partners General partners mangage the busines and are personally liable Limited parters contribute capital but do not partiicpae in management Known as “silent partners” Advantages More resources and shared responsibilities Ability to pool skills, knowledge, and capital Disadvantages Potential for conflicts between partners Shared libality in general partnerships Corporations ○ A seperate legal entity wonder by shareholders ○ Types Private corporation Owned by an individual or a small group (family) No public stock offerings Examples Small family-owned businesses MARS candy, ownded by the mars fmaily ○ Public corporation Shares are sold to the public on stock exchanges Owndership is spread among many shareholders Governance Shareholders vote for board of directors to oversee the company Advantages Ability to raise large amounts of cpaital Extended life beyond the founders Disadvantages Double taxation: corporate profits and shareholders dividends are both taxed Less control for original owners due to shareholder influence Joint ventures: Temporary partnerships between two or more businesses for a specific project Structure: ○ Companies A and B create a new entity, Company C ○ Both contain resources: money, personnel, equipment ○ Joint venture accepts the risk and liability Purpose  ○ Tackle large, risky projects ○ Share expertise and resources Outcome ○ If successful parent company share profits ○ If it fails, risk is contained within the joint venture ○ S corporations Special type of corporation with benefits similar to partnerships Characteristics Limited to 100 shareholders Profits and losses pass through to shareholders’ personal tax returns (avoiding double taxation) Legally complex to set up and maintain Advantages Tax benefits Limited liability protection Disadvantages ○ Restrictions on he number and type of shareholders ○ More regulations and formalities Strategic alliances Collabriaotn between two or more businesses in the same industry Purpose: ○ Share resources, knowledge, or capabilities ○ Extend market reach with less risk Example ○ Airline code-sharing flights ○ Technology companies collaborating on research ○ Co-Operatives (co-op) Businesses owned and operated by a group of individuals for their mutual benefit Characteristics Members share in the profits and decision-making Often formed to compete with larger corporations Structure Some tasks are shared (like marketing, and purchasing) Other operations remain independent Ex: Ace Hardware: independent store workers sharing a brand and bulk purchasing Agricultural co-ops where farmers pool resources Class #3: September 5th Business in a Broader Context Businesses do not exist in isolation – they function within a broader environment that influences them, and they also impact the environment ○ Means that they must continuously adapt to survive and thrive Environmental impact on Businesses ○ They business environment can either positively or negatively impact operations Positive: during COVID, companies like Zoom, mask/glove manufacturers, and Pfizer saw significant growth Negative: businesses like restaurants and the USPS were negatively affected USPS: required by law to deliver to every address and pay full pensions every year, which added a lot of pressure ○ Natural disasters: can disrupt operations and supply chains Businesses’ Effect on the Environment Business ifluence the environment ○ Positive Advertising and expanding into new areas can help communities grow Lobbying: businesses liek BMW lobby for favoriable regulations (ex: getting laser lights approved for US cars) Businesses are complex systems that exist in dynamic environments BMW: Developed cars w/ laser lights for Europe where they are legal, but those are not allowed in the US ○ Negative Oil spills ○ Example: IKEA Uses advertising marketing to influence consumer behavior, but local cultures influence ikea, which prompt them to adapt their approaches based on region History in Business  Focus on how different events and decisions lead to other devleopemnts Example of historical relevance: ○ Transferable management skills in acneincet greece Key Historical Figures in Business Thought Socrates (5th Century BC) ○ Explored whether family leaders could manage other large groups, such as military units ○ Relevance Today: debates continue regarding whether leaders with experience in one area can be effective in another without relevant experience Sun Tzu (5th century BC) ○ Positioning and information: he emphaiszed hte importance of terrain and position in battle, which can be appleid to businesses strategically positioning themselves in market ○ Importance of information: good info can provide competitive edge, while other can lead to disaster ○ Flexibbltiy in strategy: businesses must be adaptable to unexpected changes in ther environment, bulding system sthat allow for rapid response Adam Smith (1776) ○ Division of labor: