Management Tools & Principles PDF

MANAGEMENT TOOLS & PRINCIPLES Link to book: https://images.jumpseller.com/store/ebookmarket/25085222/attachments/9aa8b4c0a493f8c89ff7c74c70e179a e/Business_in_Action__Global_Edition_10th_Edition.pdf?1725294435 CHAPTER 1 - developing a business mindset Def of term business → label for overall fiel...

MANAGEMENT TOOLS & PRINCIPLES Link to book: https://images.jumpseller.com/store/ebookmarket/25085222/attachments/9aa8b4c0a493f8c89ff7c74c70e179a e/Business_in_Action__Global_Edition_10th_Edition.pdf?1725294435 CHAPTER 1 - developing a business mindset Def of term business → label for overall field of business concepts → collective label for activities of many companies → specific activities → synonym of company - Profit-seeking organisation that provides goods and services designed to satisfy customers’ needs Def of revenue → money a company brings in through the sale of goods and services Def of business model → concise description of how a business generates or intends to generate revenue → how business is going to realise profit Def of profit → money left over after all the costs involved in doing business have been deducted from revenue Def of competitive advantage → some aspects of a company or its operations that enables it to create products with greater appeal to its target customers Def of not-for-profit organisations → organisations that provide goods and services without having a profit motive Def of social environment → trends and forces in society at large Def of stakeholders → internal and external groups affected by a company’s decisions and activities Adding value in businesses → system for satisfying customers by transforming lower-value inputs into higher value outputs - By generating revenue = result of business model (but also realising profit) Competing to attract & satisfy customers → creation of value-added products put on sale for customers (as a result = competition with others companies) - Competition = wider range of options for customers (increase in quality, improve in customer service & lower prices) → free-market economy = companies lot of flexibility in deciding (what customers, and how they want to compete) → each company seeks competitive advantage = more appealing to its chosen customers Accepting risks in the pursuit of rewards → risks in anticipating of future rewards = link between risk and reward critical (2 reasons) 1. Without promise of rewards ⇒ no incentive to take on the risks - Without entrepreneurs/ companies to accept risks = nothing done in economy 2. To encourage smart & responsible decision making → if not facing risks likely to engage in irresponsible & unethical behaviour (known as moral hazard)  - Need for a company to see promise of reward before accepting risks involved in creating & selling products BUT ensuring responsible behaviour means that risks need to stay attached to those decisions (if decisions turn out badly = company should suffer from bad decision) - IF risks get disconnected from decision (someone else will suffer from bad decision) = moral hazard created Identifying major types of businesses → driving forces = prospects of earning profits & building assets (anything of meaningful value) - In contrast ⇒ not-for-profit organisations (nonprofit) = no profit motives but need to operate efficiently & effectively to achieve their goals Product types and → from business’s pov: all outputs of business as products & divide these into ranges goods and services - Most goods are tangible = physical presence - Other goods (ex: software, downloadable music files) = intangible → some deliver only goods or only services - Many offer combination of both → vary widely in number & range of products they offer Company sizes → big = truly big - Ex: amazon over million employees, Walmart more than 2 million → vast majority in usa = much smaller - From roughly 6 million firms with employees = nearly 80% employ less than 10 people Geographic reach → every scale → no longer limitation due to internet, digital product formats & global transportation services  Ownership → structured in various ways - Sole proprietorship (1 owner) - Partnerships - Public corporations Summary Businesses add value by transforming lower-value inputs to higher-value outputs. In other words, they make goods and services more attractive from the buyer’s perspective, whether it’s creating products that are more useful or simply making them more convenient to purchase. Companies can be categorised by product types and ranges, company size, geographic reach, and ownership. Role of business in society → complex and far-reaching relationship between business and society Potential contributions Providing employment → provide salaries → help meet employee costs of healthcare, child care, education… = living expenses Paying taxes → us businesses = pay thousand of billions in taxes every year - Helping build highways, scientific research, enhance public safety and national defence + support functions of gov Contributing to growth, → strong economy = strong country stability and security - Job opportunities = avoid social unrest & family disruptions (= high unemployment) Offering valuable goods and services Potential negative effects Generating pollution & → impact on natural environment & soil, air, water (risk of living creatures) creating waste Creating health and → business operations = element of risk to health and safety of employees and safety risks surrounding communities - Some contain toxic materials = if not treated properly, can cause illness and death Disrupting → occupying land to displacing existing businesses communities → when fall into decline = destabilisation of communities that have been depending on them Causing financial → irresponsible or poorly managed companies = can become a liability to society if instability not able to meet their financial obligations and need assistance from gov Recognising the multiple environments of business → every company operates within several interrelated environments that affect and are affected by business Social environment → impacts in 2 ways 1. Composition of workforce and demand for goods and services  2. Various segments of society have expectations about appropriate ways for businesses to operate - Responsibility of company to its stakeholders = ongoing controversy - Growing number of employees and company leaders believe that company should strive for something more than just making money = rise to concept of purpose-driven business - Disruption in supply chains (e.g. covid-19) Technological environment → stems from practical application of science to innovations, products and processes → essential to business but also extremely disruptive force Economic environment → every decision is influenced by economic environment = conditions & forces affecting cost and availability of goods, services & labour (= shape customers' behaviour) ⇒ economic & technological environments closely intertwined - Innov aim to reduce costs of business operations (labour biggest expense) - Create jobs = economic opportunities (e.g. internet) - Work full time or part time in gig economy = technology based or enabled by technology Legal & regulatory environment → some heavily regulated (e.g. electricity or basic utilities) → policies & practices of gov bodies also establish overall level of support for businesses operating within jurisdictions Market environment → company operates within market environment = composed of 3 groups 1. Its target customers 2. Buying influences (shaping behaviour of these customers) 3. Competitors → variation depending the industry → barriers to entry - The more = the more stable - Markets with low barriers to entry = highly dynamic → lowering barriers to entry & leaping over boundaries separating and defining markets = recurring themes of business innov and disruption Major functional areas in a business enterprise → coordinate efforts to understand & satisfy customer needs Research & development → products conceived through R&D = essential to success providing ideas & designs - Allowing them to meet customer needs in competitive markets → engage in process R&D to design new and better ways to run operations Manufacturing, production & operations → operations managers also responsible for wide range of strategies & decisions - Purchasing = arranging to buy necessary materials for manufacturing - Logistics = coordinating incoming flow of materials & outgoing flow of finished products - Facilities management = everything from planning new buildings to maintaining them Marketing, sales, distribution & customer support → marketing = in charge with identifying opportunities in marketplace - Working with R&D to develop products to address those opportunities, creating branding & setting prices → sales function = dev relationship with potential customers (persuasion to buy products) → distribution function = responsible for delivering products to customers (directly to them) or to intermediaries (e.g. retailers) → customer support = support & info to be successful Finance & accounting → ensure funds it needs to operate, control funds & write reports for company management & outside audiences (e.g. investors, gov regulators) - Financial managers = responsible for planning and funding - Accounting managers = responsible for monitoring and reporting → accounting specialists work closely with functional areas to ensure profitable decision making - E.g. accountants coordinate with R&D & production departments to estimate manufacturing costs of new product and then work with marketing department to set product’s price at level that allows company to be competitive while meeting financial goals Human resources → HR function = responsible for for recruiting, hiring, developing and supporting emplolyees - Support all other functional areas - Oversees processes and supports other departments - Charged with making sure company is in compliance with many laws concerning employee rights and workplace safety Business services - Help company with specific needs in law, banking, real estate… - Performed by in-house staff, external firms or both Careers in business Operations manager → encompasses all people and processes used to create goods and perform services that company sells → range of tasks and disciplines - Production engineering, assembly, testing, scheduling, quality assurance, information technology, forecasting, finance, logistics, customer support → degree of technical acumen required → can be demanding as organisation deal with fluctuating demand levels & with process and supply problems Human resources specialist → plan & direct personnel-related activities = recruiting, training and development, compensation and benefits, employee and labour relations… → develop and implement systems and practices to accommodate a firm’s strategy and to motivate and manage diverse workforce → oversees talent management efforts - Making sure they can attract, develop and retain people with types of talent company needs to compete in its chosen markets Information technology manager → relies on timely, accurate info across all functional areas, & getting info to right people via computer