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X100 ©2008 KEAW R1
Professor Kenneth EA Wendeln Professor Kenneth EA Wendeln
X100Introduction to Business
X100Introduction to Business
Review for Exam #1
Lectures 1 thru 8
Review for Exam #1
Lectures 1 thru 8
X100 Review for Exam #1 R1-2
Business: a Definition The organized effort of
individuals & organizations To produce & sell….
for a profit Goods and services to customers
That satisfy a society’s needs
X100 Review for Exam #1 R1-3
Goods & ServicesGoods & Services
FinancialFinancialResourcesResources
InformationalInformationalResourcesResources
Fundamental Business Resources
Business must effectively combine all four resources to be successful
Business
HumanHumanResourcesResources
MaterialMaterialResourcesResources
X100 Review for Exam #1 R1-4
SocialismProfessed aims – equitable distribution of income, elimination of poverty, distribution of social services based on need, eliminate economic waste.
Government – owns & controls key industries. Private ownership of smaller businesses may be permitted.
Command Economy – government decides what will be produced, how it will be produced, who gets what is produced and the price.
Visible Socialism – is present in many democratic governments, the most notable with a high degree of socialism include Sweden, Finland and India.
CapitalismAdam Smith – ‘laissez faire’ economy where society’s interest best served when individuals in that society are allowed to pursue own best interest’.
Individuals - own and operate majority of businesses that provide goods and services & have right to own & sell private property.
Market Economy – businesses & individuals decide what to produce & buy. Market determines the quantity sold and prices.
Mixed Economy – the US economy is a ‘modified capitalist’ or ‘free enterprise’ system with some government participation.
Types of Economic Systems
CommunismKarl Marx – ‘classless society’, where individuals contribute based on their capabilities and receive benefits based on their needs.
Government – owns almost all of the economic resources. Practice a strictly controlled type of socialism.
Command Economy – where emphasis is placed on production of goods that the government needs rather than on products consumers might want.
Communism – has dwindled with breakup of the Soviet Union & economic reforms in China. North Korea & Cuba are the best remaining examples.
X100 Review for Exam #1 R1-5
Key Features of the U.S. ‘Free Enterprise’ System
Consumers’ freedom of choice – to allocate their own resources and spend their own money as they please
Private ownership of land and real property – by individuals and businesses as governed by laws & covenants
Competition – among businesses for the consumers’ dollars Supply & Demand – determined by consumer demand,
availability, prices and market forces Circular Flow – of money for labor, resources & capital in
exchange for goods & services Business Cycles – driven by economic growth & contraction
System of business in which the individuals are free to decide what to produce, how to produce it and what to sell it for.
$$ Profit Motive $$For reinvestment & reward to investors
X100 Review for Exam #1 R1-6
Circular Flow of Resources in ‘Free Enterprise’
System
ServicesServicesServicesServices
TaxesTaxes
Govt
Sp
en
dG
ovt
Sp
en
dG
ovt
Sp
en
d
Pro
du
cts
Pro
du
cts
Resou
rces
Goods & Services
Goods & Services
Resources Labor & Capital
Resources Labor & Capital
Consumer Spending
Sales Revenue
Wages Rent & Interest
Income
US & LocalGovernments
Resourcemarkets
Productmarkets
HouseholdsConsumers Businesses
TaxesTaxes
X100 Review for Exam #1 R1-7
Types of CompetitionCompetition - the rivalry among businesses for
sales to potential customers
Pure Competition – many buyers & many sellers Buyers and sellers must accept going price
Monopolistic Competition – many buyers & relatively large number of sellers
Businesses compete with product differentiation
Oligopoly – market or industry with few sellers Each seller has considerable price control
Monopoly – market or industry with only one seller Business with monopoly has complete control over price Natural monopoly – requiring huge capital investment Legal monopoly – with a patent, copyright or trademark ™©
X100 Review for Exam #1 R1-8
In the past, primary sources of comparative advantage were better access to: Lower cost Labor Markets Financial Markets Technology Natural Resources Geographic Areas
Principle of a Nation’s ‘Comparative Advantage’
With ‘Globalization’ - these sources of advantage are
becoming less important
Nations engage in international trade – because they own resources that enable a nation to produce some goods better & more efficiently than other nations
X100 Review for Exam #1 R1-9
Artificial Restrictions on International Trade
Tariff Barriers Import duty (or tariff) – tax that is levied on products
entering the country. Raises the price. Dumping – exportation of large quantities of products at
a price lower than same product in home market. Drives down the price.