break down tax into smaller components to increase efficiency ○ Assembly line: workers specialize in one task Karl Marx (1860s) ○ Theory of capital and labor: Marx argued labor was separated from the control of work under capitalism, which lead to worker alienation from both their tasks and coworkers ○ Resistance: Marx believed that alienation would lead to worker resistance and ris of labor unions The Industrial Revolution (1800s) and Business Response Industrial revolution ○ Introduce new technologies and the factory system ○ Labor became subordinated to machines and professional managers emerged to oversee operations ○ Migration: workers moved from rural areas or immigrated to cities to work in factories, leading to growth of the working class and labor unions Scientific management (Frederick Winslow Taylor, 1915) ○ Taylor pioneered scientific studies to improve workplace efficiency ○ He broke down tasks, observed workers, and redesigned jobs to maximize productivity ○ Taylor viewed workers as tools in the factory, leading to the idea that employers should be seen as worker’s best friends — an outlook not universally accepted Max Weber (1922): Bureaucracy Weber’s Bureaucracy Model ○ Bureaus (divisional offices): organizations should have specialized departments for specific tasks, such as library bureaus or registration bureaus for hiring ○ Authority types: Traditional authority: power based on custom or tradition (ex: the ruling class) Charismatic authority: power based on personal influence and inspiration, but this is problematic if leader leaves Rational legal authority: the most stable form, where authority is based on rules and legal procedures rather than personal relationships ○ Hierarchy of Offices: Organizations should have a clear hierarchy, with defined career paths that allow workers to rise through the ranks based on merit, not social class ○ Formalized rules Rules and policies need to be written down (ex: course syllabi), so there is no ambiguity about what is expected ○ Career paths in bureaucracy: Promotion based on abilities Weber believed workers should have opportunities to advance based on merit -> motivation and competence within organization Class #4: September 10 Corporate Structures and Transactions Mergers and Spinoffs ○ Mergers: when a company buys another company that benefits them strategically, typically to expand their market or capabilities ○ Spinoffs: if a part of the business no longer fits the company model, it is sold off to streamline operations Double taxation ○ Corporations face double taxation: once when the company pays tax on profits, and again when shareholders pay taxes on dividends received Monopolies  ○ While rare, some exist ○ Ex: Peruvian electrical system where one company controls electricity for the entire nation Historical Events Impacting Business (1900-1930) World war I ○ Factories became highly efficient, producing advanced weaponry, which led to millions of deaths Great depression ○ A drastic economic downturn where many people lost jobs and struggled to feed their families Women’s suffrage ○ Women gained the right to vote, doubling voting population and shiting the focus on political issues Labor laws: laws were passed to improve worker protection, especially for children, and regulate working conditions Mary Parker Follett (1926) and Humanism in Business Situational leadership ○ Compliance is context-dependent: people follow orders based on the situation, not just because of what they are told ○ “Situations give orders”: circumstances dictate appropriate actions rather than strict hierarchies Humanism: Follett's ideas contributed to the rise of modern Human resources (HR) by emphasizing worker well-being and the recognition of employees as people, not tools Hawthorne Studies (1941) and the Shift to Humanism Scientific management to humanism ○ The study began as an efficiency study but evolved into an exploration of worker psychology Observation impacts performance ○ Workers increased productivity when they knew they were being observed Informal standards ○ Workers establish unwritten rules about productivity to maintain a balance –working neither too fast nor too slow  Dissatisfaction: the study showed that dissatisfaction may stem from personal factors (ex: disliking the boss), not the job itself Herbert Simon (1946) and Decision Making Contradictory proverbs ○ There’s no single correct way to run a business ○ Different methods, such as strict management vs. cooperative leadership, can both succeed depending on the context Bounded Rationality ○ Humans and businesses are limited to their ability to process information, consider all alternatives, and predict future outcomes Satisficing ○ Instead of seeking the perfect decision, people and businesses often make the best decision they can with the info they have at the moment Systems and Environments: Modern Approach Systems theory ○ Open systems: organizations operate in dynamic environments and actively choose how to respond to external changes ○ Inputs, throughputs, outputs Inputs: resources (ex: people, materials, info) Throughputs: processes that transform inputs into outputs Outputs: the final product or services delivered (ex: educated students, manufactured goods) ○ Cyclical nature: Systems are cyclical, with some outputs feeding back into the system as new inputs Example: UVA Students may return as professors, becoming inputs again Open Systems Theory: Key Concepts Differentiation ○ Refers to the movement towards specialization as organizations grow Small business: everyone performs various tasks Larger business: tasks become more specialized, need managers, departments, etc ○ The larger the organization, the more differentiated it becomes  Entropy ○ Organizations must continuously add energy (ex: resources, and labor) to avoid breaking down Without replenishing resources (labor, raw materials, etc), organizations would deteriorate ○ Ex: universities must recruit new students every year to replace graduating classes Homeostasis ○ The goal is to achieve a steady state or balance within organizations Organizations seek a balance between inputs and outputs to maintain stability ○ Ex: restaurant must manage inventory to avoid shortages or waste Too much food leads to waste, too little leads to unsatisfied customers Similarly, businesses need to adapt to changes to maintain equilibrium (ex: securing investors if a startup needs funds) Equifinality ○ More than one way to achieve success ○ Ex: degree can earned through various paths, such as traditional college, community college, or online courses Class #5: September 12 Open Systems and Environment: Cyclical Nature of Open Systems All open systems are cyclical: follow input throughput and output w/ feedback loops providing inputs back into the system Example: a car manufacturing process ○ Input: raw materials ○ Throughput: assembly process ○ Output: finished car ○ Cyclical return: car companies may take one out of every few cars, disassemble it to test quality, and use the feedback to improve process General Environment Enviornemt: everything outside of the organizations ○ Provides inputs, absorbs outputs, and influences the throughput ○ System is open because it interacts with the environment  Impact ○ Every business is influenced by he general environment ○ Examples Covid 19: impacted every business Legal environment: laws and regulations affect how businesses operate (ex: intellectual property protection varies by country) Economic environment: factors like interest rates, inflation, and stock markets influence organizations Natural environment: natural resources access and exposure to environmental challegnes Social and demographic factors Characteristics such as region, city, and workforce age can significantly impact business operations ○ Examples: Japan: the average workforce is 48, creating challenges with an aging population Vietnam: average workforce is 32, leading to lower labor costs Cultural Environment Different cultural norms impact organizational practices ○ For example: in the US, workers may get around two weeks of vacation but often feel pressured not to use it. In contrast, workers in France enjoy 6-10 weeks off vacation and typically use it all Legal environment Varies by country and affects how organizations operate ○ Example: in the US, maternity leave politics are less generous tahn in Canada, where workers can receive six month of paid leave and an additional year without pay Political Environment The type of government (democracy, monarchy, etc) influences business practices ○ Example: the two-party system in the US means that whichever party controls the congress and the Senate can pass legislation that affects businesses Economic environment Incldues factors like interest rates, stock markets, unemployment, inflation, and monetary policy, all of which affect an organizations access to funding and ability to grow ○ Example: entrepreneurs may need to rely on their own money or investors to start their businesses, especially during periods of high interest rates Technological Environment  The availability and advancement of technology are crucial for the transofmraiton processes within organizations ○ Example: if a business depends ona high speed tehcnolgoy, its operations and costumer inersatctedrs will be impacted by the abilaibiltiy and cost of that tehncolgoh Physical Environemnt: Natural factors such as air quality, earthquakes, and natural disasters can disrupt businesses ○ Example: a business might need to prepare for natural disasters like equathquakes or fires that couple impact operates Specific Environment Specific environments are the unique external forces that impact a particular business or industry Examples: ○ Customers: understanding needs, retaining them, and finding new ones