RSM100 Lecture Notes PDF

Lecture 1 Formula: read before, review right after lecture, study group, hints from guest speakers/cases Reading 1, 2, 5, 6 Growing Economies yield more income to business owners, their employees, and governments in the form of tax payments. Business endeavor: Exchange between buyer and seller For profit businesses Not for profit businesses: place public services above profits ○ Private sector ○ Public sector Government is responsible for facilitating economic activity by encouraging the development of inputs Factors of production: natural resources - rent capital - interest; information, physical facilities, technology, tools human resources - wage entrepreneurship - profit To remain competitive, a firm needs to continually acquire, maintain, and upgrade its capital => money, sources of finance Firms may have alternatives that cost more than the inputs. Private enterprise system (capitalism): economic system that rewards firms for their ability to identify and serve the needs and demands of customers. This minimizes government interference, and thus gaining access to f.o.p and profits - Guarantees owners profits after tax - Maximizes individual wealth by providing options - Ensures fair competition, but Canadian government has prohibited aggressive competitive practices - Most basic freedom is right to private property Invisible hand - competition, competitive differentiation, keep up with the changing marketplace conditions Private Enterprise Rights: 1. Private property 2. Profits 3. Competition 4. Freedom of choice - Relies on citizens Most Canadian employment is in the retail sector; and small businesses Seven eras in the history of business 1. Colonial period 2. Industrial revolution 3. Age of Industrial Entrepreneurs 4. The production era 5. The marketing era Consumer orientation: business philosophy that focuses on consumers’ wants and needs 6. The relationship era Transaction management: building and promoting products in the hope that enough customers buy them to cover costs and earn profits => promoting customer loyalty by carefully managing each interaction (less costly than trying to find new ones) 7. The social era Strategic alliance: a partnership formed to create a competitive advantage for the business involved Nearshoring: outsourcing of production or services to nations near a firm’s home base Managers must be aware of both internal and factors that require organizational change => critical thinking, creativity Current trends in the business: the workforce is aging and the labor pool is shrinking, becoming increasingly diverse ! at every price 4 types of competition take shape in a private enterprise system: 1. Pure competition (agriculture) 2. Monopolistic competition (retail) 3. Oligopoly (paper and steel industries) 4. Monopoly () a. Regulated monopoly: a market situation in which a local, provincial, or federal government grants exclusive rights in a certain market or a single firm Planned economy: an economic system in which government controls determine business ownership, profits, and resource allocation to accomplish government goals rather than those set by individual firms. (socialism and communism) Mixed market economies: economic systems that draw from both types of economies to different degrees E.g Canada Privatization: trend, the conversion of government-owned and operated companies to privately held businesses. Over time, the economy of a nation grows with demand due to rising population Flattening the business cycle - Economic prosperity - Recession - Depression - Recovery Every economy is concerned with productivity, the relationship between the number of units produced and the number of human and other production inputs necessary to produce them. Measures efficiency To boost productivity: - Improve machinery - Changing procedures and methods, optimizing capabilities and maximizing output Total productivity = Output of goods and services produced / Input of human, natural resources and capital Labor productivity Total productivity = GDP (usually per capita, based on PPP exchange rates) PPP method - total value of all goods and services produced in the country valued at equivalent prices in the United States Core inflation rate: the inflation rate of an economy after energy and food prices are removed. Hyperinflation: an economic situation characterized by soaring prices. Consumer price index: a measurement of the monthly average change in prices of goods and services. Producer Price Index: a measurement of the average change in prices of goods and services received by domestic producers. Economic health is measured by the unemployment rate, GDP, general price level, core inflation rate, and CPI Government influences the economic activity through monetary policies (cost of borrowing), fiscal policies (taxes and spending)/international Quantitative easing: expansionary monetary policy whereby a central bank buys back predetermined amounts of government bonds or other financial assets to increase liquidity and stimulate the economy. Bank of Canada tools: - Changing the required percentage of chequing and savings accounts a bank must deposit => shrink funds available to lend - Lends money to canadian banks, then the banks make loans at higher interest rates, changing the willingness to borrow Lower taxes and increased government spending from fiscal policy: - Boost spending and profits - Cut unemployment rates - Fuel economic expansion Sources of government funds: Taxes, fees, and borrowing. Each year the federal government presents a budget to Parliament for approval. Budget Deficit: - To cover the deficit, the government sells treasury bills, notes and bonds to investors. If they raise money through this, it makes safe investments available to investors worldwide Balanced budget - TR raised from taxes and fees equals the total proposed spending for the year. Businesses face 10 key global risks in today’s economy: 1. Climate action failure 2. Extreme weather 3. Biodiversity loss 4. Social coercion erasion 5. Livelihood crisis 6. Infectious diseases 7. Human environmental damage 8. Natural resource crisis 9. Debt crises 10.Geoeconomic confrontation Small businesses are independently owned and have less than 100 employees, and revenues less than 2 million. It creates jobs in construction, retail trade, healthcare services and new industries, and provide innovation. Usually home based, having more control over their business and personal time. Assistance for small businesses - Investors (angels, venture capitalists, banks, government, etc) - Local, provincial, national governments (supply infrastructure, tax incentives, etc) - Business Development Bank of Canada: training, technical assistance, and education, management skills - Business Incubator: local program designed to provide low cost, shared business facilities to small start up companies. Low cost rental space, shared clerical staff, office equipment. - Venture Capital: money invested in a business by another business or a group of individuals in return for an ownership share. Financial assistance: CSBFP, when a bank loan is not paid back by the small business, the government guarantees as much as 85%. BDC and others help higher risk firms unable to borrow from traditional institutions. CSBFP encourages financial institutions to make financing available for small businesses, and shares the risks, with loans up to $1 million. Legal Forms of Private Business Ownership: Sole Unlimited liability + Management flexibility proprietor + Easy to form and ships sole proprietor's status as an individual is not dissolve legally separate from his or her status as a + Few legal business owner requirements + Control - The owner must handle all operations Partnershi voluntary legal partnership agreement + Expertise of owners ps new partner to take their interest => life + Shared workload and insurance for each partner, combined with a decision making buy sell agreement that repays the deceased - More difficult to partner’s heirs which makes the surviving dissolve partner retain control - Conflict Legally liable for the other partner’s debt => form Limited liability partnership Corporatio To incorporate, they must decide where to + Limited liability ns locate headquarters, and follow correct + Limited financial risk procedure for filling out the legal document + Less legal risk + Access to more Factors on the location of headquarters: sources Near the customers, real estate prices, public + Easy transfer of transportation, communication networks, ownership access to employees - Buy property - Can be sued Large corporations can incorporate anywhere, - Corporate tax/Double the benefit of one province vs another e.g. tax, taxation: provincial government grants and legal - Selling more shares Incorporation of a business can be done at a will dilute it, less federal or provincial level. control over the Provincial: legally carry out business only in that business province - Termination is hard Federal: operate anywhere in canada Each province has different processes - Conflict within the organization Not for Do not issue dividends, ownership rarely + Exempt from income profit changes taxes corporatio Governments have separate legal provisions for ns organizational structures and operations Public ownership of business: Public/Govern Government unit or agency ment Sometimes results when private investors ownership are unwilling to invest in a high risk, or unprofitable Collective/Co-o Owners work together to operate all + Allow small perative activities businesses to pool ownership Discount savings can be split among their resources for members, share expertise and equipment purchases, marketing, Frequently found among agricultural equipment, and businesses and retail distribution, and support each other during tough times Corporate charter: legal document that formally establishes a corporation 10 elements typically required for chartering a corporation: 1. Name and address 2. Corporate objectives 3. Type and amount of stock to issue 4. Expected Life of the Corporation 5. Financial Capital at the Time of Incorporation 6. Provisions for Transferring Shares of Stock among Owners 7. Provisions for Regulating Internal Corporate Affairs 8. Address of the Business Office Registered with the Province 9. Names and Addresses of the Initial Board of Directors 10.Names and Addresses of the Incorporators Levels of management in a corporation: Major decisions made by top management COO, CFO, CIO Middle management handles ongoing operational functions Bottom management supervisory personnel day to day operations, assign tasks, evaluate job performance CEO, CFO verify in writing the accuracy of the firm's financial statements Activist investor: individual or group that has raised large sums of money and typically purchases large numbers of a company’s shares to obtain greater control over the company’s business Closed/closely held corporation: few shareholders, shares are unavailable to outsiders, Shareholders manage and control all activities Publicty-held corporation: sells shares to