Non-tariff Barriers Embargo – complete halt to trading of a product. Often
used as a political weapon. Import quota – limits the amount that may be imported. Foreign Exchange control – limits amount of foreign
currency that can be purchased. Has effect of limiting imports.
Currency devaluation – reduction of the value of nation’s currency. Increases cost of foreign sourced goods.
Bureaucratic ‘Red Tape’ – frustrates trade.
X100 Review for Exam #1 R1-10
8. Joint Ventures
9. Totally Owned Facilities
• Acquisitions
• Subsidiaries
• Overseas Divisions
10.Multinational Companies
International Direct Investments
Trade Arrangements
1. Trading Companies
2. Exporting & Importing
3. Counter Trade
Int’l Contractual Agreements
4. Foreign Licensing
5. Franchising
6. Strategic Alliances
7. Production Agreements
Low
Degree of Control over Business
High
Degree of Financial Risk
Low High
More control usually means more financial risk
Methods of Entering International Business
X100 Review for Exam #1 R1-11
Globalization . . .. . . In Summary
1. ‘Comparative advantage’ is becoming less & less important
2. Significant reductions in trade tariffs & barriers – encouraged by GATT & WTO
3. Expansion of International Economic Communities – eg NAFTA, EU . . .
The world is ‘getting smaller’ with increasing int’l trade as:
Globalization is a reality today –International trade has tripled since WWII & now accounts for 21% of global income
X100 Review for Exam #1 R1-12
Forms of Business Ownership
The form of ownership that is selected affects:1. Legal charter & documents needed
2. Regulatory & reporting requirements
3. Financial resources available
4. Owners’ liability & risk of losses
5. Taxes - liabilities & benefits affecting the business affecting the owners (shareholders, partners, or members)
6. Length of life
7. Transfer of ownership
8. Ease of termination
In the United States, an owner can select from a variety of specific forms of business ownership.
X100 Review for Exam #1 R1-13
General Categories of Business Ownership
2. Partnership General Partnership Limited Partnership Limited Liability Partnership or ‘LLP’
The different forms have evolved in response to the specific needs of business people.
1. Sole Proprietorship
3. Corporation ‘C’ Conventional Corporation ‘S’ Corporation
4. - Limited Liability Company
X100 Review for Exam #1 R1-14
Relative Business Ownership in the US in 2004-2005
Number of Tax Returns Business Revenues
$1,017 B4.4%
Partnerships$2,569 B11.2%
Source: US Census Bureau, Statistical Abstract of the United States, 2004-05, www.census.gov
Non-Farm SoleProprietorships
18.3 M71.6%
Partnerships2.1 M8.4%
Corporations$19,308 B84.4%
Corporations5.1 M
20.0%
X100 Review for Exam #1 R1-15
An ‘extension’ of the individual involved:• Easy to form - no legal charter required• UNLIMITED personal liability for the business• Single taxation at personal tax rates
‘Informal Forms’ - SummarySole Proprietorships & Partnerships
IRS Income &
FICA Taxes
Forms of
Ownership
Sole Proprietorships
Partnerships • General
s
X100 Review for Exam #1 R1-16
‘Formal Forms’ of PartnershipsLimited & Limited Liability Partnerships
IRS Income &
FICA Taxes
STATE Legal
Charters
Forms of
Ownership
Sole Proprietorships
Partnerships • General
• Limited• ‘LLP’
• Limited Partnerships & Limited Liability Partnerships (LLP’s) offer some ‘limited’ liability • Must have a ‘legal charter’ with the state• Single Taxation at personal tax rates
http://www.in.gov/sos...
X100 Review for Exam #1 R1-17
Entities Governing Forms of Business Ownership
IRS Income &
FICA Taxes
STATE Legal
Charters
SEC Securities
Regulations
Forms of
Ownership
Sole Proprietorships
Partnerships • General
Corporations• ‘C’ Corps • ‘S’ Corps
• Limited• ‘LLP’
• Publicly Traded
Limited Liability Companies• Multi-member • Single-member
http://www.IN.gov/sos/
http://www.sec.gov/
X100 Review for Exam #1 R1-18
Types of Corporations
1. ‘C’ Corporations ‘Conventional’ or ‘C’ Corp Results in double taxation
‘C’ Corp pays corporate income taxes ‘C’ Corp pays dividends to shareholders -
who may also be taxed on those dividends
2. ‘S’ Corporations A tax elective (subchapter ‘S’) for a conventional
corporation that may be taxed once as a pass- through to each of the shareholders
A corporation may apply to IRS for ‘S’ tax status if certain criteria are met:1. No more than 100 stockholders allowed2. All stockholders must agree to the ‘S’ election3. Must be a domestic corporation4. Only one class of stock allowed5. Stockholders must be individuals, estates & certain trusts6. No nonresident alien stockholders
X100 Review for Exam #1 R1-19
Hierarchy of Corporate Structure
Board of Directors(hire the Officers)
Officers (set corporate objectives &
select Managers)
Managers(supervise Employees/Associates)
Employees/Associates
Incorporators1. Corporate Charter2. Articles of
Incorporation3. Organizational
Meeting4. Elect the initial
Board of Directors
Owners/Stockholders(elect Board of Directors)
X100 Review for Exam #1 R1-20
Limited Liability CompanyLLC’s are unincorporated legal entities created under state law – providing the benefits of both liability protection & single pass-thru taxation.