is eessetnail ○ Distributors and suppliers: businesses rely on these external partners for raw materials and distribution of products ○ Unions/labo: in some regions, unions are more prominent and can effect wages, working conditions, and organization policies ○ Competitors: businesses must know their competitors, often visiting them to understand what works ○ Government agencies/local regulators: regulations (ex: health inspections for restaurants) directly influence business operates Another Summary of Systems Theory Concepts Inputs, throughputs, outputs: core elements of open systems theory ○ Inputs from envirionment -> transformed through internal processes (throughputs), and result in outputs Feedback loops: systems are cyclical, outputs osmetimes feeding back into the system as new inputs Entropy: the necessity of adding energy (resoruces) to prevent organizaitional decline Homeostasis: oegnaiaionts strive to maintain balance, adapting to achallnages as needed Equifinality: mutliple paths to success exist – no single correct way to achieve stiablity or growth Class #6: September 17 Entropy and Environmental Dynamics in Organizations Entropy: entropy is an inevitable force in all organizations due to the dynamic nature of environments ○ Example: machine need cleaning, updating, repair When systems break down, they need to be maintained and fixed, this could involve adding money, resources, or labor to sustain the system ○ Change is inevitable Organizations can respond defensively (resisting change) or opportunistically (taking advantage of change) ○ Maintenance To counter entropy, systems require continuous inputs like energy, resources, and labor General environment ○ Impacts all orgnaizations in its sphere, affecting sectors, like economic, political, and social systems Sepcfiic environemnts: how general environmental factors specfically influence different organizations ○ Ex: federal state and local laws might affect tow similar food trucks differently based on their sepciic operating condition Open Systems Theory Inputs: the raw materials that entre the organization (ex: money, people, ideas) Throughputs: processes that transform inputs into outputs Outputs: the final product, service, and result of the throughput process Feedback loop: outputs may return to the process (ex: costumer feedback, graduate contributions) and help improve future inputs Differentiation in Organizations Differentiation: the movement toward specializiation within organizations as they grow ○ Example: UVA started with seven departments but now has twelve schools and many specialized departments ○ As companies grow, new cffices, subsystems, and locations are added to handle the complexity Charactersitics of the Environment Complexity: the number and interconnectedness of environments in which the organization operates ○ Example: a local business may operate in a simple environment, while global corporations like Amazon operate in complex environments spanning multiple countries and regulatory systems Dynamism: the speed at which occurs in the environment ○ Fast-paced environments: tech companies must deal with rapid innovation, competition, and regulatory changes ○ Slow-paced environments: industries like water supply operate with fewer changes and slower product cycles Richness: the availbailtiy of resources in the environment ○ Resource-rich environments: provide ample, affordable resources ○ Resource poor enviornemmtns: may have limited resources and higher competition for them Environmental uncertainty: a combination of complexity (C), dynamism (D), and resource availability (R) High C, High D, Low R: leads to high uncertainty, requiring companies to heavily invest in research and development (R&D) to stay competitive Low C, Low D, High R: results in lower uncertainty and less need for R&D Environmental Factors in Starting a Business Labor and Materials: consider availability, cost, and location of workers ○ Options Bring workers to you by offering higher pay Relocate to where skilled labor is already present (eg. biotech in Boston) Remote work to minimize costs Economic factors ○ Include banking, capital availability, and land ○ Example: starting a business in a large city where capital is abundant or operating remotely if less capital is required Legal and political factors: laws, tariffs, and trade policies affect operations ○ Example: BMW set up factories in South Carolina due to low labor costs and favorable union laws Social and Cultural factors ○ Languages, rituals, humor, and values differ across regions ○ Example: punctuality varies in different cultures, german transportation vs. other places International Agreements GATT (General Agreement on Tariffs and Trade): aims to reduce tariffs and avoid trade wars European Union (EU): promotes trade and legal harmonization across European countries USMCA: facilitates trade between the US, Mexico, and