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EXAM REVIEW Chapters 1-5, 7 and 8 EXAM REVIEW McGraw-Hill/Irwin

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1 EXAM REVIEW Chapters 1-5, 7 and 8 EXAM REVIEW McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2 Chapter 01 Taking Risks and Making Profits within the Dynamic Business Environment McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

3 BUSINESS and ENTREPRENEURSHIP
Entrepreneurship and Wealth Building LG1 Business -- Any activity that seeks to provide goods and services to others while operating at a profit. Entrepreneur -- A person who risks time and money to start and manage a business. Success in business is often based on the strategy of finding a need and filling it. See Learning Goal 1: Describe the relationship between profit and risk and show how businesses and nonprofit organizations can raise the standard of living for all. In the United States the entrepreneur is held in high regard. Most students have heard of Sam Walton and Michael Dell, but it often adds to the classroom experience if they understand how these entrepreneurs started their businesses. Sam Walton started Wal-Mart with just one store in Arkansas in the 1960s. Michael Dell got his start building computers in his University of Texas dorm room, ultimately leading to the creation of Dell, Inc. 1-3

4 RISK Matching Risk with Profit LG1 Risk -- The chance an entrepreneur takes of losing time and money on a business that may not prove profitable. Not all businesses make the same amount of profit. Businesses take risks, but with great risks could come great profit. See Learning Goal 1: Describe the relationship between profit and risk and show how businesses and nonprofit organizations can raise the standard of living for all. Irish entrepreneur Denis O’Brien makes billions by selling cell phones in the poorest and most violent countries in the world. Big risk, big profit. Dualstar worth $1B 1-4

5 USING EMPOWERMENT to COMPETE in TODAY’S MARKET
The Competitive Environment LG5 Customers want quality products at a good price with excellent customer service. Because business is more customer-driven, some managers give frontline employees more decision-making power. Empowerment -- Giving frontline workers the responsibility, authority, and freedom to respond quickly to customer requests. See Learning Goal 5: Demonstrate how businesses can meet and beat competition. 1-5

6 STAKEHOLDERS Responding to the Various Business Stakeholders LG1 Stakeholders -- All the people who stand to gain or lose by the policies and activities of a business and whose concerns the businesses need to address. Who are Stakeholders? Customers Employees Stockholders Suppliers Dealers Community Members Media Elected Officials Bankers Environmentalists See Learning Goal 1: Describe the relationship between profit and risk and show how businesses and nonprofit organizations can raise the standard of living for all. 1-6

7 FIVE FACTORS of PRODUCTION
The Importance of Entrepreneurs to the Creation of Wealth LG2 Land Labor Capital – examples tools, machinery, buildings Entrepreneurship Knowledge Entrepreneurs use what they’ve learned to grow their businesses and increase wealth. See Learning Goal 2: Compare and contrast being an entrepreneur and working for others. 1-7

8 OUTSOURCING and INSOURCING
Responding to the Various Business Stakeholders LG1 Outsourcing -- Contracting with other companies (often in other countries) to do some of the firm’s functions, like production or accounting. Jobs are often lost. Insourcing -- Foreign companies opening offices and factories in the United States. See Learning Goal 1: Describe the relationship between profit and risk and show how businesses and nonprofit organizations can raise the standard of living for all. Outsourcing is the contracting with other companies to do some of the firm’s functions. As the slide states these companies are often in other countries. For example, Dell Computers and many other companies outsource support services to call centers in India and other Asian nations. This can be an emotional issue and one that students often do not understand. When discussing this topic with students, it is important for students to understand that outsourcing has occurred for years and does not always involve a company from the United States locating jobs in another country. Once students understand outsourcing, the concept of insourcing can be discussed. For example, Hyundai operates plants in the United States. Its design and engineering headquarters are in Detroit, and they produce cars in Montgomery, Alabama. All of which employ American workers. Insourcing benefits the American worker such as when Toyota and Honda decided to build automobile manufacturing plants in Kentucky and Ohio rather than in Japan. 1-8

9 Photo courtesy of Walmart Stores
STANDARD of LIVING Businesses Add to the Standard of Living and Quality of Life LG1 Standard of Living -- The amount of goods and services people can buy with the money they have. The U.S. has one of the highest standards of living in the world. Workers in other countries may make more money, but prices for products are higher. See Learning Goal 1: Describe the relationship between profit and risk and show how businesses and nonprofit organizations can raise the standard of living for all. Workers in Japan may make more than Americans, but a bottle of beer may cost $7 in Japan. Photo courtesy of Walmart Stores 1-9