Relatively new business form – all 50 states and District of Columbia now have laws authorizing the formation and operation of LLCs within their borders.
LLCs offer owners liability protection – intent of state laws is to allow the formation of entities that are legally more similar to corporations than partnerships.
LLC owners are referred to as ‘members’ – rather than shareholders or partners.
Earning (& losses) allocated to the members – taxed as a corporation, partnership, or sole proprietorship.
LLCs are NOT corporations & NOT partnerships
X100 Review for Exam #1 R1-21
Types of Limited Liability Companies
1. Single-member LLCs Recognized on most states, including Indiana Pass through taxation - same as sole proprietor
2. Multi-member LLCs Recognized in all states Limited liability for all LLC members Can be treated either as a Partnership or a
Corporation for federal income tax purposes
Member-managed LLCs LLC statute and operating agreement determine
voting rights Any member has authority to legally bind the LLC
in the ordinary course of business Manager-managed LLCs
Non-manager LLC members have very limited management rights similar to stockholders
X100 Review for Exam #1 R1-22
Summary & Comparison Forms of Business Ownership
Sole
Proprie-torships
General Limited & LLP
‘S’ Corp Conventional
‘C’ Corp
1 Business Formation
none Partnership Agreement
State State State State
2 Regulations, Reporting, Secrecy
none none State State State & SEC
State
3 Liability – Risk of Loss
Unlimited personal
Unlimited personal
Unlimited & Limited
Limited to investment
Limited to investment
Limited to investment
4 Access to Fin’l Resources
Personal debt
Partners + debt
Partners + debt
Debt & equity
Debt & equity
Debt & equity
5 Income Taxation
Income once Income once
Income once
Income once
Corp Income + Dividends
Choice of Taxation Method
6 Continuity of Business Life
Death of sole
proprietor
Death/ withdrawal of a partner
Death/ withdrawal of G partner
Perpetual life or
Agreement
Perpetual life or
Agreement
Based on agreement
7 Ease of Transfer of Ownership
Limited – asset sale
Partners’ Agreement
Partners’ Agreement
Stock sale, restrictions
Stock sale Limited
8 Management & Responsibilities
Proprietor manages
All Partners manage
GP manages Hired mgmt Hired mgmt Hired or self- mgmt
Neutral
WorstBest
LLCsPartnership
s
Corporations
X100 Review for Exam #1 R1-23
ö Tracy ö ™
Entertainmentand
Tennis Centers
‘C’ Corp for IPO & stock trading
Evolution of a BusinessCall Tracy
forTennis Lessons
SoleProprietorshipfor simplicity
ö Tracy’s ö Tennis Pro Shop
and Lessons
Single MemberLLC for limitedliability
ö Tracy ö ™Tennis Center
and Pro Shop
Multi-memberLLC or‘S’ Corpfor investors &single taxation
X100 Review for Exam #1 R1-24
Small Business and Trends
Not large – of the 23 million businesses in the US, only 17,000 employ more than 500 workers – enough to be considered large
High growth – during the past decade, the number of small businesses in the US has increased nearly 50%
Part-time small business – 5 times growth in recent years and now account for one-third of all small businesses
Importance in providing jobs – small businesses provide over 50% of the jobs in the US
Technical Innovation – more than 50% of the major technological advances of the 20th century originated with individual inventors and small companies
One that is independently owned & operated for profit – and is not dominant in its field
Small business is very important to the US economy - and has helped to fuel its growth
X100 Review for Exam #1 R1-25
Small Business Administration SBA ‘Smallness’ Guidelines
Service Industries1. Services
< $2.5m to $22m annual receipts
Distribution Industries 2. Retailing
< $6.5m annual receipts
3. Wholesale Trade< 100 employees
Production Industries4. Manufacturing
< 500 to 1500 employees
5. General & Heavy Construction < $31m annual receipts
6. Special Trade Construction < $13m annual receipts
% of Small Businesses
Service48%
Distribution33%
Production19%
X100 Review for Exam #1 R1-26
Pros & Cons of Small Businesses
Advantages1. Flexibility
Ability to adapt to change
2. Independence You are your own
boss
3. Service Closer to the
customer
4. Simplified Business form Record keeping
5. Specialization
Disadvantages1. Risk of failure
2 out of 3 close their doors within the first 5 years
2. Limited potential Based on technical and
business skills of the owner
3. Limited ability to raise capital 67% begin with <$10,000
4. Little ‘power’ With big customers With major vendors
X100 Review for Exam #1 R1-27
Characteristics of a Successful Entrepreneur
1. Vision
2. High energy level
3. Self-confidence
4. Optimism
5. Creativity
6. Tolerance for uncertainty
7. Tolerance for failure
X100 Review for Exam #1 R1-28
Likelihood of Success
“Statistically, over 70% of new businesses can be expected to fail within their first five years.”