the public, setting up a diversified ownership, broader range of operations, hold annual shareholder meetings where managers report on corporate activities, shareholders vote on decisions such as elections Benefit corporation: type of for-profit corporate entity that includes a positive impact on society and the environment as part of its defined goals. Meets rigorous standards of social and environmental performance, accountability, and transparency, must state goals in their bylaws. Purpose is to create a qualitative benefit to the public beyond financial gains for its shareholders. Taxed the same way as corporations Mergers: - Vertical: different levels in the production and marketing process to ensure adequate flows of raw materials and supplies to increase distribution - Horizontal: joins firms in the same industry to diversify, increase their customer base, cut costs, expand product lines Auto industry - Conglomerate: combines unrelated firms To diversify, increase sales, spend a cash surplus to avoid a takeover attempt Can spread its resources too thin to be successful in any market Acquisitions: Buyer acquires property, assets, and takes on debt Buys a division or a subsidiary + Faster and good strategy to buy already developed customer base, technology and brand Joint venture: a partnership between companies formed for a specific undertaking to share the operation’s costs, risks, management, and profits; common when starting business in a foreign market, forms single legal entity in which each owns a share + Help companies solve a common problem Between for profit and not for profit are becoming common Not for profit: receive the funding, marketing exposure, and sometimes the staff Firms that partner with environmental groups can cut costs, save energy, and reduce waste Entrepreneurship: - Creates jobs and sells products - Leads to innovation - Important to existing companies Categories of Entrepreneurs: - Classic: a person who identifies a business opportunity and allocates resources to gain access to that market. - Serial: a person who starts one business, runs it, and then starts and runs more businesses, one after another. - Social: a person who recognizes societal problems and uses business principles to develop innovative solutions. Entrepreneurs are different from small business owners, because they aspire expansion and growth. Managers: employees who direct others to reach an organization’s goals Entrepreneurs may perform a managerial role, but their main responsibility is to use the resources. They combine their ideas and drive with money, employees, and other resources to create a business that meets a market need. Factors that support and expand opportunities for entrepreneurs in addition to favorable public attitudes and more financing options: - Globalization - Education Dilemma faced by entrepreneurs in school - Informational technology - Demographic and economic trends Immigrants to NA, ppl 55-64, more college/uni students Idea for a business: find something you love to do and are good at, find an idea that meets a need in the marketplace Success depends on customers Inventor-entrepreneurs needs to protect their rights by securing a patent Buying an established business: - Employees are already in place to serve regulars and suppliers - good/service known in the marketplace - Necessary permits and licenses obtained - Easier to get financing - Some provide financing and stay on as consultants Entrepreneurs can experience credit difficulties Line of credit: approved loan that a business can borrow from when funds are needed Government support for new ventures: Enterprise zones: specific geographic areas set aside for economic renewal => encourage investment in troubled areas by offering tax advantages and incentives Urban reserve: economic zone within a municipality Intrapreneurship: the process of promoting innovation within the structure of an existing organization. Skunkworks: a project initiated by an employee who conceives of an idea, convinces top management of its potential, and then recruits human and other resources from within the company to turn the idea into a commercial project. Lecture 2 Wealth creation: collecting f.o.p and producing/output can be sold for more than the costs. Profit brings wealth to the people and society involved in the production - Combination of inputs - Supportive environment - Means of production - Someone who will pay more than it costs Required to create wealth: - The interdependence of business and society - The diamond of sustainable growth: Vibrant entrepreneurship, sophisticated management capabilities, enabling political systems, effective financial systems How is wealth created: - Develop a product or service sold for more than the costs - Trade with economies that will pay for what you have and sell what you want Forms of business ownership (all private): - Sole proprietorships - Partnerships - Corporations - Not for profit corporations Set up of shareholders - acquire shares in exchange for ownership Preferred Shareholder - can be converted to common shares at a predetermined date, distributions on dividends, get state of dividends first in years where dividends are declared. Cannot vote. Participating privileges, passive investors. If business is dissolved, they have first claims on assets once all debtors are repaid. ○ Convertible - 1 share to something, preferred shares to common shares at a predetermined date ○ Redeemable- refund for the share at their will or maturity date, option of the shareholder ○ Participating - lumped with the common shareholders to get dividends, get stated dividends plus additional dividends based on some predetermined condition ○ Cumulative - dividend catchup payment, if they miss a payment they make up for it ○ Callable - option of the company, company can choose to buy back at a fixed price in the future Common Shareholder - can vote, residual owners of the business, gain/lose the most, residual claims on assets - last to claim any income distributions, 1 share=1 vote, small shareholders have little influence Board of Directors - elected by shareholders, governing body, sets overall policy, authorizes major transactions, hires CEO, includes both inside (corporate executives) and outside directors (shareholders) who are not employed by the organization, sometimes top executive chairs the board Corporate officers and managers - make major corporate decisions and handle ongoing operations Franchises A franchisor is a large firm that allows a small business owner (a franchisee) to market and sell the larger firm’s products under its brand name in return for a fee. Franchising agreements are complex but include initial purchase fee + agreed on start-up costs. Canada has 76000 individual franchise businesses operating under 900 different brands, these franchises employ more than one million Canadians, more than 100 billion in sales each year, franchising overseas is growing + Prior performance record + Recognizable company name/brand + Proven business model + Tested management program + Savings through volume purchases - Less flexibility - Initial franchise fees - Future payments/royalties - Linked to reputation and management - Franchise agreement restriction - Tight control Finding financing - Seed capital: the initial funding needed to launch a new vendor Kickstarter - crowdfunding platform - Debt financing: borrowed funds that entrepreneurs must repay with interest, deteriorates the quality of your balance sheet so investors may not want to pay and risk of going out of business. More control over the organization - Credit card: high interest rates => expensive - Family and friends - Bank loans - based on comprehensive business plan, entrepreneurs’ personal credit histories More willing to take from those who have been in business for a while, those whose businesses show a profit rising revenues, those who need funds to finance expansion - Finance companies - Involvement and illiquid - Equity Financing: funds invested in new ventures in exchange for part ownership, they don’t have to pay back immediately - Venture Capitalists - innovative tech, potential for rapid growth, well-developed business model, impressive management team - Angel investors - Family and friends - Business partners - giving up ownership/less control - Investment partner disputes + no legal requirement to pay dividends Interest payments are taxed, Why small businesses fail: - Management inexperience - inadequate financing - Meeting government regulations Business Plan: helps contemporary entrepreneurs prepare enough resources and stay focused on key objectives, written documentation that provides orderly statement of goals, methods, and purpose, discusses company’s mission & vision, analyzes/outlines unique advantages, identification of customers and competitors, financial evaluation of the industry and market, and assessment of risks through: - executive summary - an introduction - financial and marketing sections - résumés of the business principals Entrepreneur: risk taker in the private enterprise system, seeks profitable opportunity and takes necessary risk to set up and operate a business - Tolerance for ambiguity - believe that they control their own future - tolerance for failure - Creativity - internal locus of control - Vision - begin with a vision - High energy level - Need to achieve - strong competitive drive - Self-confidence and optimism - instill their optimism in others Reasons for becoming an entrepreneur: - Desire to be their own boss - Desire to succeed financially - A desire to attain job security - Desire to improve the quality of life Lifestyle entrepreneur: a person who starts a business to gain flexibility in work hours and control over their life. Entrepreneurial challenges: The highest risk, highest return activity in a business Appeals to certain kinds of people, the possibility of bringing inventive ideas to life Some entrepreneurs enjoy/passionate about the process of launching a new company (business planning, product development, raising capital, hiring the right people, etc) - Great difficulties in raising investment funds for a brazen, new idea - Reality is always very different from what was planned - High failure rate, even after initial funding is secured Small business vs Entrepreneurial business - Size: new entrepreneurial ventures are small now but expected to grow rapidly - Age: small business may have been that way for many years, even generations, as entrepreneurial ventures age, they grow up - Growth goals - small businesses are not expected to grow significantly, may have growth potential but owners unwilling to take required steps for growth, growth is a priority for entrepreneurs, founders will often sell a stake in the business to investors to fuel growth David Birch Model Mice (start-up) - stays small, agile - can change direction quickly, vast majority of business in canada, generating enormous economic activity & employment Gazzeles (scale up) - In between, firm that seeks rapid growth and above average profitability, growing by at least 20%/year