SOM Test 1 Review PDF

SOM TEST 1 REVIEW Inflation An increase of the price of most goods and services Inflation rate has increased 2.9% since last year Since Februrary 2020, there has been a 20% increase. When iflation rate is 2%, the economy is good Busines...

SOM TEST 1 REVIEW Inflation An increase of the price of most goods and services Inflation rate has increased 2.9% since last year Since Februrary 2020, there has been a 20% increase. When iflation rate is 2%, the economy is good Businesses - sells goods or services and makes a profit - Any activity that seeks to make a profit through selling goods or service - For-Profit: seeks to make money - Nonprofit: earn enough money to cover expenses - Revenue - Expenses = Profit - Success is based on strategy of finding a need and filling it Revenue-Expense=Profit Certainty: perfect knowledge that has security from error; without a doubt Risk: Uncertainty: Clear Business Objective: Financial → revenue / expenses/ profit Risk→ all three options have a risk involved PEST→ Social Forces/ Sociocultural Stakeholders: anyone impacted by company Sharholder: holds stock in company The paradox of value: firms are most successful when they create long-term shareholder value Measures of economic condition: GDP, CPI, PPI, Unemployment Rate, Productivity CPI: shows monthly costs of a “market basket” of consumer goods and services; this measures rate of inflation or deflation PPI: measure of the prices of goods purchased in large quantities for resale Unemployment Rate: level of jobless people actively seeking work Types of Unemployment: - Frictional - Structural - Cyclical - seasonal Nothing great is built on minimums Organizations Groups of people who work to accomplish a specific purpose Evolution of Economy Roles Businesses Play in Society -raise people's standard of living Quality of life improves Standard of Living: how many goods and services people can buy; income and materialistic things Quality of life: wellbeing How Businesses support community interests  - producing goods and services - Providing paychecks and benefits - Paying taxes to support government spending - Donating Entrepreneurship: taking a risk to start a new business Factors of Production - Entrepreneurship - Natural resources - Capital - Human resources - Knowledge Forces of the Business Environment 1. Economic: tension between freedom to operate and government regulations a. Increase of tariffs lead to demand for domestic produuce 2. Technological: productivity, decrease in security a. Starting an e-commerce website to make shopping more convenient 3. Competitive: influence on customer, employee, and investor satisfaction; businesses competing against eachother; Coke and Pepsi a. Selling products less popular 4. Social: demographics, affects businesses # of consumers a. Changing goods to adapt to environment 5. Global: currency exchange, embargo, trade, and stability a. Manufacturing goods in other countries for a better price 6. legal/regulatory/political: laws, government, regulations, policies a. Businesses may have to redesign production processes Private Equity: investments made in private companies or assets IPO: initial public offering Importance of Macroenvironment The arena of forces that encourage or discourage the development of business Impacts: - Employees  - Customers - Security and privacy - Revenue - Productivity - Economic freedom Investors: own stockers; known as shareholders or stockholders Employees: key shareholders in business; provide labor, service, and create culture Competitive advantage: ability to produce goods more effectively than competitors Global Imapct on Business - changes in exchange rates - International trade agreements - Changes in tariffs - Immigration policies - Environmental regulations - Military alliances Catastrophic events make it harder for government and economy to stay stable illegatively impact global trade companies increase prices Global brand success factors: 1. Strong brand identity 2. Understanding and adapting to local markets 3. High-quality products or services 4. Strong distribution and supply chain 5. Financial stability Political Impacts on Business regulations, laws, and policies that specify business actions impact business politicians can create laws when elected Tax Impacts high taxes reduce profit  they can limit the amount of money a business has to invest Fiscal Policy: the government’s attempt to stabilize economy by rasing or lowering taxes or borrowing or spending money - recessions will be avoided and inflation will be at a managable level Monetary Policy: the government’s attempt to manage the money supply and interest rates to influence economic activity - The Fed is responsible for this Tariffs taxes on imports limit profit The U.S. has entered in free trade agreements that reduce or eliminate tariffs opponents of free trade advocat to protect comestic companies Economic Forces economic and financial infrastructure → ecomic policies of gov and banking and financial infrastructue - tax rates on goods - tax on income - import export duties - interest rates on loans and deposits - contract enforcement - corruption Impact on Inflation in Business inflation impacts the value of a dollar business's buying power decreases manufacturers spend more to acquire same amount of materials rapid inflation or deflation can destabilize economy Contract Enforcement stable business economics require that centract to be enforced a weak contract, discourage peo ram antering into business relationships Impact of Corruption involves practices of cheating and bribery that harms honest business Social Forces influences public opinion and attitudes towards issues Relatianship Between Technology and Productivity