Canada ASEAN regional agreement to simplify trade in Southeast Asia World Bank/IMF: Transfers capital from wealthier nationals to developing countries to encourage economic growth and stability Ethics in Business What is Ethics? Definition: ethics is a set of moral principles that define right and wrong for individuals and organizations ○ Examples of unethical behavior: Enron: inflated earnings and hid debt from investors Wells Fargo: created unauthorized customer accounts Bernie Madoff: ran off a $65 billion Ponzi scheme Rana Plaza: a factory collapse in Bangladesh that killed over 1100 workers, raising questions about safety and exploitation Corporate social responsibility (CSR) ○ Actions that promote social good beyond legal requirements Ex: companies donate to charities or create environmentally friendly products -> actions are good and can benefit company through tax breaks and better public image CSR > Ethical > Legal ○ CSR exceeds basic ethical stands, which in turn exceed legal requirements Models of Ethics Utilitarian: greatest good for the greatest number of people ○ Ex: Boeing gives its employees a raise but also considers the potential need to raise airfare prices for customers Moral rights: protecting fundamental rights (ex: freedom, safety) ○ Ex: UVA ensures that research participants’ rights are protected by providing consent forms and safety measures  Justice: fairly distributing benefits and harms ○ Ex: debating whether prisoners should receive rehabilitation or punishment considers justice for both the prisoners and the victims Class #7: Septemeber 19 Ethics Where do Ethics come from? ○ Human History: Ethics are rooted in our shared human experiences and societies evolution ○ Laws Our values influence the laws we create, but laws also shape societal norms and ethics ○ Religion/philosophy/spirituality ○ Professions ○ Society/culture Societal morality and individual ethics ○ Societal morality: collective understanding of what is right and wrong, shaped by laws, religion, professions, and cultural norms ○ Individual ethics: individual ethical values influences by societal morality but shaped by personal experiences, family, religion, and profession Ex: in a collectivist society, someone raised in an individualistic family may develop different ethical values Ethical Issues in Business Bribery: ○ Cultural Differences: In some countries, bribery is considered necessary for conducting business, while in others (like the U.S.), it is illegal. ○ Example: IBM bribed officials in Eastern Europe to secure business, leading to ethical conflicts based on differing cultural norms. Misuse of Company Time: ○ Examples include shopping online during work hours or using company resources (e.g., a laptop) for personal purposes, such as streaming movies. Abusive/Intimidating Behavior: ○ Definitions of bullying can vary by culture or workplace environment. Some places tolerate aggressive behavior, while others see it as unprofessional.  Conflict of Interest: ○ Occurs when personal interests interfere with professional responsibilities. Why do people behave unethically? Individual Values: ○ Personal values may differ from societal or organizational values. Self-Interest: ○ People may act unethically to secure personal gains, such as promotions, pay raises, or meeting deadlines. Outside Pressure: ○ External factors such as pressure from superiors or organizations can lead individuals to act unethically. ○ Example: In the UNC scandal, tutors were pressured to do homework for athletes due to the school’s desire to win games. Ill-Conceived Goals: ○ Setting unrealistic goals can lead to unethical behavior. ○ Example: Wells Fargo employees created fake accounts to meet high sales targets. Creating an Ethical Organization Leaders Matter: ○ Ethical behavior starts with leadership. Employees often mirror the behavior modeled by their leaders. Warren Buffet’s "Grandma Test": Would you still make a decision if it were published in the newspaper the next day? Building Ethical Structures and Controls: ○ Establish systems such as a Code of Conduct that clearly define ethical behavior. ○ Create a culture of ethics starting from admissions to job interviews, and continue throughout employment. Support All Stakeholders: ○ Engage both internal and external stakeholders in decision-making processes to ensure ethical practices. ○ Shared Decision-Making: Involving employees in decision-making increases their support and investment in ethical outcomes. Shareholders vs. Stakeholders Shareholder:  The primary goal is profit maximization. It is viewed as a moral duty of the company to maximize returns for its shareholders. Stakeholder: The broader goal is to serve the interests of all parties involved, including employees, customers, suppliers, and the community. Internal Stakeholders: Employees, management, board of trustees, owners (shareholders). External Stakeholders: Customers, suppliers/distributors, unions, and the community. Example: When GW University negotiated with the DC government and community, they balanced internal goals with external stakeholder needs. Revisiting CSR (Corporate Social Responsibility) Stakeholder Approach: ○ A broader view focused on creating shared value for all stakeholders. Each stakeholder must benefit in some way. Triple Bottom-Line: ○ People: Invest in employees and other stakeholders. ○ Planet: Engage in environmentally responsible practices. ○ Profit: Ethical practices often lead to long-term profitability. Creating a Business in a Dynamic Environment 1. Organizational evolution a. Business evolution parallels biological evolution, where organizations adapt to their changing environments b. Variation: change in competencies (what you do) or routines (how you do it) i. Internal Variation: a company may come up with ideas within 1. Ex: shredding business expands to shredding wedding photos for divorced couples ii. External variation: competitor goes out of business, providing new opportunities iii. Intentional: deliberate changes to adapt the market 1. Ex: coke reformulating their drink iv. Blind: accidental discoveries 1. Ex: post its 2. Selection a. Some variations work, while others do not i. Ex: coke’s reformulation failed, but Coke Zero succeeded  b. Selection can be internal (ex: a company decides to close) or external (ex: market conditions cause a business to fail) 3. Retention a. Successful innovations become part of the organization's standard processes i. Ex: airline baggage feeds were adopted industry-wide after Delta introduced them ii. Ex: conversely, charging for drinks failed and was dropped 4. Struggle for resources a. Competition within and between organizations for limited resources i. Ex: car dealerships (traditional vs. online dealers like Carvana) are competiting for the same customers Equifinilaity ○ States that there is more than one way to achieve success in business May take different paths but arrive at the same successful outcome ○ Principle emphasizes adaptability and diversity in problem-solving and organizational strategies Class #8-#9: September 24-26 Moral Choices in Business Moral/Ethical Choice: ○ The more ethical option is the one that aligns better with moral principles. Justice Model: ○ Both options have benefits and harms; the goal is to distribute these as equitably as possible between all parties. Utilitarian Model: ○ This is the most common approach in business. It involves comparing the costs and benefits of different actions and selecting the one that results in the most good for the greatest number of people. Local Context on Ethics ○ Societal Morality and Individual Ethics: Societal morality influences individual ethics, but factors such as family upbringing, religion, and profession can alter or amplify certain values. ○ Ex: the United States shares common societal values, but these may be interpreted differently based on personal or professional experiences. Shareholders vs. Stakeholders Shareholders: The primary ethical responsibility of businesses, traditionally, is to maximize profits for shareholders. Two methods to increase profits: ○ Raise Prices: Leads to higher revenue but risks losing customers. ○ Decrease Costs: This usually involves reducing wages, which can demotivate employees and cause them to leave. Stakeholders: As the business environment evolved, the stakeholder model emerged. This approach considers the interests of employees, customers, suppliers, and other parties, not just shareholders. Triple Bottom Line: The stakeholder approach is reflected in the Triple Bottom Line framework: ○ People: Invest in employees through training and benefits, which improves customer service and leads to long-term profits ○ Planet: Cutting energy use and recycling benefits both the environment and cost savings. ○ Profit: Ethical treatment of people and the environment helps businesses become more profitable in the long run. Creating a Business - Life Cycles 1. Emergence Phase Environmental Change: ○ Constant change in environments creates opportunities for new businesses. ○ Low capital requirements: Lower costs to start a business (e.g., developing an app) result in more new firms but also more competition. ○ High capital requirements: Industries requiring significant capital (e.g., electric cars) have fewer competitors but higher barriers to entry. Selection: ○ Business survival rates are low: 50% of restaurants fail within 5 years. 50% of businesses fail in 6-8 years. Less than 5% of businesses last 20 years, and fewer than 1% survive 50 years. Recognition and Strategic Analysis:  ○ Entrepreneurs need to stay alert to changes in the business environment and create detailed business plans to convince investors of their unique value proposition. Go/No-Go Decision: ○ After thorough analysis, a decision is made whether to proceed with a business or abandon the idea. R vs. K Strategy: ○ R Strategy (Rats): Enter the market early with many attempts, accepting high risk. ○ K Strategy (Primates): Wait for the market to stabilize before entering, taking fewer risks but potentially missing out on early rewards. 