for 4 yrs from a 100k min starting point resulting in a doubling in size in 4 yrs, often includes a radical business innovation/implementation of new tech, not all gazelles are young due to new opportunities in the marketplace, entrepreneurial management Elephants (maturity) - intends to grow, not agile, considerable overall marketplace power, collectively they have fired more people than they have hired in the past 25 yrs. Equity = light debt when preferred shares are redeemable and cumulative - debt, obligation to pay, annual payment STARBUCKS Challenges: - Increased wait time - Boycotts from labor unions - Increased competition from cheaper coffee - Coffee shops are small businesses - Sales declined at a stronger rate in China - Competing with convenience coffees like McDonald's that appeal to price-conscious consumers Current strategies: - Trying to focus on customer satisfaction, baristas - Compete based on price, - Combo discounted menus - Customers want the base price of the item to be lower Other strategies: - Streamlining operations Better customer satisfaction, less personal, more costs involved, jobs may be lost => employee morale, - Renegotiating supplier contracts Higher profit margin, sell more, cost money, viewed too aggressive with suppliers, - Closing underperforming stores Increase profits, competition may lead to customer switching, job cuts, negative publicity, brand awareness decreasing, hard to scale back up when successful - Expanding digital and mobile offerings Lowering costs, increasing customers, people don’t like technology, b - Address labor issues Increase costs, improve customer service - Diversity product offerings Lose brand identity - Global expansion Cultural, costs - Lowering prices Dilute brand - Increase differentiation/Exclusivity Who will create wealth? - Entrepreneurs (sole proprietorships to public companies) - Small and medium sized enterprises - Large corporations (private and public) - Government institutions Lecture 3 (Dr. Jha) The Management Process/Managerial functions: - Planning Setting performance objectives and deciding how to achieve them Focus its vision, avoid costly mistake, seize opportunities Should be flexible and responsive to changes in the bus. env Organizations should have a comprehensive planning framework Each step should fit into the overall plan broad/long range - mission statement, objectives and goals Narrow/short range - functional plans for specific employees/areas Primary types of Managerial level Examples planning Strategic Top management Organizational objectives, fundamental strategies, long term plans Tactical Middle management Quarterly and semi annual plans, departmental policies and procedures Operational Supervisory management Daily and weekly plans, rules, and procedures for each department, specific functional areas Contingency Primarily top management, Ongoing plans for actions but all levels contribute and communication in an emergency, disruptions continuing the business and communicating to the public outlines a chain of command, - Organizing Blending human and material resources through a formal structure of tasks and authority Classifying and dividing work into manageable units with a logical structure New technologies: workflow and require new skills - Leading/Directing Guiding and motivating employees to accomplish goals/high performance Training, setting up schedules, assigning tasks, monitoring progress Weekly meetings - Controlling Assess performance against its goals, taking action to ensure desired results, success of the planning function, provides feedback for future Problems - radical steps Setting performance standards Monitoring actual performance Comparing actual performance with the standards Making corrections if needed Managers as leaders: Leadership: the ability to direct or inspire people to reach goals, involves the use of influence or power Sources of power: leader’s position in the company, expertise and experience, some personalities, Three traits desired: Empathy, Self awareness, Objectivity in dealing with others Leadership styles: - Autocratic: without consulting employees, unilateral decision making - Democratic: includes subordinates in the decision-making process, sharing responsibility of decision making with subordinates => empowerment - Free-rein: employees make decision, minimal supervision of employee decision making Managers as decision-makers: Decision making: The process of seeing a problem or opportunity, assessing possible solutions, selecting and carrying out the best-suited plan, and assessing the results Decisions: - Programmed decision: Simple, common, and frequently occurring problem that already have solutions Save managers time and companies money - Nonprogrammed decision: Complex and unique problem or opportunity with important results for the organization Steps in the decision-making process: Katz’s Skills needed for Managerial Success: All managers must acquire these, but importance of each skill changes at each management level - Technical skills Techniques, knowledge, tools, and equipment for a specific department Important for first line managers Top exec start out as technical experts - Human Skills Communicate with, motivate, collaborate, lead employees People of both inside and outside of organization Adapted to different forms Emotional intelligence - Conceptual Skills Organization as a single unit, how each part of the overall organization interacts with other parts Long range plans Katz’s essential managerial skills: Corporate culture: an organization collection of principles, beliefs, and values as shaped by leadership style, communication, and work environments Influenced by leadership style, the way they communicate, and the work environment Managers sometimes use symbols, rituals, ceremonies, and stories to strengthen a corporate culture Need to adjust Strong culture - everyone knows and supports the same principles, beliefs, and values. The organization features three key elements: - human interaction - goal-directed activities - Structure Organizing process done by managers: Factors affecting the results of organizing: - goals and competitive strategy - the type of product it offers - the way it uses technology to accomplish work - Size: Increased size means specialization and growing numbers of employees Organizational chart, structures help function efficiently Span of management/control: the number of employees a manager supervises (direct reports) First line management has the widest Centralization: concentration of control of an activity or organization under a single authority Decentralization - improves customer service 3 key elements: human interaction, goal directed activities, structure Types of organizatinal structures: - Line: direct flow of authority from the chief executive to the employees; simple and clear chain of command; decisions are made quickly, effective in crisis, each manager has complete responsibility for a range of activities, small scale organizations - Line and staff: combines the direct flow of authority with staff departments that support the line departments, line departments - core operations, staff - specialized technical support, Staff managers do not have authority to give orders outside their own departments or to assign actions to the line managers, direct communication with the expert knowledge, mid-size and large organizations - Committee: places authority and responsibility in a group of individuals, not a manager, part of line and staff, new product development, act slowly, make safe decisions, - Matrix: links employees from different parts work together on specific projects, project manager assembles employees from different functional areas, each employee reports to one line manager and one project manager, receive instructions from the project manager (horizontal authority), continue as employees in their permanent functional departments (vertical authority), high tech and MNC, hospitals, consulting firms, flexibility to adapt quickly to rapid changes in the environment, focuses resources on major problems or products, outlet for employees’ creativity and initiative, challenges project managers to take the skills of specialists from many departments and form a coordinated team, permanent functional managers must adjust their employees’ regular workloads, effective when company leaders give project managers the authority to use whatever resources are available to achieve the project’s objectives, Departmentalization: the process of dividing work activities into units within the organization. - Product departmentalization - Geographical - Customer: beauty, feminine, baby, family - Functional: finance, hr, - Process managers take into account the type of product they produce, the size of their company, their customer base, and their customers’ locations Delegation: the managerial process of assigning work to employees Mintzberg’s 10 managerial roles: Interpersonal roles: figurehead, leader, liaison Informational roles: monitor, disseminator, spokesperson Decisional roles: entrepreneur, disturbance handler, resource allocator, negotiator Neilank K Jha Short stories: Only 10% of the companies create 90% of the total economic profit The top quantile performers deliver 30x more economic profit than the companies in the next 3 quantiles combined The odds of moving from being an average performer to a top-quintile performer over a ten-year period are only 1 in 12 6 Key responsibilities of CEO: 1. Setting the direction 2. Aligning the organization 3. Mobilizing through leaders 4. Engaging the board 5. Connecting with stakeholders 6. Managing personal effectiveness Management - McKinsey & Company Role of setting a vision and ethical standards - Medtronic, how many seconds it would take until someone else was helped by a medtronic product The importance of planning - Mastercard, 85% transactions with cash just for consumer transactions, vision - kill cash, converted into strategies for growing the core, diversifying client base, and building new businesses Strategic Planning Process - Bestbuy, Bricks and mortar presence to help out electronics companies like LG, Shareholder capitalism => stakeholder capitalism Managers as decision-makers: JP Morgan, DBS Preparation -> Law of Triviality -> Risk Taking Managers as Leaders - NVIDIA, High expectations = low resilience Corporate Culture - Adidas Organizational Structure - Cleveland Clinic, unified, patient centric NVIDIA, Apple, Microsoft - which stocks are the most desirable Not everything is about maximizing returns for shareholders Monetary value is secondary Iq, eq, appetite for risk, strong morals, ethics 1st creditor (secured, unsecured) 2nd shareholder E.g Tesla Elon Musk Appendix: Management: the process of achieving organizational goals through people and other resources Management Hierarchy Top - develop long range plans, set a direction, inspire the company’s executives and employees to achieve their vision, Middle - focus attention on specific operations, product, or customer groups, responsible for developing detailed