and communication systems → require degree in technical field - But also understanding og business processes, finance and management Marketing specialist → interrelated tasks of identifying and understanding market opportunities and shaping product, pricing and communication strategies needed to pursue those opportunities Sales professional → sell everything and many become valued advisers to their business clients Accountant → responsible for collecting, analysing and reporting financial matters = such as analysing budgets, assessing manufacturing costs of new products and preparing state and federal tax returns → internal auditors verify work of company’s accounting effort - But also look for opportunities to improve efficiency and cost-effectiveness → public accountants offer accounting, tax preparation and investment advice to individuals, companies… → external auditors verify financial reports of public companies as required by law → forensic accountants investigate financial crimes Financial manager → perform variety of leadership and strategic functions - Controllers oversee preparation of income statements, balance sheets and financial reports = manage accounting departments - Treasurers and finance officers = strategic role, establishing long-term financial goals and budgets, investing firm;s funds and raising capital as needed - Credit managers = supervise credit accounts established for customers - Cash managers = monitor and control cash flow → every part of company Achieving professionalism → professional = quality of performing at high level and conducting oneself with purpose and pride Striving excel → high level requires commitment to continuous learning and improvement → nature of work often changes as markets and technologies evolve - Expectation of quality tends to increase over time ⇒ constant change as positive - way to avoid stagnation and boredom Being dependable and accountable → meeting your commitments = for people to trust you → being accountable = owning up to your mistakes and learning from failure to improve Being team player → paying attention to your own efforts and skills but also to overall effort to maje sure team succeeds → ability to help others improve their performance = key attributes executives look for when want to promote people into management → loyalty & protection of employer;s reputation Demonstrating etiquette → etiquette = expected norms of behaviour in particular situation - Way you conduct yourself, interact with others and handle conflict = influence company;s success and career → fast pace of change, overwhelming workloads and depersonalising effects of digital technology = key reasons for rude behaviours in workplace → poor etiquette = serious business issue - Toxic workplace = lower productivity damage working relationships and endanger people’s long-term health Communicating effectively → listen actively  - Making conscious effort to turn off your own filters and biases to truly hear and understand what someone is saying → provide practical information - Useful information that is adapted to their specific needs → give facts rather than vague impressions - Concrete language, specific details and supporting information = clear and convince, accurate and ethical → don’t present opinions as facts → present information in concise, efficient manner - Respond more positively to high efficiency messages → clarify expectations and responsibilities → offer compelling, persuasive arguments and recommendations Making ethical decisions → clear sense of right and wrong → avoid committing ethical lapses & carefully weigh all options when confronted with ethical dilemmas Thriving in digital enterprise: disruptive technologies and digital transformation → business revolves around change - Basic concept of business is fixed = always going to be question of adding value to satisfy customers in a way that generates sustainable level of profits - But ay companies go about adding value and satisfying customers is always evolving → changes revolved around digital technology and involved connectivity, communication and IA - Digital enterprise = company that uses these technologies as one of the foundations of its value-creation processes Disruptive innovations → some changes in business happen gradually and often predictably → disruptive innovation = dev so fundamentally different and far-reaching that it can create new professions, companies or even entire industries - While damaging or destroying others - E.g. e-commerce revolution upended retailing sector and drove many companies out of business Predicting the path of disruptive innovations → phenomenon for several reasons 1. Predicting whether new technology will be truly disruptive is difficult - Number of other forces from technological, economic, social and legal and regulatory environments need to converge before an innov has major impact 2. Predicting when disruption will happen is difficult - Many promising technologies can take years to have an impact 3. Predicting eventual impact of a disruption challenging - E.g. impossible to make a general prediction about IA’s impact on employment = redefine many jobs, eliminate some and create others Digital transformation → first and broadest disruptive technology is related to notion of digital enterprise - Many are going through a digital transformation to become digital enterprises → digital strategies to serve customers better create new products, operate more efficiently, stave off new competitive threats and become more agile and resilient - Value of operational resiliency = important - Companies that can take full advantage of all that digital has to offer are likely to outperform digital laggards in both market share growth and financial performance → digital transformation can incorporate variety of technologies - E.g. big date, cloud computing…. → examples of digital transformation of business - Entertainment = streaming movies and music & getting AI-based recommendations for new offering to try - Communication = using any form of digital or social media - Personal finance = banking via mobile apps or using AI-based robo advisers to plan your investments ⇒ possible by companies that have implemented digital strategies → true transformation means rethinking how company creates value and how it is managed The Gartner Hype Cycle CHAPTER 2: Economics, Money & Banking Def of economy → total of all economic activities within a given region Def of economies → study of how a society uses its scarce resources to produce & distribute goods and services Def of factors of production → economic resources including - natural resources - human resources - capital - entrepreneurship - knowledge def of scarcity → condition of any productive resource that has finite supply def of economic indicators → statistics that measure the performance of the economy def of consumer price index (CPI) → monthly statistics that measure the changes in the prices of a representative collection of consumer goods and services def of producer price index (PPI) → statistical measure of price trends at the producer and wholesaler level def of gross domestic product (GDP) → value of all the final goods and services produced by businesses located within a nation’s borders - excludes outputs from overseas operations of domestic companies def of economic systems → policies that define a society’s particular economic structure - the rules by which a society allocates economic resources def of planned system → economic system in which the government controls most of the factors of production and regulates their allocation def of free-market system → economic system in which decisions about what to produce and in what quantities are decided by the market’s buyers and sellers def of capitalism → economic system based on economic freedom and competition def of regulation → relying more on laws and policies than on market forces to govern economic activity def of deregulation → removing regulations to allow the market to prevent excesses and correct itself over time def of monetary policy → government policy and actions taken by the Federal Reserve Board to regulate the nation’s money supply def of fiscal policy → use of government revenue collection and spending to influence the business cycle def of demand → the buyer’s willingness and ability to purchase products at various price points def of supply → a specific quantity of a product that a seller is able and willing to provide at a particular date at various prices 1. The Economy The economy Economics → sum of all economic activity within a given region → study of how a society uses its scarce resources - From a city to a country to the entire world to produce and distribute goods and services → constantly in motion → roughly divided into a small-scale perspective & large-scale perspective → microeconomics: - study of economic behaviour by consumers, businesses & industries that collectively determine the quantity of goods and services demanded and supplied at different prices → macroeconomics: - Study of larger economic issues (e.g. unemployment, effect of government policies, how country maintains and allocates its scarce resources) 1.1 Factors of production 1.2 The economic impact of scarcity → impact of scarcity (=given resources has limited supply) is fundamental to understand economics → 2 powerful effects - Creates competition for resources - Forces trade-offs on the part of every participant in the economy ⇒ opportunity cost: value of the most appealing alternative from all those that weren’t chosen - Way to measure the value of what you have up when you pursued a different opportunity Economic measures and monitors → economic indicators: statistics (e.g. interest rates, unemployment rates, housing data, industrial productivity) that let business and political leaders measure and monitor economic performance → can be grouped by time frame: - Leading indicators (looking forward): suggest changes that may happen to the economy in the future - Valuable for planning - E.g. housings starts - Lagging indicator (looking backwards): provide confirmation that something has occurred in the past - E.g. Corporate profits & unemployment  - Give policymakers insights into how the economy is functioning and whether corrective steps might be needed - Coincident indicators: reflect current economic conditions or activities - E.g. personal income, industrial production, variety of price indexes 1.3 Prices indexes → offer a way to monitor the inflation in various sectors of the economy - Convenient way to compare numbers over time & is computed by dividing the current value of some quantity by a baseline historical value & then multiplying by 100 - Designed to monitor a particular aspect of economic activity → consumer price index (CPI): measures rate of inflation - By comparing changes in prices of a representative “basket” of consumer goods and services - Federal gov uses it to adjust social security payments - Businesses use it to calculate cost-of-living increases for employees → producer price index (PPI): measures prices at the producer or wholesaler level - Reflecting what businesses are paying for the products they need - Helping companies place an accurate value on inventories - Protecting buyers and sellers with price-escalation clauses in long-term purchasing contracts 1.4 National economic output → gross domestic product (GDP): measures country’s output (production, distribution, use of goods and services) by computing sum of the value of all finished goods and services produced in a country during a specified period (usually a year) - Products may be produced by either domestic or foreign companies as long as production takes place within a nation’s boundaries - E.g. sales from a Honda assembly plant in Ohio would be included in the US GDP (even though Honda is a Japanese company) → monitoring GDP helps nation evaluate its economic policies and compare current performance with prior periods or with the performance of other nations 2. Economic systems → economic system: basic set of rules for allocating resources to satisfy its citizens’ needs 2.1 The spectrum of economic systems → planned system: gov controls allocation of resources (including decisions regarding which products are produced and in what quantities) - Often equaled with socialism (= involves collective ownership of the means of production) → free-market system: leaves most of the decisions in the hand of private enterprise - Individuals and companies own the factors of production and largely free to decide what products to make, how to make them, where to make them and at what price - Capitalism (& private enterprise) = terms used to describe business in a free-market system - Where private parties own & operate most businesses & where competition supply, and demand determine which goods and services are produced 2.2 Nationalisation and privatisation → govs can change structure of economy by nationalising (taking ownership of) selected companies or in extreme cases even entire industries - Or privatising services once performed by the government by allowing private businesses to perform them instead → major argument made in favour of privatisation: - Profit-seeking companies are more motivated to operate efficiently than government agencies are - BUT ⇒ these operations often happen in absence of direct competition removing one of the key motivations for companies to innovate & to serve customers satisfactorily 3. Government’s role in a free-market system → question of regulation versus deregulation (more rules in place to govern economic activity versus having fewer rules & relying more on the market to prevent excesses and correct itself over time) → argument for more regulation asserts that companies can’t always be counted on to act in ways that protect stakeholder interests and that the market can’t be relied on as a mechanism to prevent or publish abuses and failures - Many regulations were created in response to product or process failures that caused significant damage to people’s physical health or financial well-being → argument for deregulation contends that government interference can stifle innovations that ultimately help everyone by boosting the entire economy and that some regulations burden individual companies and industries with unfair costs and limitations → 4 majors areas in which gov plays role in economy are: - Protecting stakeholders - Fostering competition - Encouraging innovation & economic development - Stabilization & stimulating the economy 3.1 Protecting stakeholders → while serving 1 or more of stakeholders: business may sometimes neglect or at lest be accused of neglecting, the interest of other stakeholders in the process - E.g. managers who are too narrowly focused on generation wealth for shareholders might not spend the funds necessary to create a safe work environment for employees or to minimise the business’ impact on the community → in attempt to balance the interests of stakeholders & protect those who might be adversely affected by business: - US federal government has established numerous regulatory agencies & states and local govs have additional agencies 3.2 Fostering competition → based in belief that fair competition benefits the economy & society in general: - Gov intervene in markets to preserve competition & ensure that no single enterprise becomes too powerful - E.g. if company has a monopoly: it can potentially harm customers by raising prices or stifling innovation and harm potential competitors by denying access to markets ⇒ numerous laws and regulation have been established to help prevent individual companies or groups from taking control of markets or acting in other ways that restrain competition or harm consumers - Antitrust Legislation: laws that limit what businesses can and cannot do to ensure that all competitors have an equal chance of succeeding - Merger and Acquisition Approvals: to preserve competition and customer choice, govs occasionally prohibit companies from combining through mergers or acquisitions - In other cases: may approve a combination but only with conditions, such as divesting (Selling) some parts of the company or making those concessions 3.3 Encouraging innovation and economic development → govs can use their regulatory and policy making powers to encourage specific types of economic activity - E.g. encouraging development and adoption of innovations that government consider beneficial in some way such as promoting the growth of alternative energy sources - Through economic incentives for producers and customers ⇒ in interest of boosting employment: govs can also attract companies to build in certain locales by offering land grants or tax relief 3.4 Stabilising and stimulating the economy → gov have 2 sets of tool they can use to stabilise and stimulate national economy: monetary policy and fiscal policy Monetary policy Fiscal policy → involves adjusting the nation’s money supply → involves changes in the gov’s revenues and - The amount of “spendable” money in the expenditures to stimulate a slow economy or economy at a given time dampen a growing economy that is in danger of - E.g. in US, monetary policy controlled overheating and causing inflation primarily by Federal Reserve Board - On revenue side: govs can adjust the revenue they bring in by changing tax rates and various fees collected from individuals and businesses - By lowering income tax rate = it does so with hope that consumers & businesses will spend & invest money they save from lower tax bills - On expenditure side: local state & federal gov bodies constitute a huge market for goods and services with billions of dollars of collective buying power - Gov can stimulate the economy by increasing their purchases (= sometimes even to the point of creating stimulus programs with the specific purpose of expanding employment opportunities & increasing demand for goods and services)  4. The forces of demand and supply → exchange between a buyer and seller - Buyer wants or needs a particular service or good & is willing to pay seller in order to obtain it - Seller willing to participate in transaction because of the anticipated financial gains → demand: amount of a good or service that customers will buy at a given time at various prices → supply: quantities of a good or service that producers will provide on a particular date at various prices ⇒ 2 forces work together to impose a kind of dynamic order on the market 4.1 Understanding demand → demand curve: graph that shows the amount of product that buyers will purchase at various prices, all other factors being equal - Demand curves typically slope downward implying that as price drops, more people are willing to buy - Demand at all price points can also increase or decrease in response to a variety of factors → list of how various factors can cause overall demand to increase or decrease: - Customer income - Customer preference toward the product - Price of substitute products - Price of complementary products - Marketing expenditures - Customer expectations about future prices and their own financial well being 4.2 Understanding supply → firm’s willingness to produce and sell a product increases as the price it can charge and its profit potential per item increases - As price customers are willing to pay goes up, quantity supplied generally goes up → supply curve: illustration of relationship between prices and quantities that sellers will offer for sale (regardless of demand) - Movements along the supply curve typically slopes upward: as prices rise, quantity that sellers are willing to supply also rises → list of how supply is dynamic and affected by a variety of internal and external factors: - Cost of inputs (wages…) - Number of competitors in the marketplace - Advancements in technology (allowing companies to operate more efficiently) 4.3 Understanding how demand and supply interact → buyers & sellers have opposite goals → market in effect arranges a compromise known as the equilibrium price at which the demand and supply curves intersect - At the equilibrium price point: customers are willing to buy as many tickets as airling is willing to sell Def of equilibrium price → point at which quantity supplied equals quantity demanded  5. The macro view: understanding how an economy operates 5.1 Competition in a free-market system → competition is situation in which 2 or more suppliers of a product are rivals in the pursuit of the same customers - Nature of competition varies widely by industry, product category and geography → at one extreme: pure competition - In which there are multiple suppliers and none of them are dominant enough to be able to control prices → at the other extreme: monopoly - One supplier dominates the market that it can control prices and essentially shut out other competitors - Monopolies can happen naturally as companies innovate and gain customers or as markets evolved (a pure monopoly) or by government mandate (regulated monopoly) - BUT ⇒ lack of competition in a monopoly situation considered so detrimental to a free-market economy that monopolies are often prohibited by law → most of the competition in advanced free-market economies is monopolistic competition - In which numerous sellers offer products that can be differentiated from one another and new suppliers can enter the market - risk/ reward nature of capitalism promotes constant innovation in pursuit of competitive advantage - Rewarding companies that do the best hob of satisfying customers → when number of competitors in market is quite small and competitors influence each other through their production and pricing decisions: situation known as oligopoly created - Customers gave some choice (unlike monopoly) but not as many choices as in monopolistic competition 5.2 Business cycles → economy is always in a state of change, expanding, or contracting in response to the combined effects of technological breakthroughs, changes in investment patterns, shifts in consumer attitudes… → economic expansion occurs when economy is growing and consumers are spending more money - Stimulating higher employment and wages which then stimulates more consumer purchases → economic contraction occurs when spending declines, employment drops & economy as a whole slows down ⇒ if period of downward swing is severe: economy may enter a recession → recession: period