Improve your odds & likelihood of success: Good business plan Good advice (eg the SBA) Franchising
X100 Review for Exam #1 R1-29
Developing a Business Plan
1. Introduction2. Executive
Summary3. Benefits to
Community4. Company &
Industry5. Management
Team6. Operations Plan
A carefully constructed guide for the person starting the business . . . . also serves as a concise document for potential investors.
7. Labor Force8. Marketing
Plan9. Financial
Plan10. Exit
Strategy11. Assessment
of Risk12. Appendix
For more help from the SBA: http://www.sba.gov/smallbusinessplanner/index.html
Alford Media Video
X100 Review for Exam #1 R1-30
Small Business Administration
Financial Assistance – Loans via private lenders guaranteed by the SBA SBA guaranteed $19.5 billion in loans in 2006 Current maximum is $1 million via lenders, 85% up to $150,000
Assist with Government Procurement – Small business ‘set-aside’ programs Supplementary programs for minority & female owned businesses
Training and Consulting Assistance – SCORE – Service Corps of Retired Executives ACE – Active Corps of Executives SBI – Small Business Institute
Encourage Legislation & Provide Information
“America’s small business resource” established in 1953 to ‘aid, counsel, assist and
protect the interests of small business’
http://www.sba.gov
X100 Review for Exam #1 R1-31
Franchising
Franchisor Gains fast & selective
distribution with minimal costs
Collects upfront and ongoing fees from the franchisee
Benefits from the investments made by a highly motivated franchisee
Retains a great deal of control over the brand name, product & service
An agreement between a Franchisor & a Franchisee, to market, sell or license products, services or concepts. Franchisee pays fees to the Franchisor.
Franchisee Opportunity to start a
business with limited capital
Makes use of proven concepts & the business experience of the others
Benefits from brand names and national/local promotional activities
One-time franchise fees and continuing royalties can be a financial burden
Sells franchise to
X100 Review for Exam #1 R1-32
0 2 0 4 0 6 0 8 0 1 0 0
1 0 y e a r s
5 y e a r s
1 y e a r
Sti
ll O
pera
tin
g a
fter
Franchises
Independents
Franchise Success vs Independent Businesses
Source: US DepartmentOf Commerce
%
90%
X100 Review for Exam #1 R1-33
The Five-Step Management Process
Review and modifyReview and modify
Management - is the process of leading and coordinating people (along with other resources) to achieve the organization’s goals & objectives.
Controlling• Set standards• Measuring• Corrective action
Directing• Leading• Motivating• Delegating• Prioritizing
Organizing• Resources• Activities• Structure• Chain of Command
Planning• Strategic• Tactical• Operational• Contingency• Goal Setting
Managements’ Focus – ‘Getting the Job Done’
X100 Review for Exam #1 R1-34
Planning
Strategic planning – the fundamental longer-term strategies and key GOALS of the organization
Tactical planning – specific action-oriented OBJECTIVES related to specific functions & departments
Operational planning – very short-term (weekly & daily) plans, BUDGETS & performance expectations
Contingency planning – ‘WHAT-IF’ plans that address possible ‘downside & upside’ economic & business scenarios
Planning – establishing the organization’s mission, goals & objectives and developing strategies & plans to achieve them
X100 Review for Exam #1 R1-35
The Organizing Process Defining the Jobs
Major FUNCTIONS and related TASKS Organize into WORK ASSIGNMENTS
Departmentalization Group jobs into manageable units - ‘DEPARTMENTS’ or ‘SECTIONS’ Form by major FUNCTION, PRODUCT, LOCATION, hybrid or matrix
Delegation Distribute RESPONSIBILITY & AUTHORITY within the organization
Span of management WIDE or NARROW – number of subordinates reporting to each manager ORGANIZATIONAL HEIGHT – layers or levels of management
Chain of command LINE positions – with direct authority STAFF positions – support positions
Organizing resources, activities and structure
Organizations Video
X100 Review for Exam #1 R1-36
Corporate OrganizationLevels of Management
Employees/Associates
Officers& Top
ManagementSet corporate goals& select managers.