plans and procedures to carry out strategic plans, often come up with new ways to increase sales or solve problems Supervisory - directly responsible for assigning specific jobs and assessing their performance, carry out middle manager’s plans by motivating workers to accomplish daily, weekly, monthly goals, responsible for non-manager employees Managerial functions Vision: target for a company’s actions => opportunities, differentiation Focused, flexible to changes in the busines env Ethical standards - comply with industry or federal regulations; after unethical actions have been taken, long term success is tied to ethical standards that the top management team sets, high ethical standards can encourage, motivate, and inspire employees to achieve goals (e.g. LEVIS) Ethical tone => financial and non-financial rewards High ethical standards often result in a stable workforce, job satisfaction, and customer loyalty. Planning: necessary to reflect changing conditions and feedback of outcomes, such as sales and profitability; through reporting and communications system Strategic Planning: Mission statement - written description of an organizations overall business purpose and aims, highlight the range of operations, overall purpose/aims, the market, and its differentiation Assessing competitive position - SWOT analysis => strategies for gaining a competitive advantage, may change overtime, Objectives - more specific and concrete, guideposts by which managers define the organization's desired performance in such areas as new product development, sales, customer service, growth, environmental and social responsibility, and employee satisfaction Competitive differentiation: the unique mix of a company’s abilities and resources that set it apart from its competitors Strategy implementation -> Middle management Action - Cross-training employees Productivity matrix: productivity and dimensions of organizational performance: Organizations as open systems: Organizations in a new workplace: - Organizational performance: - Productivity - Performance effectiveness - Performance efficiency Lecture 4 Strategic HR Management: The pattern of planned human resource deployments and activities intended to enable an organization to achieve its goals Human resource management: the function of attracting, developing, and retaining employees who can perform the activities needed to meet organizational objectives Objectives: - Job search: providing qualified, well trained employees - Work performance: maximizing employee effectiveness in the organization - Employee needs: satisfying individual employee needs through monetary compensation, benefits, opportunities, to advance, and job satisfaction Strategic management: Process for analyzing a company’s competitive situation, developing the company’s strategic goals, and devising a plan of action and allocating resources that will increase the likelihood of achieving these goals Newly hired employees often complete an orientation program - Inform employees about company policies - Employee manuals - Describe benefits/programs - Training Training programs: - Classroom and computer based training Less expensive, learn at their own pace, consistent presentations and interactive, - On the job training - Management development: provides training designed to improve the skills and broaden the knowledge of current and potential executives GOOGLE Free food, ping pong, basketball interns treated like regular employees Work environment: higher applicant pool, higher skilled people, encourages creativity, less stress, but distracting, extended work day, high costs, Working environment at google is a key contributor to their success Strategic HR management: Disney: Hire certain personalities, trained in a specific way, employees are told as cast members, hired a shepherd because they can train him but not his personality Canadian passport holder is paid more than other passport holders in the UAE Human Resource Management Responsibilities: - Employee recruitment and selection Recruiting techniques are evolving as technology advances Internet recruiting is quick, efficient and inexpensive, reaches a large pool of job seekers, use social networking sites, Employers are looking at facebook profile - Employee Training and Performance Evaluation - Employee compensation and benefits - Employee Separation - Planning for staffing needs Selecting and Hiring employees: Canada Human Rights Commission, must follow legal requirements => risk of litigation, bad publicity, and poor employee morale Costly process for employers Some employers require employment tests 1. Identify job requirements 2. Choose sources of candidates (schools, internet, employee referrals, promotion from within, colleges and universities, want ads) 3. Review applications and resumes 4. Interview candidates 5. Conduct employment tests and check references 6. Conduct follow up interviews 7. Select a candidate and negotiate an offer Performance appraisals: evaluation of and feedback on an employee’s job performance Effective performance reviews - Take place several times a year - Are linked to organizational goals - Are based on objective measures - Take place in the form of a 2way conversation Some firms conduct peer reviews Moving towards 360 degree performance review: a process that gathers feedback from a review panel that includes co workers, supervisors, team members, subordinates, and sometimes customers Some don’t contribute directly to the bottom line Profit - short term focus Balanced Scorecard Indirectly drive the financial aspect Growth in the long term Compensation => wage => salary => most firms base compensation decisions on five factors (what competing companies are paying, government regulation, cost of living, company profits, employee’s productivity) Aware of how businesses operate in different countries Flexible work: 70%+ of Gen Y, growing concern over work life balance Adjust their working hours and places of work to accommodate their personal needs Flextime: allows employees to set their own work hours within constraints specified by the firm, not for employees in teams and customer service, easy for small # of employees Compressed workweeks: allows employees to work the regular number of weekly hours in fewer than the typical 5 days Job sharing program: allows 2+ employees to divide the tasks of 1 job Home-based program: allows employees to telecommuters to perform their jobs from home + Flexible benefit plans provide employees a range of options to choose from (medical, dental, vision, life, and disability insurance) + Many companies also offer flexible time off policies instead of establishing a set number of holidays, vacation days, sick days + Employees have freedom to use paid time off as they like - Expensive The future of remote work Millenials and Gen Z employees want to switch to a flextime job, prefer face to face meetings with managers, view emphasis on personal growth as the most important quality of company culture, feeling efficient at one’s activities Young people want in office mentorship Effect on mental health, + Cost effective + Wider hiring pool - Distracting - Less connection with employees - Impact on corporate culture - Isolated, lonely - Less visibility perceived that you’re not engaged - Future: increase, hybrid approach, Employee separation: Cost to replace an employee = 2x 1 year salary Voluntary turnover => involuntary turnover Voluntary turnover: employees may leave firms to start their own businesses, take jobs from other firms, retire ○ Some firms ask employees to participate in exit interviews ○ Successful companies are clearly focused on retaining their best workers Involuntary turnover: employers may terminate employees because of poor job performance, unethical behaviors, or the need for downsizing ○ impact on existing employees, ○ Employers must carefully document reasons when terminating employees ○ HR Managers must be educated in employment laws so that termination is handled properly Downsizing/Outsourcing: Downsizing: the process of reducing the # of employees within a firm by eliminating jobs + Cut overhead costs + Streamline the organizational structure - Anxiety, health problems, lost productivity among remaining workers - Expensive severance packages paid to laid-off workers - A domino effect on the local economy Outsourcing - To save expenses and remain flexible companies will try to outsource functions that aren’t part of their core business - Although outsourcing might work on paper, reality may be different - Outsourcing vendors perform at the same level as you AVIS Had to get rid of their rental cars and sold them during covid, weren’t able to recover as the demand for rental cars was high but they didn’t have enough inventory Employee Motivation Motivation starts with good employee morale High employee morale occurs in organizations where workers feel valued, heard, and empowered to contribute what they do best Poor morale shows up through absenteeism, voluntary turnover, and lack of motivation Maslow’s hierarchy of needs People’s needs depend on what they already possess, only needs that aren’t satisfied can influence behavior, people’s needs are arranged in a hierarchy of importance, once they satisfy one need (partially), another emerges and demands satisfaction, Herzberg’s two factor model of motivation: Hygiene factors: salary, status, interpersonal relations Motivator factors: growth opportunities Expectancy and equity theory Expectancy: evaluate if their efforts will lead to the results they want and the degree to which they want those results Equity: Individual’s perception of fair and equitable treatment My efforts and rewards > Others => decrease effort Richard Branson’s 8 keys to happiness and success ○ Don’t measure your success by the amount of money you make ○ Unplug and focus on face to face conversation ○ Have fun in everything you do ○ Find a hobby that gets you outside ○ Dream big ○ Learn as you go ○ Be fearless in tyring new things ○ Make happiness a habit Self Determination theory (Inner Human Needs ryan and deci): ○ Autonomy ○ Competence ○ Relatedness leads to motivation, engagement & wellbeing Managers’ attitudes and motivation: Two assumption managers make about employees affect management styles (psychologist Douglas McGregor) Theory X: employees dislike work and try to avoid it whenever possible, so management must coerce them to do their jobs, money and job security are motivators Theory Y: the typical person actually likes work and will seek and accept greater responsibility, self control and self direction are motivators Theory Z: worker involvement is the key to increased productivity for the company and improved quality of work life for employees Employee Benefits: Additional compensation (retirement savings plans, etc) Some benefits required by law (Canada Pension Plan, Unemployment insurance, Workers’ compensation programs) Three ways managers can restructure jobs to increase employee motivation: Job enlargement: expands responsibilities by increasing the # and variety of tasks assigned to the