businesses use technology to better productivity productivity: what a business produces compared to what it puts into production technology improving productivity can negatively impact business's security PPP: purchasing power per Technology in Business World Machine Learning a fundimental type of AI enables AI to learn and evlove from vast amounts of data without instruction - Generative AI: algorithms that can create new, origional content by learning from existing data (ChatGPT) Principles of Responsible AI ethical, transparent, and accountable in its use 1. fairness: AI systems are unbiased and equitable 2. privacy: Al safegaurds personal and sensitive data 3. non- discrimination: AI avoids prejudiced decisions and actions 4. human -centric design: A development prioritizes human needs and volves - Large Language models (LLMs): using deep learning to understand and decode relationships between words, phrases, and ether human language elements Cloud Computing provides on-demand access to computing services on the Internet businesses can store, process, and analyze data remotely Benefits: - reduce operational costs - increased scalability - increased flexibility - increased efficiency Platforms: - Amazon Web Services - Microsoft Azure - Google Cloud Platfarm Augmented and Virual Reality - enhance or replace perception of reality Benefits: - Enhances customer experiences - Revolutionizes employee trainina - Fosters innovation in product design - Redefines marketing approach Big Data and Analytics collecting, storing, and analyzing complex datasets to uncover trends PEST Analysis Political: Food Safety Act 1990 and Bead and Flour Regulations 1998 Economic: price of wheat Social: increase in small households Technological: increase in online shopping When a owner of many companies, they use pest analysis relative to their brand Why do firms need to pay attention to the external environment? Constantly changing = uncertainty social trends technology Ethics Illegal and Ethical /Unethical Aletions ethical ⍯ legal and legal ⍯ ethical Legal but Unethical - making low-quality products that break easily - cancelling a company retirement plan - Avoiding taxes by using offshore banks Legal and Ethical - boycotts - consumer-friendly policies - employee fringe benefits - Diversity policies Illegal and Unethical - Embezzlement - consumer Fraud - sexual harrassment - cash payment to avoid taxes - bribes Illegal but Ethical - paying more despite union contract limits - selling raw milk - taking usable items from dumpsters and danating them Legal: whether it contradicts a rule or is enforced by authorities; laws are rules of conduct Ethical: whether it reflects how most people would like to be treated amd conforms to cultural beliefs; principles of what is right and wrong; ethics can be universal or cultural Values: permanent and deeply held beliefs that determine people's behavior Cultural Norms: ethics, valves, attitudes, and behaviors that are deemed normal Building an Ethical Culture Steps Top Managers Must Take to Establish an Ethical Culture Set an ethical example Create an ethical hiring culture. Create ethical codes and training Reward ethical behavior Two Kind of Ethical Codes Compliance prevents criminal misconduct by increasing control and punishing violators many companies use NDAs so that former employees cannot disclose information Integrity foster responsible employee conduct by creating an ethically supporting environment stresses a culture of fair play, honesty, and diversity Code of Ethics A set of ethical standards to guide an organization's actions State top management's expectation for employees offering guidance on how to treat customers, suppliers, and competitors lists prominited and ethically questionable behaviors Whistleblowers: employees who report organizational misconduct to government or public The Sarbanes- Oxley Act: gives whistleblauers protection from retaliation. Diversity: the diferences that individuals bring to a workplace → broader range of perspectives, experiences, and ideas → betters decision making and probiem solving The Diversity Wheel Personality: each individual is unique introversion / extroversion creativity emotional intelligence Internal: visibal characteristics- race, ethicity, gender, sexual orientation, age, disibilities can shape individual's expertences of discrimination, preducice, marginalization External: social and economic status that can influence a person's access to resources and opportunities income education occupation Organizational: identity within an organization; can shape power, influence, and recognition job title  work style position in hierarchy Era: beliefs, values, and attitudes which can shape an individual's experiences of conflict, collaboration, and compromise political and religeous views Cognitive Diversity - utalizes different experiences and perspectives to a particular situation, challenge, opportonite, or problems - Strategies Workplace Equity - ensuring that the company's systems, practices, and policres provide access to the same opportunities to all employees - Fair pay, promations, and recognition Accessibility 1. Conduct an Accessibility Audit a. evaluate physical and digita spaces b. identify any barriers 2. Provide Accomodations a. providing assistive technology to empbyces who need them b. modifications to physical elements (ramps, ect.) 3. Create a Culture of Inclusion a. all employees feel valued and supparted 4. Comply with Accessibility Laws and Regulations a. law requires employers to provide accessible workplaces Inclusion in the Workplace - creating an environment where all employees feel valued - Companies can promote inclusion in the wachplace by : - Fostering a culture of respect