First-Line ManagementCoordinates & supervises activities of
employees/associates.
Middle ManagementImplements strategy, develops
tactical & operational plans & objectives.Supervises first-line managers.
Board of DirectorsBoard of DirectorsHires the officers.Hires the officers.
CENTRALIZED CENTRALIZED ORGANIZATIONORGANIZATIONManagement Management
systematically works to systematically works to concentrate authority at concentrate authority at the UPPER levels of the the UPPER levels of the
organizationorganization
DECENTRALIZED DECENTRALIZED ORGANIZATIONORGANIZATIONManagement Management consciously consciously attempts to attempts to
spread authority spread authority widely in the widely in the
LOWER levels LOWER levels of the of the
organizationorganization
Delegation
Top Mgm't Video
Middle Mgm't Video
X100 Review for Exam #1 R1-37
11
33
44
5
Span of Management
‘Organizational Height’ refers to the number of layers or levels of management in an organization
PresidentPresident
Tall Organization-Narrow Span-
Few direct reports
Tall Organization-Narrow Span-
Few direct reports
PresidentPresident
F l a t O r g a n i z a t i o n- W i d e S p a n -
Many direct reports
F l a t O r g a n i z a t i o n- W i d e S p a n -
Many direct reports
X100 Review for Exam #1 R1-38
Management SKILLS
1.Technical Skills -• Knows the skills needed
to accomplish a job or specialized activity
2.Conceptual Skills –• Ability to think in
abstract ‘holistic’ terms• Vision – the ‘big picture’
3. Interpersonal Skills -• Lead & motivate - deal
effectively with people
DirectingLeading & Motivating …
Effective managers possess certain skills …… and are able to use these skills in a
number of managerial roles.
Managerial ROLES
1.Decision Roles -• Effective management
decision making and delegation
2. Information Roles –• Gathering information• Disseminating and
providing information
3. Interpersonal Roles -• Communicating &
dealing with people
X100 Review for Exam #1 R1-39
Free reinLaissez-faire
ParticipativeDemocratic
AutocraticBureaucratic
Leadership Styles and Traits
No single leadership trait is effective in all situations.Use a style most appropriate to situation & employees.
Area of FREEDOM for subordinates
Subordinate-centered Subordinate-centered leadershipleadership
Boss-centered Boss-centered leadershipleadership
Use of AUTHORITY by manager
ManagerMAKES
thedecision & announces
it
Manager‘SELLS’
theDecision
ManagerPRESENTS
decision& invites
questions
Managerpresents
‘TENTATIVE’ decision –
but subject to change
based on input from
subordinates
Managerpresentsproblem,
getsSUGGESTIONS,
and makes
the final decision
Manager permits
SUBORDINATES to function
within the LIMITS orGUIDELINES
definedby superior
Adapted from HBR, How to Choose a Leadership Pattern, 6/73
X100 Review for Exam #1 R1-40
Steps in theDelegation Process
To be successful in an organization, a manager must learn to delegate. No one person can do everything alone.
Manager
Worker
3. Assign accountability3. Assign accountability The OBLIGATION of a worker to accomplish an assigned job or task.The OBLIGATION of a worker to accomplish an assigned job or task.
1. Assign Responsibility1. Assign Responsibility The DUTY to do a job or perform a task.The DUTY to do a job or perform a task.
2. Grant Authority2. Grant Authority The POWER to accomplish an assigned job or task.The POWER to accomplish an assigned job or task.
X100 Review for Exam #1 R1-41
The Control FunctionControlling - is the process of evaluating and regulating ongoing activities to ensure that goals & objectives are set & achieved.