worker, horizontal, reduce repetitiveness Job enrichment: expands job duties to empower an employee to make decisions and learn new skills leading towards career growth, vertical, more challenging Job rotation: systematically moving employees from one job to another, increasing their range of activities Forms of incentive compensation: - Profit sharing: bonus based on company profits - Gain sharing: bonus based on productivity gains, cost savings, or quality improvements - Lump sum bonus: one time cash payment or option to buy shares of company stock based on performance - Pay for knowledge: salary increase based on learning new job tasks Goal setting theory: The idea that people will be motivated to the extent to which they accept specific, challenging goals and receive feedback that shows their progress toward goal achievement - Goal specificity - Goal difficulty - Performance feedback - Goal acceptance Management by objectives A structures approach that helps managers to focus on reachable goals and to achieve the best results based on the organizations resources Helps motivate individuals by aligning their objectives with the goals of the organization, increasing overall organization performance MBO Principals ○ A series of related organizational goals and objectives ○ Specific objectives for each person ○ Participative decision making ○ A set time period to accomplish goals ○ Performance evaluation and feedback Labor unions are found at local, national and international levels Approximately 600k canadian employees are represented by the largest union in canada, CUPE Collective bargaining The process of negotiation between management and union representatives Issues involved can include wages, work hours, benefits, union activities and responsibilities, grievance handling and arbitration, layoffs, employee rights and seniority Settling labor management disputes Most labor management negotiation results in a signed agreement without a work stoppage Mediation: the process of settling labor management disputes through an impartial third party Arbitration: adds a third party who renders a legally binding decision Grievance procedure Competitive tactics of unions and management Union tactics: Strike: a temporary work stoppage by employees until a dispute has been settled or a contract signed Picketing: workers march in public protest against their employer Boycott: an organized attempt to keep the public from purchasing the goods and services of the firm Management tactics Lockout: a management strike to put pressure on union members by closing the firm Future of labor unions: - Membership and influence are declining, caused by a shift from manufacturing industries to information and service businesses - Public sector unions include +70% employees - Unions may need to be more flexible and adapt to a global economy and diverse workforce - Unions can recognize the potential for prosperity for all (management & unions) Lecture 5 Environmental, Social, and Governance Ethics reflects people’s proper relations with one another and how people should treat others Ethical theory: moral obligation More than legality, more about morality Society has agreed upon norms that decide if its ethical and unethical Ethics compliance officers: must discourage wrongdoing and ensure that ethical standards are met Investors, stakeholders, and the law demands ethical and legal behavior Development of individual ethics: Individual moral and ethical development are based on: ○ Experiences ○ Family ○ Education ○ Culture ○ Religion ○ Company environment Individuals have different styles for deciding moral dilemmas Business’ social responsibilities: Responsibilities to the general public: Public health issues protecting the environment developing the quality of workforce corporate philanthropy Responsibilities to customers Consumer rights Right to be heard (complaints) right to choose right to be safe Product liability: responsibility of manufacturers for injuries and damages caused by their products right to be informed (avoiding false/misleading advertising) Responsibilities to employees Workplace safety: managed mostly at the provincial level by organizations such as the Workplace Safety & Insurance Board in Ontario Quality of Life issues: balancing work and family Ensuring equal opportunity on the job: no discrimination Sexual harrasment and sexism Responsibilities to investors Obligation to make profits for shareholders Expectation of ethical and moral behaviour Protection of investors by provincial regulators such as the Ontario Securities Commission We think differently from a business perspective Codes of ethics - Compliance based (stick approach): increase control and penalize wrongdoers - Integrity based (carrot approach): Define guiding values, support ethical behvaior, shared accountability ASHLEY MADISON Cheating website Sao Paulo Toronto 8.6% of population Males talking to bots or employees Creation of fake accounts: few active females, stakeholder - customers were harmed the most One person committed suicide after all accounts were exposed Attempted to purchase 200k worth of advertising on TTC, promoting cheating and makes it ethical for other people, could create a bad image, Important stakeholders: investors that lost money, male customers Unethical to customers: misleading, info not secure, entrapment, Employees: should they be loyal or truthful Investors: return of their investment, unethical practices reflect on the company as whole Public: taxes, breaks up families, LISA LAFLAMME replaced by Omar CTV news, Expectation that Lisa presents herself the best, double standards Nicki Haley attacking trump’s mental fitness Consumer - changing viewer habits, appeal to younger demographics, Employee - overall employee morale, gives opportunity to younger employees, only gray hair, no mental unfitness, Investor - strategy increases profits, unethical, boycotting, Public: presents diversity, sexist, ageist WELLS FARGO 2 million fake accounts - financial institutes evaluated by # of accounts per customer CEO’s actions - unethical, unrealistic targets, concerned with own and shareholders’ pay Fired more than 100 workers over Covid relief fund abuse CEO was not held accountable, Exec who led the fake accounts unit is leaving with 124 million dollars in shares Culture based on selling as many products to customers as possible, abandoning business model that boosted pay based on the # of products sold Strength and training programs controls and oversight Greedy bank reputation 5300 employees fired Dropping sales goals On the Job Ethical dilemmas Conflict of interest: business decision may be influenced by personal gain Can be handled ethically by avoiding or disclosing Honesty and integrity: telling the truth and adhering to deeply felt ethical principles in business decisions Whistle Blowing: employee’s disclosure of illegal, immoral, or unethical practices Loyalty vs Truth: businesspeople expect employees to be loyal, but ethical conflicts may arise if the truth about a company is not favorable Structure of an ethical environment: Ethical awareness: foundation of an ethical climate, develop a code of conduct, Enron: 1985, accountant Richard Causey left Arthus anderson, enron’s auditor to later become Chief of Accounting Officer at enron, 1997, Enron begins creating off balance sheep special purpose entities and small partnerships used to hide debt and inflate earnings, Enron is forces to declare massive losses in 3001 followed by a series of restatements for the past 5 years, SEC becomes suspicious and launches inquiry of finances, Arthur's auditor and consultant fees were 5 times their auditing fees, helped destroy tons of documents in the cover up, creditors ower more than 63 billion dollars by enron have to settle for about 1/5th of that sum, 5600 lost jobs and 2 billion pension, US Congress forced to pass new accounting regulation under the Sarbanes-Oxley Act (C-SOX) which encompass much stricter rules and greater accountability by management, Top management in prison, false esimation of profits based on assets Impovements: - Top management support - Expectations begin at the top - Ethics embedded in training - Ethics office setup, whistleblowers must feel protected - External stakeholders informed - There must be enforcement Mistakes: - Breached fiduciary duty - Conflicts of interest - Compensation - Independence - oversight Complex (Illegal Transactions) - Special Purpose Entity - Hedges - Derivatives - Swaps - Forward contracts - Prepaid contracts - Wash trading - Prepays - Tax avoidance - Fake trading room - Fees to accountants, lawyers, bankers, advisors - Payments to directors - Increased stock price - whistleblowers Bill intended to protect people who expose problems in the government’s bureaucracy - Bill C-25 Reading Important component of effective management is the empowerment of employees => Keep them informed about the company’s performance => give broad authority to make workplace decisions that implement a company’s vision and its competitive strategy Ultimate step in convincing employes of how their role supports the success of their firm is worker ownership => employee share ownership plans, and stock options Employee share ownership plans: Ownership interest in the form of shares, outlines the policies and rules for how employees can purchase at a favorable price when employees leave/retire, shares may be paid as part of compensation package, to ensure options are distributed fairly it contains high level terms for offering options, has implications for LR ownership structure, no money to be exchanged at the time its created, covers timelines and circumstances, designed to protect pension benefits, expensive to set up, more common in larger firms, if the majority of an employee’s retirements funds are in company shares and the value falls dramatically, employee loses financially, company holds shares for the benefit of employees Company sponsored trust fund holds shares for employees Usually cover all full time employees The employer may or may not pay for the shared of the company Employees receive shares (or value of shares) when they retire of leave the company Stock options: Right to buy a specified number of shares at a given price within a given time period, employees can own the shares themselves if they choose to exercise or use their options by purchasing shares, if share price never increases above the option price employee doesn’t need to exercise the option, of all the stock options ⅓ goes to other top five executives, remainder goes to other executives and managers, Business gives employees the option to buy shares of its company Can be granted to one, a few, or all employees Employees pay a set price to exercise the option Employees receive shares when (and if) they exercise the option, usually duing a set period Types of teams: - Self managed: empowered to decide how they complete their daily tasks, most effective when it combines employees with a range of skills and functions, members cross trained to perform each other’s jobs, concentrate on satisfying