during which national income, employment and production all fall (often defined as at lest 6 months of decline in the GDP) - Decline for 2 consecutive quarters ⇒ a deep and prolonged recession can be considered as depression ⇒ when downward swing or recession is over: economy enters a period of recovery ⇒ these up-and-down swings are known as business cycles (= more accurate way to characterise economy;s real behaviour is economic fluctuations) → business cycles: fluctuations in the rate of growth that an economy experiences over a period of several years 5.3 Unemployment → most serious effects of economic contraction → unemployment rate indicates percentage of the labour force currently without employment - Labour force consists of peoples ages 16 and older who are either working or looking for jobs → 4 types of unemployment - Frictional, structural, cyclical and seasonal unemployment 5.4 Inflation → inflation: steady rise in the average prices of goods and services throughout the economy - Major concern for consumers, businesses and gov leaders because of its effect on purchasing power - When prices go up ⇒ purchasing power does down - Runaway inflation = unsettling prospect - That federal reserve devotes much of its attention to monitoring inflation and using monetary controls to keep the economy from overheating → deflation: sustained fall in average prices 6. Money’s role in business 6.1 The meaning of money → money: anything generally accepted as a means of paying for goods and services - Serves as medium of exchange, a unit of accounting, a store of value & a standard of deferred value → money performs 4 essential functions: - Medium of exchange - Money simplifies transactions because a buyer can exchange money for a good or serve rather than trying to exchange another product for it - Unit of accounting - Money is measure of value = meaning that buyers and seller don’t have to negotiate the relative worth of dissimilar items with every transaction - Temporary store of value - Way of accumulating wealth until needed - Standard of deferred payment - Means of exchange over time → practical value of money stems from 2 key properties: liquidity and trust - Money = most liquid asset as it can be exchanged easily & often instantly for something else of value 6.2 Fiat money, cryptocurrency and NFTS → fiat money: official currencies issued and maintained through government fiat or proclamation - E,.g. the dollar is a legal tender in the US which means it can be used for any financial obligation → new wave of alternative money is happening in the form of cryptocurrencies (= digital tokens that rely on cryptography for security) - E.g. Bitcoin → cryptocurrency: revolution-in-progress and influence businesses and economics in at least 4 ways: - As an alternative to fiat currency: appeals to many people because of it anonymity and because its value cannot be manipulated by central banks in the same ay fiat currencies are - BUT ⇒ for any currency to come into wide use, it will need to have low transaction costs and fairly stable value - As a disruptive force in global economics and politics: - E.g. threat of economic sanctions which reduce the target’s ability to participate in the global economic system - Several types of sanctions involve currency, including freezing bank accounts and blocking access to the international communication systems for money transfers - As a speculative investment - As a driver of potentially disruptive technologies → technology that enables cryptocurrencies has also given rise to another type of digital asset that recently captured the public’s imagination → Nonfungible tokens (NFTs) are digital certificates that convey sole ownership of a digital asset - (fungible asset = something that is interchangeable and can be replaced by another unit or quantity of the same type. E.g. dollar is a fungible asset) - A non fungible asset is unique 6.3 The money supply → every economy has a certain amount of money in circulation at any given time (a quantity known as the money supply or the money stock) → money supply can be measured in several ways: - M1 ⇒ cash held by the public and money deposited in a variety of checking accounts - Money spendable now - M2 ⇒ broader measure incorporating M1 + savings accounts, balances in retail money market mutual funds and small time deposits (money help in interest-paying accounts) - Money that be spendable fairly soon 7. Banking institutions and services 7.1 The Federal Reserve → federal reserve system: central banking system of the US - Responsible for regulating banks and implementing monetary policy → FED is an independent body in the sense that its decisions do not have to be ratified by Congress or president - BUT ⇒ congress does have indirect influence because the fed is legally bound to pursue the economic priorities established by Congress → to help ensure independence from political influence - Members of FED;s policymaking board are appointed to staggerred 14-year terms and no members of the presidential administration or any elected officials may serve on the board 7.1.2 The FED’s major responsibilities → 5 broad categories: - Conducting monetary policy as required by Congress, with three objectives: - maximising employment, keeping prices stable, and keeping inflation under control - Maintaining the stability of the financial system by minimising systemic risks (financial risks that extend beyond any single bank or other company) - Supervising and regulating individual financial institutions - Ensuring a secure and efficient payment system to support financial transactions, including providing an adequate supply of currency and processing checks and electronic payments - Protecting consumers and promoting community development by ensuring fair lending, fair housing, and community reinvestment 7.1.3 The FED’s tools for implementing monetary policy → the Federal Funds Rate: interest rate that member banks charge each other to borrow money overnight from the funds they keep in their Federal Reserve accounts - Fundamental driver of economic behaviour as it influences short and long term interest rates → 3 mechanisms used by the FED to push the federal rate as close as possible to that target - Buying and sellin Treasury bonds, bills and notes - Adjusting reserve requirements - Lending through the discount window → discount rate: interest rate tha member banks pay when they borrow funds from the FED - When fed changes the discount rate: each member bank generally changes it prime rate (= interest rate a bank charges its best loan customers) 7.1.4 Other government banking agencies and institutions → FED shares responsibility for banking oversight and financial activities with other agencies and semi-independent institutions - FDIC ⇒ Federal Deposit Insurance Corporation - To protect money in customer accounts, to assess the financial soundness of the nation’s banks and to manage the transition of assets whenever a bank fails - Banks pay fee to join the FDIC network - NCUA ⇒ National Credit Union Administration - Provides regulatory supervision and account protection for credit unions - Fannie Mae and Freddie Mac - 2 government sponsored companies - Have a mandate to support home ownership for low and moderate income buyers by making mortgage funding more readily available 7.2 Investment banks → investment banks: firms that offer a variety of services related to initial public stock offerings, mergers and acquisitions and other investment matters 7.3 Commercial banks → commercial banks: banks that accept deposits, offer various checking and savings accounts and provide loans → major types of commercial banks:  - Retail banks = serve consumers with checking and savings accounts, debit and credit cards, loan for homes… - Merchant banks = offer financial services to businesses and wealthy individuals - Thrift banks = offer deposit accounts and focus on offering home mortgage loans - Credit unions = not-for-profit, member-owned cooperatives that offer deposit accounts and lending services to consumers and small businesses - Private banking = refers to a range of services for wealthy individuals, families 7.4 Other financial services → in addition to commercial banks of all shapes and sizes, various other types of firms provide financial services to consumers and businesses - Some complement services offered by banks, others compete with banks in one or more areas → variety of nonbank institutions lend money to consumers and businesses - Some of these finance companies are independent, others are affiliated with retailers or manufacturers - Credit cards = major category of lending (some cards are issued by banks, or issued by retailers and credit card companies e.g. american express) → credit card agencies offer opinions about the credit worthiness of borrowers and of specific investments asich as corporate bonds 7.5 Bankin’s role in the economy → many convenienes and possibilities of consumer life made possible through banking services - E.g. credit cards, saving accounts, home mortgages… → but also raise potential concerns: - Shadow banking - “Too big to fail” dilemma - Boundary between investment and commercial banking 7.5.1 Shadow Banking → vast amount of consumer and commercial lending is provided by nonbank leaders (= group that includes mortgage companies, personal finance companies, insurance firms, investment banks, money market funds…) - Referred to as shadow bankers because their lending activities take place outside the purview of the regulatory agencies that oversee banks → banks lend money from deposits they take in (insured by the FDIC) and banks can turn to the Federal Reserve for loans if they run short of cash - BUT ⇒ nonbank leaders don’t have these safety cushions = more vulnerable ⇒ played major role on financial crisis of 2008 → some regulators worry that shadow banking sector has become so large that is could ecome a systematic risk to the economy in the future 7.5.2 The “Too-big-to-fail” Dilemma → influence of small number of very large banks → given their size and interconnectedness: failure of just one of these big banks could cause tremendous strain on the government and the economy - Bank’s presence in the economy is so big that regulators will take special action to make sure it does not fail = an aspect of containment of systemic risk (one of the responsibility of the FED) 7.5.3 The boundaries of investment banking and commercial banking → some experts blamed risky investment activity by commercial banks (suing depositors’ funds in some cases) for the stock market crash that triggered the great depression 8. Thriving in the digital enterprise: fintech → fintech: technologies with the potential to improve or disrupt financial services  - Term used as a label for a wide range of innovations that have the potential to improve financial services and in some instances, radically disrupt them 8.1 Making financial services more inclusive → number of fintech initiatives aim to give more people easier access to financial services by lowering costs and other barriers - This means offering banking services to consumers and small business owners whose needs have ot been met by traditional banks → fintechs innovate by passing intermediaries in the conventional banking system - Peer-to-peer lending: consumers and smallbusiness owners can apply for loans online - The system quickly evaluates their credit worthiness and then investors can choose to fund loans that meet their risk/ reward criteria - Opening stock market investing to more people at lower cost 8.2 Improving the efficiency of financial activities → aim to lower the costs, delays and complexity associated with traditional banking activities 8.3 Strenghtening the security of financial services → financial services sector constantly under siege of cybercriminals - Fintech innovators are now applying automated AI-based threat intelligence to help identify intrusions and plug vulnerabilities more quickly - Intelligent systems also work to spot supsciious transactions correctly 8.4 Improving the customer experience in financial services → with class of services known as embedded finance, the financial aspect of a transaction is seamlessly built into the retail experience - In such way that it requires little or not effort on the consumer’s part → mobile and cloud technologies have also helped create new category of banks often referred to as nebanks - Providing services entirely through mobile and digital channels - Without large staffs and physical branches to maintain: these companies have lower cost structures and therefore can offer banking services at a lower cost ⇒ neobanks fall into 2 general categories: - Full-stack: companies licensed as banks and therefore legally allowed to operate as independent financial institutions - Front-end: fintech companies that provide the customer-facing portion of the service via an app but are not licensed as banks themselves and so are required to partner with licensed banks 8.5 Enhancing financial decision making → final group of fintech innovations apply cognitive automation and other tools to help investors make better financial decisions without paying for the services of a financial adviser - Called robo advisers = assemble investment portfolios based on each client’s risk tolerance, resources and objectives ⇒ these systems aim to improve investors’ returns by removing emotion-driven-decision-making and automating tasks that are time consuming to do manually CHAPTER 3: THE GLOBAL MARKET 1. Fundamentals of International Trade 1.1 Why nations Trade → economic globalisation: increasing integration and interdependence of national economies around the world → 6 reasons why countries and companies trade internationally: - Focusing on relative strengths - Classic theory of comparative advantage = each country should specialise in those areas where it can produce goods and services most efficiently and trade for goods and services that it can’t produce as economically - Argument: specialisation & exchange will increase a country’s total output and allow trading partners to enjoy a higher standard of living - Expanding markets - E.g. Microsoft, Toyota - Pursuing economies of scale - Can benefit from economies of scale (= savings from buying parts and materials, manufacturing or marketing in large quantities) - To expand their sales volumes and increase chances of turning a profit on every goods or services sold - E.g. Boeing - Acquiring materials, goods and services - No country can produce everything so they reach out - Keeping up with customers - Expand in order to keep or attract multinational customers - Keeping up with competitors - If firm begins to see benefits from selling internationally (e.g. gaining economies of scale rom higher sales volumes) ⇒ competitors may have no choice but to start expanding internationally as well 1.2 How international trade is measured → key economic indicators to measure nation’s level of international trade: - Balance of trade: total value of the products a nation exports minus the total value of the products its imports over some period of time - In years when value of goods and services exported exceeds value of goods and services it imports = country has + balance of trade or trade surplus (= favourable trade balance created when country exports more than imports) - Opposite ⇒ trade deficit (= unfavourable trade balance created when a country imports more than it exports) - Balance of payments (broadest indicator of international trade): sum of all payments one nation receives from other nations minus the sum of all payments it makes to other nations over some specified period of time 1.3 Foreign Exchange Rates and currency valuations → when companies buy and sell goods and services in the global marketplace, they complete the transaction by exchanging currencies = a process called foreign exchange (conversion of one currency into an equivalent amount of another currency) - Exchange rate: rate at which the money of one country is traded for the money of another → most international currencies operate under a floating exchange rate system  - Meaning that a currency’s value or price fluctuates in response to the forces of global supply and demand → many countries have adopted a managed floating rate approach - In which they intervene (by bing or selling their currencies in the foreign exchange market) to stabilise their currency’s value or in some cases to coordinate with other countries to stabilise a particular currency → currency is called: - Strong relative to another when its exchange rate is higher than what is considered normal - Weak when its rate is lower than normal 2. Conflicts in International Trade 2.1 Free Trade → free trade: international trade unencumbered by restrictive measures (without government intervention) - Opposite is protectionism (gov institutes policies to protect its own industries or workers) → 6 important ideas about free trade: - Conflict between nations - Trade agreements often intertwined with international politics and foreign policy decisions - Trade = fundamental in helping countries rebuild from ars and in preventing hostilities - Trade disputes as each side seeks to maximise its economic advantages - Conflict within nations - Trade policy can simultaneously help one segment and hurt another within same nation - Asymmetrical wins and losses - Credited with lifting millions out of poverty around the world - BUT ⇒ gains in 1 place often come at the expense of losses elsewhere  - Supporters of free trade acknowledge that it produces winners and losers but the winners gain more than the losers lose = so net effect is positive - Short-term effects versus long-term effects - The broader business environment - Trade takes place within broader economic, social and technological environment = making it difficult at times to isolated the effects of trade policy decisions - Global interconnectedness - Many of challenges that world is facing are global in nature (e.g. climate change) - Coordinated responses to these challenges could help everyone 2.2 Government Intervention in International Trade → when gov believes that free trade is not in the best interests of its national security, domestic industries, workforce or consumers = it can intervene in several ways: - Tariffs: taxes levied on imports - Can be levied to generate revenue, to restrict trade or to punish other countries for disobeying international trade laws - Quotas (import quotas: limits placed on the quantity of imports a nation will allows for a specific product) - Embargoes: total ban on trade with a particular nation (a sanction) or of a particular product - Restrictive import standards - Countries can assist their domestic producers by establishing restrictive import standards = making it difficult or expensive for foreign companies to obtain such licences - Export subsidies: form of financial assistance in which producers receive enough money from the gov to allow them to lower their prices in order to compete more effectively in the global market - Antidumping measures: charging less than the actual cost or less than the home-country price for goods sold in other countries - Most often used to try to win customers overseas or to reduce product surpluses - Sanctions - Politically motivated embargoes that revoke a country’s normal trade relations status 3. International Trade Organisations 3.1 Organisations facilitating international trade → World Trade Organization (WWO): permanent forum for negotiating, implementing and monitoring trade procedures and for mediating trade disputes among its 160-plus member countries - Guiding principles are: preventing discriminatory policies that favour some trading partners over others, reducing trade barriers, promoting economic progress in the world’s less-developed countries, & addressing the digital divide that disadvantages people of regions without access to new technology → International Monetary Fund (IMF) - Established in 1944 to foster international financial cooperation & increase stability of international economy - Primary functions: monitoring global financial developments, offering technical advice and training to help countries manage their economies more effectively and providing short-term loans to member countries → World Bank - Group of 5 financial institutions - Primary goals: eradicating the most extreme levels of poverty around the world, creating sustainable economic growth, helping fragile economies become more resilient 3.2 trading blocs → trading blocs: organisations of nations that remove barriers to trade among their members and that establish uniform barriers to trade with nonmember nations - Primary goal is to ensure economic growth and benefit of members → Canada, Mexico and the US - Canada & Mexico = 2 of the most important trading partners for the US - With each country representing well over a half-trillion dollars of combined trade with the US every year - Rely on each other for agricultural goods, petroleum, automobiles, machinery… - Key points of contention: access to markets, job losses (as companies pursue lower manufacturing costs), labour rights, environmental protections and competitive fairness - In 1994: US, Canada and Mexico formed NAFTA (North American Free Trade Agreement) - To pave the way for freer flow of goods, services and capital within 3-country bloc through the phased elimination of tariffs and quotas - In 2020: NAFTA was replaced by the USMCA (US-Mexico-Canada-Agreement) - Aims to address concerns including automotive tariffs, labour laws, market access for US farm products while adding provision for digital business activities → European Union - One of the largest trading bloc (more than 2 dozen countries & nearly half a billion people) - One of the largest economies (16% of global GDP) - Eliminated hundreds of local regulations, variations in product standards, and protectionist measures that once limited trade among member countries - Many companies now create their products to meet EU specifications = EU’s reach expands far beyond Europe - CE marking = stands for Conformité Européenne indicating that product has met EU standards for safety, health and environmental responsibility - Creation of own currency = adopted by more than half of its member states - Made financial transactions simpler and less expensive → Asia-Pacific Economic Cooperation - Organisation of 21 countries working to liberalise trade in the Pacific Rim (= land areas surrounding Pacific Ocean) - Long term goal of encouraging trade and investment among member countries and helping the region achieve sustainable economic growth 4. The Global Business Environment 4.1 Cultural differences in the global business environment → culture: shared system of symbols, beliefs, attitudes, values, expectations and norms for behaviour - Shapes business practices (e.g. communication practices, social norms, customs) → important to avoid ethnocentrism (= tendencies to judge other groups according to the standards, behaviours and customs of one’s own group) & stereotyping (= assigning a wide range of generalised and often false attributes to an individual based on membership in a particular culture or social group) → need to adopt viewpoint of cultural pluralism (= practice of accepting multiple cultures on their own terms) such as: - Avoid assumptions - Avoid judgements - Acknowledge distinctions  - 4.2 Legal differences in the global business environment → tax havens: a country whose favourable banking laws and low tax rates give individuals and companies the opportunity to shield some of their income from higher tax rates in their home countries or other countries where they do business  - Around 10% of the entire world’s economic output - Using tax havens is not necessarily illegal = however can be highly controversial practice (particularly in case of multinational corporations that use internal transfers or other processes to lower their tax burdens) - critics charge that being able to move funds around the world to minimise taxes gives multinational companies an unfair advantage over local competitors and allows them to avoid the shared responsibility of supporting infrastructure, education, and other public resources → bribery - Enduring dilemma for many companies is the question of making payments to government officials in some countries in order to secure contracts or otherwise gain a business advantage - These practices discourage much-needed investment in developing countries, undermine democratic processes and weaken trust in government, raise prices for consumers - By inflating business costs, potentially create environmental degradation by letting companies skirt regulations, faciliate criminal activities and can even present security risks by essentially putting officials’ actions up for the highest bid - Practise common in some locations (= considered a standard way of doing business) - BUT ⇒ broadly illegal for US companies under the Foreign Corrupt Practices Act (FCPA) - FCPA allows common business considerations 5. Forms of international Business Activity 5.1 importing and exporting → importing: purchasing goods and services from another country and bringing them into one’s own country → exporting: selling and shipping goods or services to another country - One of the least risky forms of international business activity - Allows firm to enter foreign market gradually, assess local conditions & then fine-tune its product offerings to meet the needs of local markets - Companies without resources to manage export activities themselves also have option of exporting indirectly through agents and export management companies 5.2 international licensing → licensing: agreement to produce and market another company’s product in exchange for a royalty or fee → licence agreements entitle one company to use some or all of another firm’s intellectual property in return for a royalty payment → potential benefits as an international expansion strategy include: - Quicker market entry - Lower financial commitment - Lower risks - Ability to get around import/ export restrictions or tariffs 5.3 international franchising → some companies choose to expand into foreign markets by franchising their operations - Franchising involves selling the right to use an entire business system - Attractive option for many companies as it reduces the costs and risks of expanding internationally while leveraging their investments in branding and business processes 5.4 international strategic alliances and joint ventures → strategic alliances (= long-term partnerships between companies to jointly develop, produce or sell products)  - Typically share ideas, expertise, resources, technologies, investment costs, risks, management and profits - Might be only way to gain access to a market → joint venture (= 2 or more firms join together to create a new business entity that is legally separate and distinct from its parents) - Alternative to a strategic alliance - Some countries require that local companies hold majority ownership of any international joint ventures - Which can limit degree of control that foreign owner has over venture’s operations 5.5 foreign direct investment → foreign direct investment (FDI): investment of money by foreign companies in domestic business enterprises - Fives companies greater control but also carries much greater economic and political risk - More complex than any other form of entry in global marketplace → companies that establish physical presence in multiple countries through FDI are called multinational corporations (MNCs) - Can approach international markets in a variety of ways 6. Strategic Approaches to International Markets 6.1 Organisation strategies for international expansion → when firm decides to establish a presence in another country: it needs to consider its long-term objectives, nature of its products, characteristics of the markets into which it plans to expand and management team;s ability to oversee a geographically dispersed operation → considerations can lead to one of several high-level organisational strategies: - Multidomestic strategy: decentralised approach to international expansion in which a company creates highly independent operating units in each new country - Giving local managers a great deal of freedom to run operations as they see fit - Can help company respond more quickly and effectively to local market needs = does not deliver economy-of-scale-advantages that other strategies can bring - Lack of centralised control can also lead to situations in which local managers act in ways contrary to corporate strategy or guidelines - Global strategy: highly centralised approach to international expansion with headquarters in the home country making all major decisions - Company embraces notion of economic globalisation by viewing the world as a single integrated market = approach opposite of multidomestic strategy - Highly centralised with headquarters in home country making all major decisions - Transnational strategy: hybrid approach that attempts to reap the benefits of international scale while being responsive to local market dynamics - Major strategic decisions such as product planning, business system are centralised - BUT ⇒ local business units are given freedom to make “on-the-ground” decisions that are most appropriate for local markets - “Think globally, act locally” 6.2 functional strategies for international expansion → products: - 2 primary questions regarding products: - Which products should they try to sell in each market?  - Should they standardise their products, selling the same product everywhere in the world, or customise their products to accommodate the lifestyles and habits of local target markets? - Customisation seems like obvious choice BUT can increase costs and operational complexity (= so not automatic) → customer support: - Some products that require some degree of customer support add another layer of complexity to international business → promotion: - Advertising, public relations and other promotional efforts also present dilemma of standardisation versus customisation - Companies also need to consider nonverbal symbols, local competition and variety of cultural differences → pricing: - Pursuing customers internationally adds to the cost of doing business → staffing: - Many companies find that combination of US and local personal works best ⇒ mixing company experience with local connections and lifelong knowledge of the working culture 7. Thriving in the Digital Enterprise: AI-Assisted Translation → language: 1 of the many practical challenges of conducting international business when multiple languages are involved - Machine translation (= any form of automated translation) has been one of the long-standing goals of AI 7.1 text translation → translation tools can work at several levels: - Translating written text - Translating text within images - Translating spoken language 7.2 real-time voice translation → trickiest translation job of all = translating spoken language in real time or close to real time - Requires multiple players of technology including speech recognition and synthesis to hear and speak the language, natural language processing and natural language generation to understand the incoming language and output sensible language and translation capability in the middle CHAPTER 4: BUSINESS ETHICS AND CORPORATE SOCIAL RESPONSIBILITY 1. Ethics in contemporary business 1.1 Defining ethical behaviour → ethics: the rules or standards governing the conduct of a person or group - Principles or standards of moral behaviour that are accepted by society as right or wrong - At minimum = competing fairly and honestly, communicating truthfully and not causing harm to others - Competing fairly and honestly: to not knowingly deceive, intimidate or misrepresent themselves to customers, competitors, clients, employees, the media or gov officials - Communicating truthfully: huge concern in contemporary business - Not causing harm to others: problems can start with leaders making decisions that put their personal interests above those of other stakeholders, underestimating risks of failure or neglecting to consider or control negative effects on other people and organisations 1.2 Forces that promote unethical behaviour → management pressure and corporate culture - Some of the biggest business scandals = pressure to meet sales quotas and other performance goals - Pressure to bend of break ethical rules = favour in workforce burnout as employees tire of being asked to compromise their moral values → a willful blindness to harm - Financial pressures and career aspirations can lead people into what one might call a willful blindness to harm - Major social media platforms have been criticised for enabling spread of toxic content → strategies for supporting ethical behaviour - Start from the top: ethical behaviour must start at the highest levels of the organisation - Define expectations and set an example: companies with strong ethical practices create cultures that reward good behaviour - Craft a code of ethics with visible consequences:formal policy document that defines an organisation’s guiding values, complete with advice for handling specific situations that could arise in the course of business - These typically include range of general principles and specific rules that apply to a company’s particular line of business - Code of ethics = written statement that sets forth the principles that guide an organisation’s decision - Train and support employees: training in ethical issues and