MeasuringActualPerformance
TakingCorrectiveAction
Setting Goals & Objectives
Evaluating performance to Goals & Objectives
X100 Review for Exam #1 R1-42
Review & Modify
Review and modifyReview and modify
Review & modify the steps in the process - periodically (usually annually) … or when shortfalls or key economic or competitive events occur.
Controlling• Set standards• Measuring• Corrective action
Directing• Leading• Motivating• Delegating• Prioritizing
Organizing• Resources• Activities• Structure• Chain of Command
Planning• Strategic• Tactical• Operational• Contingency• Goal Setting
X100 Review for Exam #1 R1-43
The need to grow & develop – and to become all that we are capable of being
The things we need for survival
The things we require for physical & emotional security
Our requirements for love and affection & a sense of well-being
The need for respect, recognition - sense of our own accomplishment & worth
Motivation – Maslow’s Hierarchy of Needs
A NEED is a personal requirement. Maslow’s Hierarchy provides a useful way of viewing employee motivation.
Physiological needsPhysiological needs
Safety needsSafety needs
Social needsSocial needs
EsteemEsteemneedsneeds
Self-Self-acactualizattualizationion
needsneeds
1.
2.
3.
4.
5.
X100 Review for Exam #1 R1-44
Life itself must be protectedOur most basic need
Basis for physical & emotional security acceptance & belonging
Either have it . . . . . .or driven to find it
‘Self-validation’ – from the inside . . . . . . or the outside from someone else
‘Uniquely ours’ – mark on the world
Vision beyond personal interest
The pursuit of knowledge or answers
Dr. Phil’s - Hierarchy of Needs & Personal Critical Choices
Lower needs must be fulfilled before the next higher need becomes relevant. External vs internal ‘choices’.
Survival needsSurvival needs
Security needsSecurity needs
Love needsLove needs
Self-EsteemSelf-Esteemneedsneeds
Spiritual FulfillmentSpiritual Fulfillment
1.
2.
3.
4.
5.Intellectual FulfillmentIntellectual Fulfillment
Self-ExpressionSelf-Expression6.7.Self- Self-
actual- actual- izationizationneedsneeds
Adapted from: Self Matters by Dr. Phil McGraw
X100 Review for Exam #1 R1-45
No
Not MotivatedNot Motivated
Yes MotivatedMotivated !!! !!!Yes
Does the person Does the person thinkthink that the that the outcome is outcome is likelylikely ? ?
No
Not MotivatedNot Motivated
Motivation – Vroom’sExpectancy Theory
Vroom’s theory is based on the idea that motivation depends on:
1st - how much people want something . . . AND 2nd - on how likely they think they are to get it.
Does the personDoes the personwantwant the the outcome ?outcome ?
X100 Review for Exam #1 R1-46
Motivation Factors – increase job satisfaction.
Herzberg’s Motivation – Hygiene Theory
Hygiene Factors – eliminate job dissatisfaction.
Dis- Satisfied
Hygiene Factors
• Supervision• Company Policy• Relationships• Working Conditions• Salary• Personal life• Status• Security
Motivators
Extremely Satisfied
Neutral No Satisfaction – No Dissatisfaction
• Achievement• Recognition• Work itself• Responsibility• Advancement• Growth
X100 Review for Exam #1 R1-47
‘Six-Step Action-Oriented’ Decision Making Process
Step 1. RECOGNIZE the need - to make a decision
Step 2. LIST - Generate alternatives
Step 3. RANK - Assess the alternatives
Step 4. SELECT - Choose among the alternatives
Step 5. IMPLEMENT the chosen alternative
Step 6. LEARN from feedback & consequencesStep 6.
C l a
s s
i c
a l
X100 Review for Exam #1 R1-48
Be Aware of Your Biases !
‘Cognitive Biases’ Leading to Systematic Errors
Errors that managers make over and over again that result in poor decision making - examples:
CognitiveBiases » Errors
1. Prior hypothesis bias Tendency to base decisions on strong prior
beliefs even if evidence shows that those beliefs are wrong.
1. Prior hypothesis bias Tendency to base decisions on strong prior
beliefs even if evidence shows that those beliefs are wrong.
2. Representativeness bias Tendency to generalize inappropriately from a
small sample or from a single vivid event or episode.
2. Representativeness bias Tendency to generalize inappropriately from a
small sample or from a single vivid event or episode.
3. Illusion of control Tendency to overestimate one’s own ability to
control activities and events.
3. Illusion of control Tendency to overestimate one’s own ability to
control activities and events.
4. Escalating commitment Tendency to commit additional resources to a
project even if evidence shows that the project is failing.