and collarato - providing training and rescurces to help employees collaborate and overcome bias - creating opportunities for everyone - implementing policies supporting diversity Allyship the practice of using one's privilege to support and advocate for colleagues create a culture of equity To promote allyship companies should: ○ advocate for equality ○ acknowledge one's own bias ○ foster a culture of belonging ○ be an active bystander ERG: an organization within a company that advocates for employees who share a common idenity or interest Affinity Network: group of employees who share qualities and provide support for their community Corporate social responsibility (CSR): a company’s responsibility to act in the best interest of society and the environment while maximizing profit; Some think that paying for CSR will reduce production of goods - “The business of business is business” - Milton Friedman - Ex. JUUL - Greater payoffs for doing good Stakeholders Perspective - “A firm that only makes money is not a good firm.” -Henry Ford - Take care of everyone Stakeholder Model Environmental, Social, Governance (ESG): a set of criteria that investors use to evaluate performance on environmental, social, and gavernance issues Environment Impact: measures the effect of digital technologies' positive or negative impact on the natural environment E-waste Recycling: process of recycling technolagy devices Green IT: Practies and technolagies that improve energy efficiency and reduce the carbon footprint Renawable Energy: energy that is sourced frum reneuable natural processes like solar Smact Grid: an electeialy network that digital technology to monitor and manage the transport of electricity Carroll's Global Corporate Social Responsibility Pyramid A guide for thinking about daily practical and moral matters in business Social Audit: a systematic assesment of a company's performance in implementing socially responsibe programs Social Entrepreneurship an innovative, social valve-creating activity that can occur with or across the for profit and nonprofit sectors focus to create value while doing good in the world characterized by innavation Sustainability - economic development that meet the needs of the present without compromising the ability of future generations to meet their own needs Philanthropy - charitable donations to benefit mankind Data Privacy and Security: principles and practices of safeguarding information from malicious use; prevents cyberattacks, security breaches, and data leaks Encryption: convers data into a code to prevent unauthorized access Firewall: provides barrier between internal networks and external threats Virtual Private Network (VPN): provides secure connection over the internet, protecting data Passward Manager: Helps create and store complex, unique passuoras to ensure security Digital Dreading: the social/economic inequality caused by the lack of access to skills in technology Negative Effects of Unethical Business Practices diminished reputation and profit emplyce fraud costly lausuits fines and jail time Benefits of Ethical Business Practices: increased innovation Better Decision making Improved Financial Performance Higher Employee Engagement Enhanced Reputation Acting Ethically Your code of personal ethics: base character → honest, reliable, Kind, self-centered, aggressive beliefs → "Nice guys finish last," "Hard work pays off" belief origins → family, religion, movies, personal experiences behavior → "I have mostly shallow friends because I tend not to follow through my commitments." Integrity: taking responsibility for your decision at the time you take action; builds ethical behavior Companies would lie to the government to get PPP money during covid. They would misuse money. Mystery Shopping: a form of observational market research conducted in a disguised fashion by internal or external people Triple Bottom Line (TBL) the interconnected aspects of company preformance: economic, social, environmental - term given by John Elkington in 1994 - expands traditional definition of business succes? Three Ps: People, Planet, Profit B Corporation a type of for-profit company that has been certified the nonprofit organization B Lab committed to force good and balance financial success with positive impact on society and enviranment Substainability Financial: reducing costs improving efficiency attracting investment Strategic: differentiate from other companies establish competative advantage and built positive reputation Ethical: employee morale reduce risk of legal Issues contribute to social and environmental causes Sweatshops: a work facility with long hours, low wages, and abusive conditions Global Compact: voluntary agreement established by United Nation which promotes human rights, good labor practices, environmental protection, and anti-comption standards Economics Economics: the study of the productian, distribution, and consumption of scarce goods and services Why businesses care about economics - how consumers act with businesses - political factors affect economy Economy: - consumers - businesses - Government Acticities: production, consumption, trade Ifluences economy: consumers - population density businesses - new industries (sharing ecanomy ) government - emergency orders (COVID) natural resources (geography) innovation & entreprencurship Big Three Indecators GDP - gas tank → broadly measuring the health of a country's economy Unemployment Rate - speed Inflation (CPI) - check engine light coming on Scarcity if product is scarce, buyer will pay more Ex. paintings by breed horses, a piano built in the 1700s. Supply: how willing and able sellers are to provide goods and services at different prices - less scarce = seller charges Demand: how willing and able buyers are to purchase goods and services - less scarce = less buyers will pay Macroeconomics: study of economy as a whole - Study U.S. gross domestic products (GDP), national job growth, agricultural manutacturing, service sectors to national economy, anc growth in industrial praduction Microeconomics: study of economic behavior of individual economic - gas prices affect car sizes, sports teams affect ticket price, coupons on buyers behaviors The Five Factors of Production 1. Natural Resources: minerals supplied by nature 2. Capital: the buildings and tools 3. Human Resources: the human effort required to produce goods and services 4. Entrepreneurship: the process of taking risks to create a new enterprise 5. Knowledge: the technological expertise and practice experience that allows companies to determine wants and needs and deliver products Resource Development: the study of how to develop the resources for creating and best utilizing goods and services Factors of Production: resources used to create wealth Capitalism Capitalism: a free market economy where production and distribution are controlled by private individuals rather than government services; this causes businesses to work harder The Four Basic Rights Under Capitalism - The Right to Own Property -The Right to Compete - The Right to Free Choice. - The Right to Make and Keep Profits Invisible Hand: The individual's drive for prospacity, producing the goods and service that provide economic and social benefits to all Benefits Drawbacks More jobs possibility of heavy losses Higher incomes income inequality More goods and services exploitation Help for less fortunate Career choices Entrepreneurial activities Four Types of Free Markets 1. Perfect Competition: small sellers who sell interchangable products; no seller is large enough to dictate price no goverament regulation 2. Oligopoly: few sellers who offer similar products; new firms must put up huge initial investments; products are gererally in same range 3. Monopolistic Competition: many sellers who sell products that are similar; product distinction may be slight 4. Monopoly: only one seller; often dreaded; generally prohibited in the U.S. Market Price/ equilibrium price: when demand curve and supply curve intersect Forces Affecting Markets - goverment influences - Incomplete intormation - irrationality and consumer sovereignty Socialism an economic and political system that advocates for collective or public ownership → land, natural resources, industries; goal is to eliminate private aunership and replace it with a system of social ounership Benefits Drawbacks more benefits to citizens → education, paid potential problems from inodequate cartial heatin insurance, free childcare, job security, planning retirement packages result in greater lifespan requirement of high taxes emigration of skilled people less job and wealth creation possible government checks Welfare State: government that offers citizens economic security by providingless privileged Key characteristics: - lower levels of poverty - Higher adult life expectancy - Lower level of infant mortality - Wealth redistributed - Government plans/ directs the econony - Lollective decision making over economic activity - Communism An economic system where government owns all property and everyone works for the government Benefits Drawbacks  Supposed to prevent accumulation of wealth Central planning flaws within a tiny percentage of population lack of incentives Extreme government intrusion Mixed Economies Captures benefits of communism, socialism, and capitalism - some rescurces are allocated by the free market and some resources are allocated by the government - the focus is on job creation and social welfare Questions to determine type of economic system: - What will be produced, how, and for whom? - Who owns and controls factors of production? Brain drain: people leave a country to go to another to get more benefits The Business Cycle The periodic but irregular patterns of ups and downs in economic production. The 4 Phases of the Business Cycle 1. Expansion: triggered by rise in investment spending, government spending, or exports; causes GDP increase 2. Peak: height of prosperity; when expansion loses steam and goes into decline: 3. Contraction: pace slows down and GDP falls; triggered by falling investments,cuts in government spending, or rise in taxes 4. Trough: lowest point; when the contraction ends and expansion begins again Recession: 2 or more consecutive quarters of decline in GDP; prices decline, consumers reduce spending, and businesses go under; higher unemployment and lower stardard of living; Worst recession since WWII was "The Great Recession” from 2007-2009 when unemployment peaked at 10% Depression: severe and long recession; falling prices (deflation) major depression during the Great Depression when unempbyment hit 25% Inflation: price of goods and services increase; too many dollars in circulation Deflation: price of goods and services decrease; not enough dollars in circulation Price Index: Consumer Price Index : measures rate of inflation or deflation by monitoring monthly cost of goods Producer Price Index: surveys manufacturing, mining, and service industries to determine changes of prices Productivity: the amount of output for each unit of input Gross National Product (GNP): attributes earnings to country where company was owned not where the company manufactures Global Business All business is global there is a reduction in interest rates U.S. makes up 25% of GDP 70% of the GDP is based to service economy. U.S. has a service economy. Fortune 500: the 500 largest US. companies based on revenue → Walmart is #1 → 128 companies have their headquarter out of U.S. → 37% of McDonald's are outside the U.S. Business Investment: - fixed investment - Change in private inventory GDP and GNI GDP: expresses total value of all goods produced within a country's boarder within a year - sum of value added by all resident producers + product taxes - High GDP ⍯High Quality of Life - GNI: total income recieved from residents and businesses regardless of location (domestic or nondomestic) - GNI per capita: gross national income = mid-year population - U.S.