decision-making, coupled with support from managers can help employees avoid ethical missteps and resolve ethical dilemmas - Practice transparency: information is another key area in which stakeholders have differing expectations and demands - Businesses need to and have the right to withhold various types of information (including future product designs, strategic plans, competitive analyses…) - BUT ⇒ employees, communities, customers, investors, and other group have ethically and often legally legitimate claims to a wide range of information - Transparency = degree to which affected parties can observe relevant aspects of transactions or decisions - Builds trusts and helps prevent unethical cultures from taking root - Provide feedback channels: 2-way communication, giving employees and other parties a safe and confidential way to share questions and concerns with management - Whistleblowing (= disclosure of information by a company insider that exposes illegal or unethical behaviour by others within the organisation)  - Smart companies make sure employees have a way to express concerns internally so that issues can be brought to management;s attention and resolved quickly - Put your money where your morals are: companies need to demonstrate positive ethical behaviour even if it means losing business 1.3 Guidelines for making ethical decisions → ethical lapse: a situation in which an individual or a group makes a decision that is morally wrong, illegal or unethical → ethical dilemma: situation in which more than one side of an issue can be supported with valid ethical arguments → conflicts of interest: situations in which competing loyalties can lead to ethical lapses, such as when a business decision may be influenced by the potential for personal gain  2. Corporate social responsibility → Corporate social responsibility (CSR): idea that business has obligations to society beyond the pursuit of profits 2.1 The relationship between business and society → consumers in contemporary societies enjoy and expect a wide range of benefits (e.g. health care, use of credit…) = require money → profit seeking companies are the economic engine that powers modern society - Generate vast majority of the money in nation’s economy = either directly (through their own taxes and purchases) or indirectly (through taxes and purchases made by employees they support) → much of what we consider when assessing a society’s standard of living involves goods and services created by profit-seeking companies → companies cannot hope to operate profitably without the many benefits provided by a stable, functioning society ⇒ business & society need each other 2.2 Taking sides on public issues: stakeholder expectations and company viewpoints → stakeholders often demand that companies take a public stand - Activists routinely analyse the political contributions made by companies and individual executives to see which causes and which candidates they are supporting → public increasingly expects companies to take a stand 2.3 Philanthropy versus strategic CSR ⇒ philanthropy: donation of money, time, goods, or services to charitable, humanitarian or educational institutions ⇒ strategic CSR: social contributions that are directly aligned with a company;s overall business strategy → companies that engage in CSR activities can choose between 2 broad courses of action: general philanthropy or strategic CSR - Philanthropy involves donating money, employee time or other resources to various causes without regard for any direct business benefits for the company - Strategic CSR involves social contribution that are directly aligned with a company’s overall business strategy - Company helps itself and society at the same time - This approach can be followed in variety of ways: e.g. company can help develop the workforce by supporting job training efforts, use volunteering programs to help train employees or help small businesses with training and other resources 3. Perspectives on corporate social responsibility 3.1 Minimalist CSR → only social responsibility of business is to pay taxes and obey the law - In 1970: Nobel Prize winning economist Milton Friedman articulated this view by saying “there is only one social responsibility of business: to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud” - Any business that operates ethically and legally provides society with beneficial goods and services at fair prices = positive contribution, regardless of one’s stance on CSR - Proponents of minimalist view claim that this is what happens when companies make tax-deductible contributions to social causes 3.2 Defensive CSR → many companies today face pressure from a variety of activists and nongovernmental organisations (NGOs) - NGOs = nonprofit groups that provide charitable services or promote social and environmental causes - Possible response = engage in CSR activities as a way to avoid further criticism - Company may take positive steps to address a particular issue only because it has been embarrassed into action by negative publicity 3.3 Cynical CSR → possible approach to CSR is purely cynical, in which a company accused of irresponsible behavior promotes itself as being socially or environmentally responsible without making substantial improvemeents in its business practices - Environmental activist use the term greenwash as a label for publicity efforts that portray companies as being environmentally friendly when their actions speak otherwise 3.4 The proactive stance: moving beyond CSR → company leaders believe they have responsibilities beyond making a profit and they back up their beliefs and proclamations with actions taken on their own initiative  - Foundation of being a purpose-driven business (= any company that aspires to accomplish more than just make money for owners and investors) - Seek profitable opportunities to pursue a social or environmental goal - Broader obligation is sometimes referred to as the triple bottom line: profit, social contribution and environmental sustainability 3.5 Resolving the CSR dilemma → a 2-tiered approach to CSR can yield a practical, ethical answer to this complex dilemma - At first tier: companies must take responsibility for the consequences of their actions and limit the negative impact of their operations - “Do no harm” and not a matter of choice - Has a right to expect a basic level of responsible behaviour from all businesses , including minimising pollution and waste, minimising the depletion of shared natural resources, being honest with all stakeholders, offering real value in exchange for prices asked and avoiding exploitation of employees, customers, suppliers, communities, and investors - Some of these issues are covered by the laws but others aren’t = thereby creating the responsibility of ethical decision-making by all employees and managers in a firm - At the second tier: moving beyond “do no harm” & defensive CSR to a more proactive stance becomes a matter of choice - Companies can choose to help in whatever their investors, managers or employees see fit 4. CSR: the natural environment → environmental concerns of pollution, resource depletion and waste are other important aspects of the relationship between business and society → Creation, delivery, use and disposal of products that society values virtually always generate pollution and consume natural resources → internet and all the devices and services associated with it have voracious appetite for electricity and the generation of electricity seriously affects the environment → many of these issues are neither easy nor simple - Often require tough trade-offs, occasional sacrifice, disruptive change and decision-making in the face of uncertainty 4.1 Business efforts to conserve resources and reduce pollution → widespread concern for the environment dates to the 1960s when ecology (= study of the relationship between organisms and the natural environment) entered the mainstream discussion - In 1963: federal, state and local governments began enacting laws and regulations to reduce pollution - Many states and cities have also passed their own environmental laws → companies engaged in efforts to reduce resource usage and reduce harmful carbon emissions in pursuit of the widely shared long-term goal of achieving net-zero carbon by 2050 (= meaning as much carbon is removed from the atmosphere as companies and individuals emit into it) - Resource usage: businesses are tackling resource usage and waste in a variety of ways from google using AI to figure out how to cool its massive data centres more efficiently to companies in the food production sector to reduce the staggering amount of food that goes uneaten every year - Carbon reduction: carbon dioxide (CO2) makes up 80% of the greenhouse gases - Mostly produced by burning fossil fuels for transportation, electricity generation, industrial processes and home and commercial heating - Carbon capture: number of promising technologies are tackling this problem - Carbon offsets and carbon markets: cost, difficulty and possibility of reducing carbon emissions vary widely across the economy - E.g. retrofitting an existing factory with new clean energy systems might be so costly that it would drive the company out of business  - With carbon offsets, entities that can’t reduce carbon emissions enough can essentially “Exchange carbon” with entities that can - Markets can be either compulsory (where governments require companies to meet carbon emission standards) or voluntary (where companies that have committed to become carbon-neutral can buy offsets if they can’t reduce their carbon emissions sufficiently) 4.2 Sustainability and the circular economy ⇒ sustainable development: operating business in a manner that minimises pollution and resource depletion, ensuring that future generations will have vital resources → efforts to minimise resource depletion and pollution are part of a broader effort known as sustainability or sustainable development - Which the UN has defined as development that “meets the needs of the present without compromising the ability of future generations to meet their own needs” - By taking a broad and long-term view of their companies’ impact on the environment and stakeholders throughout the world, managers can ensure the continued availability of the resources their organisations need and be better prepared for the future → key aspect of sustainable development is rethinking how products are created, consumed, and disposed of when the original owners no longer need them  - In traditional linear economy = raw materials are converted into products that are sold, used and then thrown away - In contrast = circular economy (= model of resource usage that operates as a series of loops in which materials and products are continually reused, recycled and repurposed rather than being used by one owner and then discarded) 5. CSR: Consumers → 1960s activism that awakened business to its environmental responsibilities also expanded attention to consumer rights (including the passage of federal legislation regarding truthful packaging and consumer lending practices) - Since then = a wave of consumer-oriented legislation has attempted to look out for