4. Escalating commitment Tendency to commit additional resources to a
project even if evidence shows that the project is failing.
X100 Review for Exam #1 R1-49
Group Decision MakingGroup decision making is usually superior to
individual decision making in many respects:1. Group are less likely to fall victim to the cognitive
biases & systematic errors.
2. Draws on combined skills, competencies and knowledge of the group.
3. Ability to process more information and correct each others’ errors.
4. Improves ability to generate more feasible alternatives and make better decisions.
5. Increases the probability that the decision will be implemented successfully.
Beware of the perils of ‘Groupthink’:A pattern of faulty and biased decision making that occurs in groups - whose members strive for agreement among themselves - at the
expense of accurately assessing information relevant to a decision.
X100 Review for Exam #1 R1-50
Permanent
Temporary
Types of Formal Teams
Management TeamsConsisting mainly of managers from various functions like sales & production. Coordinates work among the other types of teams.
Work TeamsWork teams do just that – the daily work. Becoming increasingly popular. When empowered, the can become self-managed teams.
Quality CirclesIn danger of extinctions, this type, typically made up of workers & supervisors, meets intermittently to air workplace problems & solve quality issues.
Project TeamsProblem-solving teams comprised of knowledge workers who gather and solve a specific problem or meet a specific goal – & then disband.
Virtual TeamsA characteristic of this new type of work team: members talk by computer, flying in and out as needed, and take turns as the leader.
X100 Review for Exam #1 R1-51
COHESIVENESS of the Group
ALIG
NM
EN
T o
f G
rou
p
& O
rgan
izati
on
al G
oals
High Low
Hig
hLow
Group Cohesiveness and Productivity
Cohesiveness is the degree to which members are attracted to one another and share the group’s goals.
Strong increasein productivity
Moderate increasein productivity
No significant effecton productivity
Decrease in productivity
X100 Review for Exam #1 R1-52
Conflict and Group Performance
Low HighLevel of ConflictHigh
Low
Level of Group
Performance
Level of Conflict
Low or none Optimal High
Type of Conflict Dysfunctional Functional Dysfunctional
Group’s Internal Characteristics
Stagnant, Apathetic
Unresponsive to change & new ideas
ViableSelf-criticalInnovative
DisruptiveChaotic
Uncooperative
Group Performance
Low
High
Low
X100 Review for Exam #1 R1-53
Personnel LawEmployment-at-Will Doctrine
Collective Bargaining (Unions)
Individuals’ Rights
Workplace Safety & Security
Employment Discrimination
X100 Review for Exam #1 R1-54
Employment-at-Will Doctrine
Basic doctrine may be modified by:1. Employment contracts
(written & implied)
2. Union contracts
3. Applicable Federal & State laws and regulations
An employer can hire and fire an employee . . . . at ANY time . . . . for ANY reason . . . or NO reason.
An employee can QUIT. . . at any time . . . without notice.
X100 Review for Exam #1 R1-55
Collective Bargaining National Labor Relations Act (1935) –
Establishes a collective bargaining process & the NLRB
Labor-Management Relations Act (1947) –
Also known as the Taft-Hartley Act
Provides a balance between union power and management power
Worker Adjustment and Retraining Notification (1988) – Also known as the WARN Act
Requires employer to give employees 60 days notice regarding plant closure or layoff of 50 or more employees
X100 Review for Exam #1 R1-56
Individuals’ Rights Fair Labor Standards Act (1935) –
Establishes a minimum wage & an overtime pay rate for employees working more than 40 hours per week
Equal Pay Act (1963) –
Specifies that men and women who do equal jobs must be paid the same wage
Family and Medical Leave Act (1993) – Affects only organizations with 50 or more employees
Provides up to 12 weeks of leave without pay upon the birth (or adoption) of an employee’s child
Or if an employee, employee’s child, spouse or parent is seriously ill
X100 Review for Exam #1 R1-57
Workplace Safety & Security
Occupational Safety and Health Act (1970) – OSHA regulates the degree to
which employees can be exposed to hazardous substances
Specifies the safety equipment that the employer must provide
Employment Retirement Income Security Act (1974) – ERISA regulates company retirement programs
Provides a a federal insurance program for retirement plans that go bankrupt
X100 Review for Exam #1 R1-58
Employment Discrimination Title VII of the Civil Rights Act (1964) –
Outlaws discrimination in employment practices based on sex, race, color, religion or national origin
Age Discrimination in Employment Act (1967) ADEA outlaws personnel practices that discriminate against
people aged 40 and older 1986 amendment eliminated a mandatory retirement age
Americans with Disabilities Act (1990) – ADA prohibits discrimination against qualified individuals with
disabilities in all employment practices (job application procedures, hiring, firing, advancement, compensation, training and terms of employment)
Civil Rights Act (1991) – Facilitates employees’ suing employers for sexual discrimination
and collecting punitive damages
X100 Review for Exam #1 R1-59
Ethical Behavior in Organizations
Ethics: is the study of right and wrong – and of the morality of choices individuals make.