10 QUALITY of LIFE Businesses Add to the Standard of Living and Quality of Life LG1 Quality of Life -- The general well-being of a society in terms of its political freedom, natural environment, education, healthcare, safety, amount of leisure and rewards that add to personal satisfaction. See Learning Goal 1: Describe the relationship between profit and risk and show how businesses and nonprofit organizations can raise the standard of living for all. The more money businesses create, the more is available to improve the quality of life for all citizens. 1-10

11 Understanding Economics and
Chapter 02 Understanding Economics and How It Affects Business McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

12 The MAJOR BRANCHES of ECONOMICS
What Is Economics? LG1 Economics -- The study of how society employs resources to produce goods and services for consumption among various groups and individuals. Macroeconomics -- Concentrates on the operation of a nation’s economy as a whole. (exp. effects of population growth on the economy.) Microeconomics -- Concentrates on the behavior of people and organizations in markets for particular products or services. See Learning Goal 1: Explain basic economics. This slide gives students insight into the definition of economics. When going over this definition it often helps to further define the term resources. The term resources ties back into Chapter 1 and includes the factors of production: land, labor, capital, knowledge and entrepreneurship. 2-12

13 RESOURCE DEVELOPMENT What Is Economics? LG1 Resource Development -- The study of how to increase resources and create conditions that will make better use of them. See Learning Goal 1: Explain basic economics. Businesses can contribute to an economic system by inventing new products that increase the availability and development of an economy’s resources. 2-13

14 Adam Smith’s INVISIBLE HAND THEORY
How Businesses Benefit the Community LG1 As people improve their own situation in life, they help the economy prosper through the production of goods, services and ideas. Invisible Hand -- When self-directed gain leads to social and economic benefits for the whole community. See Learning Goal 1: Explain basic economics. The invisible hand was at the heart of Adam Smith’s theory describing the process of turning self-directed gain (driven to do for oneself…promote one’s own self gain and prospertity) into social and economic benefits for all. 2-14

15 CAPITALISM Understanding Free-Market Capitalism LG2 Capitalism -- All or most of the land, factories and stores are owned by individuals, not the government, and operated for profit. See Learning Goal 2: Explain what capitalism is and how free markets work. 2-15

16 FREE MARKETS in Capitalist Countries
How Free Markets Work LG2 Free Market -- Decisions about what and how much to produce are made by the market. Consumers send signals about what they like and how they like it. Price tells companies how much of a product they should produce. If something is wanted but hard to get, the price will rise until more products are available. See Learning Goal 2: Explain what capitalism is and how free markets work. 2-16

17 Three important economic indicators for the United States
Key Economic Indicators LG5 Gross Domestic Product (GDP) -- Total value of final goods and services produced in a country in a given year. As long as a company is within a country’s border, their numbers go into the country’s GDP (even if they are foreign-owned). Unemployment Rate -- The percentage of civilians at least 16-years-old who are unemployed and tried to find a job within the prior four weeks. See Learning Goal 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Consumer Price Index (CPI) -- Monthly statistics that measure the pace of inflation or deflation. 2-17

18 INFLATION Key Economic Indicators LG5 Inflation -- The general rise in the prices of goods and services over time. Disinflation -- When the price increases are slowing (inflation rate declining). Deflation -- Prices are declining because too few dollars are chasing too many goods. Stagflation -- Economy is slowing, but prices are going up. See Learning Goal 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. When discussing inflation, disinflation, deflation and stagflation, introducing the term hyperinflation is particularly interesting to students. Historical examples of countries suffering from hyperinflation post-World War I and currently Zimbabwe bring this topic to life. 2-18

19 Doing Business in Global Markets
Chapter 03 Doing Business in Global Markets McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

20 HOW to MEASURE GLOBAL TRADE
Measuring Global Trade LG2 Balance of Trade -- The total value of a nation’s exports compared to its imports measured over a particular period. Trade Surplus (Favorable) -- When the value of a country’s exports is more than that of its imports. Trade Deficit (Unfavorable) -- When the value of a country’s exports is less than that of its imports. See Learning Goal 2: Explain the importance of importing and exporting, and understand key terms used in global business. 3-20

21 KEY STRATEGIES for REACHING GLOBAL MARKETS
LG3 International joint ventures and strategic alliances Contract Manufacturing Foreign direct investment Licensing Exporting Franchising See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets. When senior management elects to expand internationally, they have a wide range of options available to them. Such options range from licensing with the least risk all the way to foreign direct investment with the most risk. A few examples to be shared during this portion of the lecture include: Coca-Cola’s use of licensing, McDonald’s use of franchising, Nike’s use of contract manufacturing, Volkswagen’s joint venture in China and Toyota’s foreign direct investment in the United States. Least Amount of commitment, control, risk and profit potential Most 3-21