2. Mid-Life Phase Differentiation and Institutionalization: ○ Businesses in the mid-life phase move from surviving day-to-day to becoming more stable. ○ This stability allows for differentiation and institutionalization of processes. Functional Differentiation: ○ Businesses expand by offering new services or products. Ex: Amazon started with books, then expanded to web services, Prime, delivery, and data storage. Geographical Differentiation: ○ Successful businesses often expand to new locations, cities, or countries. Ex: IKEA started in Sweden and now operates in 60+ countries. Product/Market Differentiation: ○ A company may develop new products or enter new markets. Ex: Apple moved from computers to smartphones, tablets, and wearables. Divisionalization: ○ Larger companies create divisions to specialize and adapt to local market conditions. Ex: Starbucks created an Asian division that tailored products to regional tastes. Mergers and Acquisitions: ○ Established companies often grow by acquiring other companies rather than starting from scratch. Example: Alaskan and Hawaiian airlines merged. Stabilization of Sub-Systems: ○ As businesses grow, they establish separate departments for finance, marketing, HR, and operations, integrating these systems to build stability. 3. Decline and Death  Factors Contributing to Decline: ○ Internal Worth Reduction: A decline in internal assets such as money, customer base, reputation, or intellectual property. ○ Age of the Business: Older businesses face challenges as founders retire, industries mature, and competition increases. ○ Period: Economic recessions, pandemics, or changes in technology can push businesses toward decline. ○ Cohort (Competition): Increased competition can lead to a shrinking customer base and falling revenues. Types of Decline: ○ Intentional vs. Unintentional: Intentional: A business chooses to downsize strategically (e.g., Starbucks closing underperforming stores). Unintentional: Missteps or external factors lead to decline (e.g., Borders’ failure to adapt to e-commerce). ○ Strategic vs. Random: Strategic: Planned actions to minimize losses. Random: Reactionary and unplanned decisions made in a panic. ○ Partial vs. Complete: Partial: Downsizing or closing some parts of the business (e.g., Red Lobster closing stores). Complete: Shutting down entirely (e.g., Borders and Circuit City). Stages of Decline: ○ Erosion: The market slowly shrinks, and the business must rebuild without panicking. Example: McDonald's saw its market share erode and responded by offering all-day breakfast, which successfully rebuilt its customer base. ○ Contraction: The market shrinks rapidly, but the business holds on, expecting a recovery. Example: During the 2008 recession, Home Depot continued investing in its workforce, positioning itself for success post-recession. ○ Collapse:  New technology or regulations disrupt the market, forcing businesses to adapt or face collapse. Example: OKI Data’s market for dot matrix printers collapsed with the rise of laser printers. 4. The Death Spiral Environmental Change: ○ External factors such as new competition, technological advancements, or regulatory shifts. Recognizing Change: ○ Successful companies quickly identify changes and respond, while others fail to notice or react too slowly. Responding to Change: ○ Some businesses, like McDonald's and Home Depot, effectively adapt to change. Others, like Circuit City, enter the death spiral, where recovery becomes increasingly difficult as the situation worsens. Avoiding the Death Spiral: Differentiation: Companies can avoid the death spiral by continually innovating and adapting to environmental changes. Types of Business Death: Bankruptcy: ○ Chapter 7 (Liquidation): The business sells all assets and closes (e.g., ToysRUs). ○ Chapter 11 (Reorganization): The business restructures its debts and continues operations (e.g., General Motors). Merged/Acquired: ○ A larger company buys a smaller company. Sometimes both companies survive; other times, one is absorbed completely (e.g., US Airways merging with American Airlines). Rebirth: ○ The business is restarted under new ownership or a different model (e.g., Abercrombie & Fitch transitioning from outdoor gear to fashion). Example of Business Death: Circuit City ○ Founded in 1949, grew with the home electronics boom. ○ At its peak, it had 600+ locations and was ranked #151 on the Fortune 500. ○ Decline: Dropped appliances, eliminated commissions, fired thousands of employees, and failed to adapt to the rise of Best Buy. ○ Final Straw: The 2008 recession accelerated its decline, leading to liquidation.