customers - Cross functional: members from different functions/parts, different perspectives and range of skills - Virtual - Work: people with complementary skills - Problem-solving: knowledge workers who meet to solve specific problems then disband Team level: average level of ability, experience, personality or any other factor Team diversity: differences in ability, experience, personality, or any other factor Stages of Team development: 1. Forming 2. Storming 3. Norming: bried, resolve differences, team leader emphasizes unity and importance of objectives 4. Performing 5. Adjourning Cohesive groups retain members The communication process: Every communication takes place in a situational or cultural context Communication in high context cultures - depends on the message, conditions arround it including non-verbal cies, past/present experiences, personal relationships between the parties (Japan, Latin America, India) Low context: rely on written and verbal messages (Switzerland, Austria, Germany, Canada, US) Noise: interference with the transmission of messages and feedback, result from poor reception, etc, present at any point Forms of communication: Oral - if one person is nervous, noise enters the communication, immediate, listening Written - security, permanence Grapevine: internal channel that passes info from unofficial sources External communication: meaningful echane of information using messages sent between an organization and its major audiences (suctomers, suppliers, other firms, the general public, govenrnment officials) When a public crisis occurs - firm should respons quickly by preparing a written statement, including time, place, description of the event, and the number and status of people involved Affective conflict: disagreement that focuses on individuals or personal issues Cognitive conflict: disagreement that focuses on problem and issue related differences of opinion Mass production: system for manufacturing products in large quantities by using effective combinations of employees wuthg specialized skills, mechanization, and standardization - large quantities at lower prices Begins with specialization of labor skills Assembly line: manufacturing method that moves the product product along a conveyor belt past many workstations, where workers perform specialized tasks + Highly efficient for producing large numbers of similar products - Inefficient in producing small batches of different items - Boring jobs => flexible production systems, customer dirven production systems to improve competitive abilities Flexible production: cost effective for producing smaller runs, uses IT to share details of customer orders, programmable equipment to fill orders, skilled people to carry out tasks Works better with lean production methods that use automation and IT Needs a lot of communication among everyone Widely used in the auto industry Customer driven production: system that assesses customer demand to make a connection between the products that are manufactured and the products people want to buy Approaches: computer links between factories and retail scanners that are used to create short term forecasts and design production schedules; wiat until a customer orders a product and then produce it Two main production systems: Analytic production system: reduces a raw material to its component or individual parts to extract one or more marketable products Synthetic production system: combines 2+ raw materials to produce finished products Two time related production processes: Continuous production process: created finished products over a long period of time Intermittent production process: creatos products in short production runs Computer aided design: process used by engineers to design parts and entire products on the computer Computer aided manufacturing: analyze the steps a machine must take to produce a needed product or part Flexible manufacturing system: production facility that workers can quicly change to manufacture different products, uses computer controlled machining centres to produce metal parts, robots to handle parts, remote controlled carts to deliver materials - all are linked by electronic control that direct activities at each stage, can replace broken/worn out drill bits and other tools Computer integrated manufacturing: use of robots CAD/CAM, FMS, computers and other tech together, centralized computer system running software that integrates and controls separate processes and functions + Increased productivity, decreased design costs, increased equipment utilization, improved quality Factors in the location decision: Closeness to suppliers, warehouses, and service operations Costs of insurance and taxes Availability of employee needs such as housing, schools, mass transportation, daycare, shopping, and recreational facilities Size, skills, and costs of the local labour force Enough space to meet the current and future needs of the firm Distance to the market for goods Receptiveness of the community Economical transportation for incoming materials and supplies and for outgoing finished goods Climate and environment that match the industry’s needs and employees’ lifestyles Amount and cost of energy services Government incentives Tasks of production managers: Products must satisfy customers and be produced efficiently and cost effectively Planning the production process: 1. By converting original product ideas into final specification 2. By desgining the most efficient facilities to produce those products Selecting the most appropriate layout: Managers need to consider all phases of production and the inputs needed at each step Basic facility layouts: a) Producess layouts Groups machinery and equipment according to their functions, suit a variety of production functions and use general purpose equipment that are less constantly than specialized equipment, variety of non-standard items in small batches Laundry receiving => delivery and invoicing b) Product layout Assembly line, sets up production equipment along a product flow line, large numbers of similar items, inflexible, few product variations c) Fixed position layout Places the product in one spot, suits very large, bulky, fragile products company (storage, employee, machine group, subcontractor) d) Consumer oriented layout: Arrange facilities to enhance interactions between customers and its services Hospital Implementing production plan: 1. Deciding whether to make, buy, or lease products or parts 2. Selecting the best suppliers for materials 3. Controlling inventory to keep enough supplies in stock but not too many Inventory control: a function that balances the costs of storing inventory witht the need to have stock on hand to meet demand Perpetual inventory systems: continuously assess the amount of their stock adn where it is stored, rely on computers, automatically generate orders when stock is low Venfor managed inventory: companies hand over their inventory control functions to suppliers Just in time: a system that provides the right part at the right place at just the right time, just before it is needed in production; suppliers heep stock on hand to respond to manufacturers needs, purchasers give penalty when suppliers do not keep enough parts on hand Materials requirement planning: a computer based rpodcution planning system that ensures a firm has all the parts and materials it needs to produce its output at the right time and place and in the right amounts - create schedules that list the specific parts nad materials needed to produce an item Controlling the production process: Production control: creating well-defined procedures for coordinating people, materials, and machinery to provide the greatest production efficiency - Planning, routing, scheduling, dispatching, follow up Production planning: decide the amount of resources needed Routing: manager decides on the sequence of work throughout the facility, depend on the nature of the good/service and facility layout Scheduling: managers develop timetables that show how long each operation in the production process takes and when it should be performed - gantt chart, program evaluation and review technique (PERT) chart (critical path), Dispatching: management instructs each department on the work it needs to do and the time allowed for the work to be completed Follow up: spot problems in the production process Lecture 6 International business Global business: representation in other countries, produces and sells in other countries Spectrum Trade: Expensive, challenging to communicate, only for the rich International Trade: absolute advantage, based on comparative advantage E.g. Maple syrup in canada Why do companies trade: 1. Using up excess recources/capacity 2. Cost reduction 3. Particular foreign market demand Decisions of trade in a country are made by companies Risks of trading over international borders: - Logistical issues - Pirates, terrorists - Exchange volatility Free trade: Detrimental impact on micro-economies, benefits global society, Foreign exchange based on currency Low canadian dollar: more countries buy from canada, more money flowing in, goods are expensive to canada, GDP decreases Cultures: - Pocari sweat from japan not working well in canada Ethical issues international businesses face: - Corruption - Environmental standards Nike - child labor, CASE: EU TARIFFS ON CHINESE EVS Chinese cost is lower According to the WTO Must prove that there’s harm being done Price is low State Capitalism vs Market Economies Overproduction Affect the competitive landscape (chinese more competitive advantage) Global dominance in specific industries + More consumer choice - Less entrepreneurship, less incentive to develop new stuff, Lack of innovation - Inefficiency from government subsidies - Market tensions between different countries, retaliation - Lower costs, market dominance, scale up faster - Less regulations, more stable in an economic downturn Fixed costs are divided by a larger output Economies are efficient Control over key components Efficient use of labor, low labor cost Standardized parts Better negotiations with supplier Domestic supply chain efficiency Tarriff: a tax, surcharge or duty charged on foreign products. Its purpose is to protect domestic producers of those items Tariffs (trade restrictions): + Less competition + Protects local industries + Temporary relief of market structure + Encourages buying domestaclly - Less motivation to be competitive - Reduce innovation - Difficult to exchange knowledge, focuses on short term survival - Complicate supply chain, delays - Reduces consumer choice - Retaliation from others Responses to tariffs: Improve production lines, localize production Diversifying supply chains Remaining innovative The strategic importance of supply chain control: Control quality Agility to responsiveness Vertical integration: better control, quicker ability to adapt, reduces dependency on others, innovation, increased communication Outsourcing: not incurring fixed costs, scalable, flexible, efficiency=> accelerating product development, lower labor cost, operational