Business Ethics: is the motivating force of business behavior (often seen as impositions & constraints).
Level of Business Ethical Behavior
Individual Individual Standards &
Values
Ethical/Unethical Choices in Business
Social Social Factors & Influences
+ Opportunity Opportunity Codes &
Compliance
+
=
X100 Review for Exam #1 R1-60
Snapshot of anEthical Organization
An ethical company: Treats all stakeholders adequately & fairly Consistently makes fairness the first priority Expects individual, rather than vaguely collective,
accountability Defines objectives & goals that all members value Portrays a clear vision of integrity, exemplified by
management Demands & reward integrity at all times & in all situations
Your role:If you feel good about the company -
you should act in harmony with the firm & its values.
If you feel that the organization is wanting in ethics - you need to make some choices.
The first choice is to act ethically yourself !!!!
X100 Review for Exam #1 R1-61
Pyramid & Views of Social Responsibility
VoluntaryResponsibilities
Being a ‘good corporatecitizen’ – Contributing to the community & quality of life
Ethical ResponsibilitiesBeing ‘ethical’:
Doing what is right, just & fair;Avoiding harm
Legal ResponsibilitiesObeying the law
(society’s codification of right & wrong)Playing by the ‘rules of the game’
Economic ResponsibilitiesBeing profitable
Source: ‘The Pyramid of Corporate Social Responsibility’, Business Horizons by Carroll, IU
Socio-Economic ModelBusiness should
emphasize not only profits, but also the
impact of its decisions on society
Economic ModelSociety will benefit
most when business is left alone to market
products that society needs – profit focus
X100 Review for Exam #1 R1-62
General Criteria for Evaluating Courses of
ActionIs the possible course of action:
Legal ?
Ethical ?
Economical ?
Practical ?
X100 Review for Exam #1 R1-63
Deal & Kennedy’s Corporate ‘Cultural Model’
Corporate culture - the inner rites, rituals and values of a firm
Work-Hard, Play-Hard• Stress comes from quantity of work versus uncertainty• High speed action leads to high speed recreation• Examples: Software Companies, Restaurants
Process Culture• Low stress, plodding work, comfort & security. Stress comes from internal politics & stupidity of the system• Development of bureaucracies & ways to maintain the status quo.• Focus on security of the past & the future• Examples: Banks, Insurance Companies
Tough-Guy ‘Macho’ Culture• Stress comes from high risk & potential loss/gain of reward• Focus on the present … rather than the longer term future• Examples: Surgeons, Police, Sports
Bet-the-Company Culture• Stress coming from high risk and delays before knowing if actions have paid off• The long view is taken, but then much work is put into making sure things happen as planned.• Examples: Aircraft Manufacturers, Oil Companies.
Source: Deal & Kennedy, ‘Corporate Cultures’, 2000 reprinted. ChangingMinds.org
RISK Low High
FEED
BA
CK
& R
EW
AR
DSlo
w
Rapid
X100 Review for Exam #1 R1-64
Individual Characteristics & ‘Types of Corporate Culture’
Networked Culture• Extrovert energized by relationships• Tolerant of ambiguities & have low needs
for structure• Can spot politics and act to stop negative
politics• Consider yourself easygoing, affable and
loyal to others
Fragmented Culture• Are a reflective & self-contained introvert• Have a high autonomy drive and strong
desire to work independently• Have a strong sense of self• Consider yourself analytical rather than
intuitive
Communal Culture• You consider yourself passionate• Strong need to identify with something
bigger than yourself• You enjoy being in teams• Prepared to make sacrifices for the
greater good
Mercenary Culture• Goal-oriented and have an obsessive desire to complete tasks• Thrive on competitive energy• Keep ‘relationships’ out of work – develop them only to achieve your goals• Keep things clear cut and see the world
in black and white
Solidarity - UnityLow High
Source: ‘Types of Corporate Culture’ from The Character of the Corporation by Goffee & Jones
Socia
bilit
y
Low
High
X100 Review for Exam #1 R1-65