22 LICENSING Licensing LG3 Licensing -- When a firm (licensor) provides the right to manufacture its product or use its trademark to a foreign company (licensee) for a fee (royalty). Licensing can benefit a firm by: Gaining revenues it wouldn’t have otherwise generated. Spending little or no money to produce or market their products. See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets. Coca-Cola has entered into licensing agreements with over 300 licensees that have extended into long-term service contracts that sell over $1 billion of the company’s products each year. 3-22

23 JOINT VENTURES International Joint Ventures and Strategic Alliances LG3 Joint Venture -- A partnership in which two or more companies join to undertake a major project. The benefits of joint ventures: Shared technology and risk. Shared marketing and management expertise. Entry into markets where foreign companies are often not allowed unless goods are produced locally. See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets. Joint ventures can also have drawbacks: (1) One partner can learn the other’s practices then use the knowledge to its own advantage; (2) A shared technology may become obsolete; (3) The joint venture may become too large to be as flexible as needed. University of Pittsburgh's Medical Center and the Italian government's joint venture that brought a new medical transplant center to Sicily. The transplant center in Palermo called ISMETT recently celebrated its fifteenth year of operation.34 3-23

24 FOREIGN DIRECT INVESTMENT
LG3 Foreign Direct Investment (FDI) -- The buying of permanent property and businesses in foreign nations. Foreign Subsidiary -- A company owned in a foreign country by another company called the parent company. The most common form of FDI. Primary Advantage: Parent company maintains complete control over its technology or expertise. Primary Disadvantage: Must commit funds and technology within foreign boundaries. See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets. 3-24

25 TRADE PROTECTIONISM Trade Protectionism LG5 Trade Protectionism -- The use of government regulations to limit the import of goods and services. Advocates of protectionism believe it allows domestic producers to survive, grow and produce jobs. See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism. The Great Depression was exacerbated by the passage of the Glass-Steagall Act. The Glass-Steagall Act of 1933 raised the tariff rates on thousand of products imported into the United States. This led to other nations enacting similar protectionist measures effectively shutting down world trade. Many fear that the economic contraction the world is currently experiencing will lead to similar laws. 3-25

26 TARIFFS Trade Protectionism LG5 Tariffs -- Taxes on imports, making imported goods more expensive. Two kinds of tariffs: Protective – Raise the retail price of imports so domestic goods are competitively priced. Revenue – Raise money for governments. See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism. While a tariff may end up raising revenue for the government, it ultimately costs consumers more money in the long run. Due to tariff rates on the importation of sugar, consumers in the United States end up paying close to 50 percent more for sugar than the rest of the world – to protect domestic sugarcane industry 3-26

27 WORLD TRADE ORGANIZATION
The World Trade Organization LG5 World Trade Organization (WTO) -- Headquartered in Geneva, the WTO is an independent entity of 153 member nations whose purpose is to oversee cross-border trade issues and global business practices. Mediate trade disputes. See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism. China is the newest member: Russian Federation 3-27

28 Demanding Ethical and Socially Responsible Behavior
Chapter 04 Demanding Ethical and Socially Responsible Behavior McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

29 FACING ETHICAL DILEMMAS It can be a hard balance…with equally unsatisfactory alternatives
Ethics Begins with Each of Us LG2 Ask yourself these questions: Is it legal? Is it balanced? How will it make me feel about myself? See Learning Goal 2: Ask the three questions to answer when faced with a potentially unethical action. When facing an ethical dilemma it is important that you ask these three basic questions: Is it legal? Is it balanced? How will it make me feel about myself? Asking and answering these three questions will prevent many people from making unethical decisions. Is it legal: drinking and driving, cheating on an exam, stealing money from the company, taking a pen home, hiring or firing and employee, designing a new product Balanced: win-lose situation (often lose-lose retaliation). Would I want to be treated this way? Rich at the expense of others? How will I feel? Will m y family be proud, my friends? Can I discuss this situtation with a supervisor? Has someone told me not to tell? 4-29

30 ETHICS START at the TOP Organizational ethics begin at the top.
Managing Businesses Ethically and Responsibly LG3 Organizational ethics begin at the top. Effective corporate values start with top managers and develop throughout the organization to include employees.  ethics-based approach to decision making will normally lead to higher tru.st and cooperation See Learning Goal 3: Describe management’s role in setting ethical standards. Leadership helps to instill corporate values in employees. So, like many aspects of business, ethical behavior practiced and modeled by managers and executives will often trickle down to the employees at large. Some managers think that ethics is a personal matter…it’s not! Examples of cell phone provider…hanging up, extedning contracts…. Why? Decieve our customers? Poor incentive programs. 4-30