cost Risks associated with relying on one single country for critical components: Major supply chain distributions Limited bargaining power Vulnerable to fluctuations, geopolitical issues Response: Diversify suppliers Invest in local production Strengthen inventory management => cost Collaborating regionally - forming partnerships with other countries EV Tariffs on environmental goals Slowing down adoption of tech information/technology between different countries Sourcing from countries that aren’t environmental Priortize short term ecnomic goals (protections) over long term economic goal Consumer affordability Reading: Trading with other countries allows a company to spread risk because different nations may be at different stages of the business cycle or in different phases of development As developing nations expand their involvement in global business, the potential for reaching new customers dramatically increases Balance of trade: difference between its exports and imports X>M positive balance of trade, trade surplus X journal listing posted onto ledgers => ledgers used to prepare financial statements The accounting cycle: Creditors and owners have claims to assets Accounts payable/Notes Payable/Long term debt: the claims of creditors Owner’s equity: initial invesment+profits that weren’t paid to owners Accounting equation: Assets = Liabilities + Owners’ equity Double entry bookkeeping: the process used to record accounting transactions; each transaction is always balanced by another transaction Financial statements: balance sheet, income statement, statement of changes in equity - calculated using double entry bookkeeping (not cumulative) Balance sheet is the only permanent statement, must be prepared at regular intervals Assets are shown in downward order of liquidity (cash first) Equity and liabilities ordered by due date, Liabilities - suppliers, In a corporation, owners’ equity is claims of shareholders Also includes any excess of all assets over liabilities Income statement (P&L): Sales - COGS - Depreciation Remaining net income (after tax) is distributed to owners or reinvested as retained earnings - bottom line Statement of changes in equity: equity (at the beginning of the year) + net income - cash dividends + sale of new shares - repurchase of existing shares = shareholders equity (end of year) => reported to the balance sheet Cash flows wide use in Accrual accounting: an accounting method that records revenues and expenses when they occur, regardless of when cash actually changes hands. Depreciation is a non-cash expense and is added back into the net income Liquidity rations: measure a firm’s ability to meet its short-term obligations, such as loans, when they are due. Current ratio of 2:1 is satisfactory Acid test ration of 1:1 Should be compared with industry averages and data from previous operating periods Activity ratio: measure how effectively management uses the firm’s resources Can vary depending on the products and the industry it operates in Higher ratio = efficient Varies in other industries Leverage ratios: measure how much a firm relies on debt financing Debt ratio: 50%+ firm is relying more on borrowed money than on owners’ equity Profitability ratios: ability to generate revenues that are greater than its operating costs and other expenses Over a period of time, shows the effectiveness of management in operating Evaluated in relation to profit forecasts, past performance, or more specific industry averages Budget: firm’s expected sales revenues, operating expenses, cash receipts, and cash expenses, short term financial plan Cash budget: tracks the firm’s cash inflows and outflows Cash budgets are usually prepared monthly. Cash receipts are listed first. They include cash sales and the collection of past credit sales. Cash outlays, or cash expenses, are listed next. These include cash purchases, payment of past credit purchases, and operating expenses. The difference between cash receipts and cash outlays is net cash flow. Fluctuations, or ups and downs, of exchange rates create gains/losses for global companies. Data about international financial transactions must be translated into the currency of the country where the parent company resides Lecture 7 Concepts of strategy: Disney - sustainable competitive advantage Foundations of strategic competitiveness: - Competitive advantage - Sustainable competitive advantage (that is valuable and rare) Internal analysis + External analysis: Strategic Management Strategic management process: Internal analysis of organizational resources and capabilities: analysis of organizational resources and capabilities: Important goal of assessing core competencies Potential core competencies: - Special knowledge and expertise - Superior technology - Efficient manufacturing approaches - Unique product distribution systems External analysis of industry and environment Assessment of macro environment: - Technology - Government - Social structures and population demographics - Global economy - Natural environment Analysis of industry environment - Resource suppliers - Competitors - Customers => SWOT Types of strategies: Growth and diversification strategies: Growth strategies: seek an increase in size and the expansion of current operations - Concentration strategies - Diversification strategies - Related diversification - Unrelated diversification - Vertical integration Restructuring and divestiture strategies: Readjusting operations when an organization is in trouble Retrenchment: - Correcting weaknesses by making changes to the current operations - Liquidation - Restructuring: downsizing and rightsizing - Restructuring through divestiture Strategy formulation: Opportunities for achieving sustainable competitive advantage - Cost and quality - Knowledge and speed - Barriers to entry - Financial resources Eaton’s and Ashley madison - rebranded and failed Ashley madison then went back to a cheating website Strategies vs Tactics: Battlefield strategy: big picture Typically won’t change very much, very often Battlefield tactics: short term plans that support the strategy May change frequently depending on moment to moment conditions Strategy: wish to focus on quality control Tactic: decision to close branches Porter’s Five Froces (affecting industry competition) Attractiveness of an industry Porter’s generic strategies Source of your competitive advantages BCG Matrix Strategy formulation TARGET: - Not properly structured supply chains - Underestimation of canadian competition - President’s skillset didn’t match - Target faced challenges in stolen credit cards data - Came to canada because of geographical and similar languages - Distribution network, logistics - Minimum number of stores, distribution centers, less dense population widespread - Canadians had competitive advantage: president’s choice sold in multiple stores near ppl’s houses, - IT - Shelf size differences, buffer stock COSTCO: - Treasure hunt retail psychology => shop longer, buy more, exciting to shop - Membership and executive membership - Marked up 11% - Target: middle income families, - Large and loyal customer base - Try to keep costs low as possible - Data analytics, - efficient - Sampling => customers spend more money - Customers feel like they’re getting their money worth - Not engineered for quick sale - Move in product and cycle in new product - Retail strategy encouraging customers to explore and stay for a long time - Warehouse club concept - Large variety of goods - Threats: - Competitors selling for cheaper - Sustainability - Online presence Solutions: Target younger people online To change landscape, don’t try to reinvent the wheel, focus on an a sustainable environment More services to get customers in store Savers have surplus of funds Users have a shortfall Households are net savers, businesses and governments are net users Net worth: what you own - what you owe As age increases, savings increase Funds can be transferred - Directly: user raises funds directly from savers (fiancial markets/institutions) - Indirectly: through financial institutions Securities: financial instruments that represent the obligations of the issuers to provide the purchasers with the expected stated returns on the funds invested or loaned. - money market instruments - Bonds - shares (stock). Money market instruments: debt security, short-term debt securities issued by governments, financial institutions, and corporations; all mature within 1 year, low risk, issuer pays interest to the investors for the use of their funds Treasury bills: maturity date of 30, 90, 180, 360 days and must be a minimum of 1000, virtually risk free, easy to resell Commercial papers: securities sold by corporations, mature 1-270 days, low risk Certificate of Deposit (CD): time deposit at a financial institution, such as a commercial bank, savings bank, or credit union Bondholder: creditors of a corporation or government body Firms sell to obtain long term debt capital, each issue indicated RoI and maturity date, RoI is to be paid to the bondholder, maturity date is when bondholder is paid the full face value, Municipal bonds: - Corporate bonds - Mortgage backed bonds/securities Subprime mortgages: loans made to borrowers with poor credit ratings, risky As market interest rates rise, bond prices fall Most corporate and municipal bonds are callable, as are some government bonds Call provision: allows the issuer to redeem, or cash, the bond before its maturity at a specified price Stock split: what occurs when a company decides to divide its existing shares of stock into multiple shares. Convertible securities: Companies may issue bonds or preferred shares that include a conversion feature pay lower interest rates than bonds without conversion features Types of financial markets 1. Primary: a financial market where firms and governments issue securities and sell them initially to the general public. Current capital ⇔ investors purchase ownership interest of a firm For profit and government agencies rely on primary markets to raise funds by issuing bonds Securities are sold through auctions or investment bankers 2. Secondary: a collection of financial markets where previously issued securities are traded among investors. Underwriting: financial institutions purchase the issue of a firm or government and then resell to the issue investors Financial institutions underwrite share and bond issues at a discount Issuing firm/governemnt < price that financial institutions charge investors Discount is negotiable, and is a compensation for the financial institutions services including the risk financial institutions take on when they underwrite a new security issue Discount higher for share issues than bond issues Fourth market: is the direct trading of exchange-listed stocks off the floor of the exchange Were limited to nstitutional investors buying/selling large blocks of shares, now opened up to ECN Investors that aren’t members of the stock market use the services of a brokerage firm to buy/sell shares Establish account, enter orders to trade shares Market order: instructs the