the rights of consumers in various ways 5.1 The right to buy safe products → doing no harm = one of the foundations of social responsibility - The US and many countries go to considerate lengths to ensure safety of the products sold within their borders - US gov imposes many safety standards that are enforced by the Consumer Product Safety Commission (CPSC) as well as by other federal and state agencies - Companies that do not comply with these rules are forced to take corrective action & threat of product-liability suits and declining sales motivates companies to meet safety standards 5.2 The right to be informed → right to know what they are buying, how to use it and whether it present any risks to them - Right to know the true price of goods and services and details of pruchase contracts → numerous gov regulations have been put in place to ensure buyers get the information they need in order to make informed choices → spread of social media and their use in social commerce (in which buyers help educate one another) has helped shift power from sellers to buyers 5.3 The right to choose which products to buy 5.4 The right to be heard → social medias have created a revolution in terms of giving consumers a voice they never had, providing them with numerous ways to ask questions, voice concerts, provide feedback and demand attention - Savvy companies monitor social media to catch messages from dissatisfied customers = companies that fail to respond or that respond in defensive, inward-looking ways are likely to lose business to competitors that embrace social media and power they give today’s consumers 5.5 The right to digital security → any company that collects information on or about consumers gas a clear ethical obligation to keep it safe and secure → digital security breaches raise the risk of identity theft (= crime in which thieves steal personal information and use it to take out loans and commit other types of fraud) - Digital security is a difficult challenges in the US because US laws offers no comprehensive legal rights to privacy and data protection policy is a patchwork of hundreds of industry-specific regulations and state and local laws that leave much up to the responsibility of individual companies - In contrast ⇒ EU’s General Data Protection Regulations (GDPR) provide single set of regulations across industries with a number of important elements to protect consumers - Such as the “right to be forgotten” by having all of one’s data erased - Also mandates stiff penalties (up to 4% of a company’s annual revenue) for violations → data privacy is likely to be a growing concern - Data brokers that aggregate data about consumers and sell their profiles to other companies can have hundreds of data points about individual in their records - The Internet of Behaviours (IoB) concept aims to capture, profile and then influence behaviour of consumers via all the internet-connected devices in their lives - Much of this effort focuses on being able to predict consumer behaviour in order to deliver more-compelling marketing messages in the right place at the right-time → 2 opposing trends are in motion in business today when it comes to privacy - Companies are developing ever more powerful systems for gathering and processing consumer and employee data - Many of these systems promise to deliver beneficial advances in smart shopping, safety, health management and other areas, ebenefits that many people will consider worth the loss of privacy - Many citizens and employees and some elected officials are pressing for less intrusion and greater protections - Some companies are responding such as Google phasing out the behavioural tracking ability it had given to study people’s interests by tracking them across the web as they moved from one website to another - Ensuring greater protection for consumer privacy in a data-driven world could become an important branding imperative for many companies 5.6 The right to equitable service → right to be treated fairly by businesses (= not always the case even with laws)  6. CSR: employees 6.1 Equality in employment opportunity ⇒ discrimination: in a social and economic sense, denial of opportunities to individuals on the basis of some characteristics that has no bearing on their ability to perform in a job → all employee deserve a fair shot at opportunity and success - Principles expressed in a variety of local, state and national laws (e.g. CIvil Rights Act of 1964 and the Americans with DIsabilities Act of 1990) which outlaw job discrimination on factors such as race, sex, age, disabilities…. - Civil rights act of 1964 also established Equal Employment Opportunity Commission (EEOC) = a federal agency responsible for monitoring hiring practices and for investigating complaints of job-related discrimination - Power to file legal charges against companies that discriminate and to force them to compensate individuals or groups that have been victimised by unfair practices → moves to ensure equal opportunities for all employees: - Reevaluating the hiring process from start to finish: some companies have expanded the scope of their recruiting efforts to a wider selection of colleges to make sure they are looking at the broadest possible pool of candidates and evaluating them fairly using performance-based criteria - Being careful about hiring for “fit”: can be positive quality (if it involves technical cumin, strong customer orientation…) but also negative (if it's about personal characteristics that have nothing to do with job perforation) - Assessing retention policies and career-growth programs to make sure every employee is getting a fair shot at moving up: includes making sure high-visibility projects and executive mentoring opportunities are distributed evenly so that the employee growth is based on what people can do , not whom they know 6.2 Fair compensation → most common arguments against raising the minimum wage are that entry-level jobs are not designed to be permanent employment for adults raising families and that raising wages will force some companies that rely on minimum-wage labour out of business 6.3 Working conditions → employers have an ethical and legal responsibility to ensure the safety of their employees in the workplace - During the 1960s, mounting concern about the workplace hazards resulted in the passage of the Occupational Safety and Health Act of 1970 = which set mandatory standards for safety and health and also established the Occupational Safety and Health Administration (OSHA) to enforce them → pandemic highlighted 2 issues of workplace conditions that are likely to affect employer-employee relations for years to come - How much perceived risk employees should be expected to tolerate in a situation such as COVID 19 outbreak - Some employees afraid or even refusing to work under risky conditions and some refusing to comply with vaccination, ask or testing mandates - Employees who decided that they prefer the work-from-home (WFH)( arrangement that millions ahd to adopt during the early months of the pandemic 7. Thriving in the digital enterprise 7.1 Human biases embedded in AI systems → AI reflects the intentions and beliefs of its creators - Typically trained on a data set that is supposed to mimic the conditions it will encounter when released into the real world  - E.g. facial recognition system is trained on thousands of images of human faces until it learns facial characteristics well enough to be able to recognise and distinguish human faces when it is put to work in whatever application it is intended for - AI researcher Joy BUolamwini discovered that some of the most widely used facial recognition systems had much bigger error rates on the faces of women and nonwhite people, she traced problem to photo sets they were trained on (= composed mostly of the faces of white men) - Developers of these systems making improvements but the fact that problems existed in first place could reflect lack of diversity in AI research 7.2 Lack of transparency and explainability → one of the most unnerving aspects of some advanced decision-making systems is the inability of even their creators to understand why the systems make some of the decisions they do - Lack of insight has troubling implications for law enforcement, medicin, hiring and just about nay field where AI might be used → explainable AI has become central concern in the field - Driven by concern for accountability and the need to monitor performance of AI systems over time because their performance can drift as they venture deeper into real-world data and away from data sets on which they were initially trained 7.3 The efforts to make AI a force for good → AI has potential to benefit humankind in many ways BUT only if it is directed toward beneficial applications and applied in ethical ways - AI research and product development requires specialised talent and massive computer power so these activities tend to be concentrated in the organisations that can afford these resources ⇒ spread of AI throughout business and society highlights importance of ethical awareness and ethical decision making CHAPTER 5: Forms of ownership ⇒ best ownership structure depends to a large degree on the founders’ long term goals, desire for control and tolerance for risk - Then business evolves over time and owners may need to modify the original structure or join forces with other companies 1. Sole proprietorships ⇒ sole proprietorship: business owned by a single person 1.1 Advantages of sole proprietorships → 6 key advantages - Simplicity ⇒ easy to establish and requires less paperwork than others structures - Only legal requirement is obtaining the necessary business licences and permits required by the city, county and state - Single layer of taxation ⇒ income tax is straightforward - Federal gov does not recognise company as a taxable entity ⇒ all profit “flows through” to the owner where it is treated as personal income and is taxed accordingly - Privacy ⇒ beyond filing tax returns and other gov reports, generally are not required to report anything to anyone - Flexibility and control ⇒ not required to get approval from business partner or anyone to change any aspect of your business strategy or tactics - Fewer limitations on personal income ⇒ keep all the after-tax profits the business generates - Personal satisfaction ⇒ satisfaction of working for themselves (of taking the risks and enjoying rewards) 1.2 Disadvantages of sole proprietorships → 6 significant disadvantages - Financial liability ⇒ owner and business are legally inseparable giving the proprietor unlimited liability - Unlimited liability ⇒ a legal condition under which any damages or debts incurred by a business are the owner’s personal responsibility - Demands on the owner ⇒ potential long hours, stress of making all the decisions, solving problems, and being tied so closely to the company that taking time off is sometimes impossible - Can feel isolated and unable to discuss problems with anyone - Social media can help as a way to reach out for advice… - Limited managerial perspective ⇒ running business requires expertise in accounting, marketing, information technology, business law… - Few individual