31 Setting Corporate Ethical Standards
ETHICS CODES LG4 Not all US companies practices the same ethical standards. An increasing number of companies have adopted written codes of ethics. Compliance-Based Ethics Code -- Emphasize preventing unlawful behavior by increasing control and by penalizing wrongdoers. Integrity-Based Ethics Code -- Define the organization’s guiding values, create an environment that supports ethically sound behavior and stress a shared accountability. Integrity- based approach example: Budweiser’s campaign “Drink responsibly” WHY???? See Learning Goal 4: Distinguish between compliance-based and integrity-based ethics codes, and list the six steps in setting up a corporate ethics code. 4-31

32 Corporate Social Responsibility Examples of Corporate Social Responsibility CORPORATE PHILANTHROPY and SOCIAL INITIATIVES LG5 Corporate Philanthropy -- Includes charitable donations. Corporate Social Initiatives -- Include enhanced forms of corporate philanthropy. See Learning Goal 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders. 4-32

33 INSIDER TRADING Responsibility to Investors LG5 Insider Trading -- Insiders using private company information to further their own fortunes or those of their family and friends. Unethical behavior does financial damage to a company and investors are cheated. Example – IBM Lotus development See Learning Goal 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders. 4-33

34 SOCIAL AUDITING Social Auditing LG5 Social Audit -- A systematic evaluation of an organization’s progress toward implementing socially responsible and responsive programs. Five Types of Social Audit Watchdogs – i.e outside groups Socially conscious investors Socially conscious research organizations Environmentalists Union officials Customers See Learning Goal 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders. Investors: insist that company extends it’s own high standards to suppliers Research orgs: report on social responsibility efforts Enviornmentalists: apply pressure to those not meeting standards Union officials: make companies comply or bad publicity Customers: make purchasing decisions 4-34

35 How to Form a Business Chapter 05 McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

36 MAJOR FORMS of OWNERSHIP
Basic Forms of Business Ownership Sole Proprietorship -- A business owned, and usually managed, by one person. Generally the easiest to establish. Partnership -- Two or more people legally agree to become co-owners of a business. Corporation -- A legal entity with authority to act and have liability apart from its owners. More than 600,000 businesses are started each year. 5-36

37 MAJOR TYPES of PARTNERSHIPS
LG2 General Partnership -- All owners share in operating the business and in assuming liability for the business’s debts. Limited Partnership -- A partnership with one or more general partners and one or more limited partners. See Learning Goal 2: Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships. Each type of partnership has advantages and disadvantages. In a general partnership resources are pooled and liability is spread among all partners. However, in this type of partnership there is the possibility for disagreement and/or personality conflicts. A limited partnership is made up of a mixture of general partners and limited partners. Limited partners cannot actively take part in business dealings. 5-37

38 TYPES OF PARTNERS Partnerships LG2 General Partner -- An owner (partner) who has unlimited liability and is active in managing the firm. Limited Partner -- An owner who invests money in the business, but enjoys limited liability. Limited Liability means that liability for the debts of the business is limited to the amount the limited partner puts into the company; personal assets are not at risk. Limited partner also means that the degree of profit is limited to the amount of investment. Based on partnership agreement See Learning Goal 2: Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships. The limited partner is not able to exercise any management control over the partnership, but maintains limited liability. A limited partner’s liability is limited to the amount invested in the partnership. 5-38

39 TYPES of MERGERS Corporate Expansion: Mergers and Acquisitions LG4 Vertical Merger -- Joins two firms in different stages of related businesses. Horizontal Merger -- Joins two firms in the same industry and allows them to diversify or expand their products. Conglomerate Merger -- Unites firms in completely unrelated industries in order to diversify business operations and investments. See Learning Goal 4: Define and give examples of three types of corporate mergers, and explain the role of leveraged buyouts and taking a firm private. There are three types of mergers. Horizontal mergers take place in the same industry (i.e., one competitor merging with another). An example of this would be Daimler Mercedes Benz merging with Chrysler to create DaimlerChrysler in the 1990s. Vertical merger takes place between companies in a value chain, for example a supplier and a distributor merging. Conglomerate merger has no relationship between companies; both Tyco and General Electric operate as conglomerates. 5-39

40 FRANCHISING Franchises LG5 Franchise Agreement -- An arrangement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory. More than 825,000 franchised businesses operate in the U.S., employing approximately million people. See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. 5-40