broker to obtain the best possible price—the highest price when selling and the lowest price when buying Limit order: It sets a price ceiling when buying or a price floor when selling. If the order cannot be filled when it is placed, the order is left with the exchange’s market maker (a firm that is always ready to buy or sell a specific share at a publicly quoted price). It may be filled later if the price limits are met. Financial institutions 1. Depository institutions: accept deposits that customers can withdraw on demand If a CDIC-insured bank fails, its depositors are paid in full by the CDIC for up to $100,000 of funds on deposit in a savings or chequing account, term deposits, guaranteed investment certificates, and foreign currency account Credit Unions: co-operative financial institutions that are owned by their depositors, all of whom are members Higher interest on deposits, lower interest rates on loans, charge fewer fees 2. Non-depository institutions: insurance companies, pension funds, finance companies Insurance companies: Premium: insurance company accepts the risk in return for a series of payments Underwriting Collect more in premiums than they pay in claims. After they pay their operating expenses, they invest the difference to bonds, stocks and real estate. Major source of short- and long-term financing for businesses Consumer and commercial finance companies offer short term loans Collateral - tangible assets (inventory, accounts receivable, machinery, or property) Finance companies raise funds by selling securities or by borrowing funds from commercial banks. Mutual funds and exchange traded funds: financial intermediaries that raise money from investors by selling shares in those securities—stocks, bonds, or money market instruments—to the public. can be categorized as small-, mid-, or large-cap, or by market capitalization Mutual fund investors are indirect owners of a portfolio of securities As the value of the securities owned by the mutual fund changes, the value of the mutual fund’s units will also change. - Investment funds - in the form of equity or corporate bonds; - index fund (tied to a broad stock market index, passively managed will always earn a return identical to the market that it is tracking; - Exchange traded funds - combine characteristics of mutual funds and stocks, provide diversification, composed of a group of securities and trade in a way similar to common shares seek to match a market index like the S&P 500 Commercial bank’s revenues result from interest rates they charge borrowers>interest rates they pay depositpors Fintech Categories and Companies: Roles of a central bank 1. Regulating monetary policy Money supply grows at a suitable rate, inflation in check M1: currency in circulation and the balances in bank chequing accounts M2=M1+balances in some savings accounts and money market mutual funds a) Discount rate: interest rate at which the Bank makes short-term loans to member banks Increase in bank rate - money supply decreases b) Open market operations: technique of controlling the money supply growth rate by buying or selling Canadian government securities Bank buys government securities - money supply increase Bank sells government securities - money supply decrease Used as a benchmark/guideline/overnight rate - the rate at which banks lend money to each other overnight 2. designing and issuing bank notes 3. regulating the financial system 4. managing funds for the federal government and other clients. Use selective credit controls - power to set margin requirements (the percentage of the purchase price of a security that an investor must pay in cash when making credit purchases of shares or bonds) Transactions in foreign exchange market Lower exchange rate - selling dollars and buying foreign currencies, increases reserves in the banking system Most commercial banks are state chartered; federally chartered banks control more than half of all banking assets. - all banks regulated by federal government Insider trading: use of material, non-public information about a company to make investment profits. (a pending merger or a major oil discovery) Sharing info before they occur could affect the share price Heavily self regulated by professional associations and major financial markets Market surveillance: real time monitoring of trading activity, timely disclosure of material information global financial system is becoming increasingly integrated each year Financial manager: the executives who develop and carry out their firm’s financial plan and decide on the most appropriate sources and uses of funds. Vice president: preparing financial forecasts and analyzing major investment decisions related to new products, new production facilities, and acquisitions Treasurer: financing activities, including cash management, tax planning and preparation, and shareholder relations, sale of new security issues to investors Controller - Chief Accounting Manager Risk-return trade-off: the process of maximizing the wealth of the firm’s shareholders by striking the right balance between risk and return. Financial manager must balance risks and returns Operating plans: short-term financial plans,1-2 years into the future Strategic plans: financial plans that have a much longer time horizon, up to 5-10 years. Financial plan forecasts: production costs, purchasing needs, plant and equipment expenses, sales activities for the period covered must reflect the amounts and timing of inflows/outflows of funds Steps to create a financial plan: 1. Forecast of sales or revenue over some future time period Depending on the type of business, expected sales growth, planned store openings/closings 2. Use the sales forecast to decide on the expected level of profits for future periods Estimating expenses (purchases, employee compensation, taxes) CFO decides the portion of these profits will likely be paid to shareholders in the form of cash dividends 3. Estimate how many additional assets the firm will need to support the projected sales Asset intensity Increases in assets represent a use of funds, the company will need an additional funds Must include financial control: process of comparing actual revenues, costs, and expenses with the forecasted amounts Current assets: cash, marketable securities, accounts receivable, and inventory. Cash to pay day-to-day expenses Marketable securities: low-risk securities that either have short maturities or can be easily sold in secondary markets, most cash is invested into this E.g money market instruments Tool is cash budget to manage cash and marketable securities Accounts receivable: uncollected credit sales Collect the funds owed to the firm as quickly as possible while still offering sufficient credit to customers to attract and generate increased sales More liberal credit policy means higher sales, increased collection expenses, higher levels of bad debt, and a higher investment in accounts receivable. Management of accounts receivable - calculate accounts receivable turnover over 2+ time periods in a row: - deciding on an overall credit policy - deciding which customers will be offered credit If receivables turnover shows signs of slowing, on average, credit customers are paying later Inventory management involves managing working capital, making sure that too much cash is not tied up in operations Cost of inventory includes cost of acquiring goods, costs of ordering, storing, insuring, and financing inventory - should be minimized If inventory turnover has been slowing down, inventory is rising faster than sales Firms should invest in long lived assets: expected to produce economic benefits for more than one year Capital investment analysis: process financial managers use when deciding whether to invest in long-lived assets Capital investment decisions - Expansion - Replacement Many global firms are involved in activities that reduce the risks associated with exchange rate ups and downs - managing international assets The use of debt for financing can increase both the potential for return and the potential for loss Equity capital: funds provided by the firm’s owners when they reinvest their earnings, make additional contributions, liquidate assets, issue shares to the general public, or raise capital from outside investors Capital structure: the mix of a firm’s debt and equity capital Debt = fixed costs Leveraging: increasing the rate of return on funds invested by borrowing funds. Company’s earnings must remain larger than its interest payments leverage increases potential returns to shareholders but also increases risk. Relying too much on borrowed money decreases management’s flexibility in future financing decisions Equity capital is more expensive than debt capital Creditors have senior claims to assets, will accept a lower rate of return Firm can deduct interest payments on debt, reducing its taxable income and its tax bill Short term funds - current liabilities, less expensive, more risk because it needs to be rolled over frequently, can be unstable, interest expense can vary, challenge of availability, Long term funds - long term debt and equity Firm needs a suitable mix of both Regular dividend: periodic cash payments to shareholders paid quarterly Earnings paid in dividends are not reinvested and don’t contribute to equity capital Companies that pay dividends try to increase the amount of dividends paid or, at the very least, hold the amount of the dividends steady from year to year. Investment opportunities - financing investment means less in dividends Some firms buy back a portion of their outstanding shares - from the secondary market to raise the market value of the remaining shares Three major sources of short term funds: 1. Trade credit: extended by suppliers when a firm receives goods or services and agrees to pay for them at a later date Accounts receivable by supplier and accounts payable by retailer relatively easy to obtain and costs nothing unless a cash discount from the supplier is offered. Amount a firm can borrow is limited to the amount it purchases 2. Short term loans To finance accounts receivable, cash budgets important - Lines of credit: specifies the maximum amount the firm can borrow over a period of time, bank is not obliged to lend, - Revolving credit agreements: guaranteed line of credit, charges a fee+interest Commercial finance companies Factoring: business sells its accounts receivable at a discount to either a bank or a finance company (factor), convert its receivables into cash quickly without worrying about collections 3. Commercial paper Large amounts of money can be raised at interest rates that are usually 1-2 percent less than banks Compensating balances - 5 to 20 percent of the outstanding loan amount in a chequing account Sources of Long term financing: 1. Financial institutions 2. Bonds (public sale of securities, private placements) Private placements: involve corporate debt issues Cheaper to sell privately 3. Equity financing Venture capitalists

RSM100 Lecture Notes PDF

Document Details

Tags

Related

Summary

Full Transcript

Upgrade to continue