= $76,000 Most countries have a higher GDP than GNI: - Luxembourg - United Arab Emirates Countries with higher GNI than GDP: - Nepal - Philippines 97% of kids in the U.S. go to school Broader Conceptions of Development: Amartya Sen → Human Development index (HDI) → Material Output e Capabilities & Opportunities → quality of life Require Strong Property Rights: desire to own a piece of the economy; Improve land to build Hernando De Soto: peruvian economist; you have to own land to be a part of the economy Political + Economy = Political Economy Between the ages 2 to 5, have their opinions on the political economy → movies teach about the political economy → Aladdin, Beauty and the Beast, The Little Mermaid Global Brand Success Factors 1. Strong Brand Identity 2. Understanding Local Markets 3. High-Quality Products 4. Strung Distribution and Supply Chain Global Economy Globalization: increasing connectivity of the world's economies, socleties and cultures Global Economy: entity formed by interaction of the world's economies Multinational Corporations: organizations with multicultural Exporting: a company produces goods domestically and sells them outside the country - indirect: a company manufactures a product that becomes a component of another company's product - direct: a company sells its product in markets outside its home country Globalization of Production: the sourcing of goods and services from other countries to build one product Contributions to the Global Economy  Pros Cons More free trade → more jobs and economic outsourced jobs growth Increases sharing info greater income and wealth disparities between classes Companies and governments work together to exploitation of wealth solve environmental problems Greater diversity decreased wages due to immigration Access to worldwide market pay cuts fram employers Provide jobs and decrease poverty Stealing trade secrets to competitors government deficits Child labor manipulation of currency value Reasons that countries trade: 1. No country is self sufficient 2. Some countries have natural resounces that other countries want 3. Some countries have technology that other coutries want Absolute Advantage: a country produces a product cheaper or more efficiently Comparative Advantage: a country sells to other countries products it produces cheaper or more efficiently Balance of Trade: the value of a country's exports compared to the value of its imports over a particular time period Trade Surplus: (favorable balance of trode) exists when the value of a country's total exports exceeds the value of its total imports. Trade Deficit: (unfavorable balance of trade) when valve of a coutry's total imports exceed the value of its exports Countertrading: bartering goods for goods Risks of Entering Global Market Lowest- Importing and Exporting Moderate - Franchising and Foreign Licensing Moderate - Global Outsourcing High- Joint Ventures Highest - Foreign Subsidaries Developed Countries high level of ecanomic development and high average income level home to headquarters recieve large amounts of foreign investment U.S., Canada, and many European nations Developing Countries low economic development and low average incomes mostly countries in Africa, Asia, and Latin America Infrastructure: set of facilities that form basis for a country's revel of economic development Telecommunications Schools roads airparts railroads harbors utilities hospitals Globalization Moves towards a more integrated and independent world economy Drivers of Globalization: 1. Declining Trade and Investment barriers (has been in an increase in recent years ) The role of technological trade  2. Microprocessors and Telecommunications 3. Internet and WWW 4. Transportation Technology Goals of WTO (World Trade Organization) promote trade by encouraging to adopt fair trade practices reduce trade barrier by promoting multilateral negotiations establish fair procedures for resolving disputes Role of Technological Change lowering trade barriers made globalization of markets and production on a thecretical possibility Microprocessors and Telecommunications price increasers, cost is falling in half → company is doing better Internet and WWW look at what countries use the internet more Transportation Tachnology fights → long distance superfreighters → moving goods Globalization of Markets Easier to sell internationally Convergence of taste and preference The same sompanies are competitors ○ Pepsi and Coca Cola Standardization: selling productras it is in international marketplace - introducing flexible global product Adaptation: modifying products for diflerent countries - designing new products for foreign markets The Cultural Iceburg Core values: what is considered good or bad International Culture: Collective pogromming of the mind The Culture Map 1. Communicating a. Low context/ high context 2. Evaluating a. Direct negative feedback/ indirect negative feedback 3. Persuading a. Concept first/ application first i. Only applies to western culture; asian cultures are holistic 4. Leading a. egalitarian/ hierarchial 5. Deciding a. consensual/ top-down 6. Trusting a. task-based/ relationship-based 7. Disagreeing a. confrontational/ avoids confrontation 8. Scheduling a. Linear time/ flexible time