41 DISADVANTAGES of FRANCHISING
Disadvantages of Franchises LG5 Large start-up costs Shared profit Management regulation Coattail effects - actions of other franchisees can have an impact on the success or failure of a particular franchisee's business. Restrictions on selling Fraudulent franchisors See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. Jazzercise $3,000 – dunkin donuts $2M Coattails – franchise failure – over saturated market 5-41

42 COOPERATIVES Cooperatives LG6 Cooperatives -- Businesses owned and controlled by the people who use them– producers, consumers, or workers with similar needs who pool their resources for mutual gain. Common type is a farm cooperative – like a vineyard! Worldwide, 750,000 co-ops serve 730 million members – 120 million in the U.S. Members democratically control the business by electing a board of directors that hires professional management. See Learning Goal 6: Explain the role of cooperatives. 5-42

43 Management and Leadership
Chapter 07 Management and Leadership McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

44 TODAY’S MANAGERS Younger and more progressive.
Managers’ Roles Are Evolving LG1 Younger and more progressive. Growing numbers of women. Fewer from elite universities. more like facilitators than supervisors. Emphasis is on teams and team building. Main goal is not watching over people to make sure they are doing what they are told See Learning Goal 1: Describe the changes occurring today in the management function. As the demographic make-up of this country changes, the typical manager is changing. Today more managers are women and fewer are from elite universities. Managers today act more like facilitators than supervisors. 7-44

45 SETTING GOALS and OBJECTIVES
Planning & Decision Making LG3 Goals -- The broad, long-term accomplishments an organization wishes to attain. Objectives -- Specific, short- term statements detailing how to achieve the organization’s goals. See Learning Goal 3: Relate the planning process and decision making to the accomplishment of company goals. 7-45

46 STRATEGIC and TACTICAL PLANNING
Planning & Decision Making LG3 Strategic Planning -- Done by top management and determines the major goals of the organization and the policies, procedures, strategies and resources it will need to achieve them. These are long-range goals. Tactical Planning -- The process of developing detailed, short-term statements about what is to be done, who is to do it and how. – dealing with a specific market. These are operational goals See Learning Goal 3: Relate the planning process and decision making to the accomplishment of company goals. 7-46

47 OPERATIONAL and CONTINGENCY PLANNING
Planning & Decision Making LG3 Operational Planning -- The process of setting work standards and schedules necessary to implement the company’s tactical objectives. – work flow Contingency Planning -- The process of preparing alternative courses of action the firm can use if its primary plans don’t work out. See Learning Goal 3: Relate the planning process and decision making to the accomplishment of company goals. 7-47

48 PLANNING ANSWERS FUNDAMENTAL QUESTIONS
Planning & Decision Making LG3 What is the situation now? SWOT Analysis – a planning tool Analyzes the organization’s Strengths, Weaknesses, Opportunities and Threats. See Learning Goal 3: Relate the planning process and decision making to the accomplishment of company goals. SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. As part of the internal analysis, the organization identifies the potential strengths that it can capitalize upon and potential weaknesses that it should improve upon. An organization, as part of an external environmental analysis, identifies the opportunities (factors that an organization can take advantage of) and threats (factors that an organization should avoid or minimize the impact of). An interesting exercise for the students – have them perform a SWOT analysis on themselves (At least the strengths and weaknesses part should be an eye opening experience for them.) Weakness and Strength are internal and more easily controlled by moving the company in one direction or another Opportunties and threats are more external and can less easy to predict 7-48

49 Allowing the company to plan…
SWOT MATRIX Planning & Decision Making LG3 See Learning Goal 3: Relate the planning process and decision making to the accomplishment of company goals. Allowing the company to plan… 7-49

50 LEADERSHIP STYLES Leadership Styles LG5 Autocratic Leadership -- Making managerial decisions without consulting others – most useful in emergency situations Free-Rein Leadership -- Managers set objectives and give employees a great deal of freedom to decide for themselves how to accomplish those objectives.  . See Learning Goal 5: Explain the differences between leaders and managers, and describe the various leadership styles. Research tells us which leadership style is best depends on what the goals and values of the firm are, who’s being led, and in what situations. A successful leader in one organization may not be successful in another. 7-50

51 EMPOWERMENT Empowering Workers LG5 Progressive leaders give employees the authority to make decisions on their own without consulting a manager. Enabling -- Giving workers the education and tools they need to make decisions. See Learning Goal 5: Explain the differences between leaders and managers, and describe the various leadership styles. 7-51

52 MANAGING KNOWLEDGE Managing Knowledge LG5 Knowledge Management -- Finding the right information, keeping the information in a readily accessible place and making the information known to everyone in the firm. First step in knowledge management is figuring out what knowledge is most important to the firm. Tries to keep people from reinventing the wheel. See Learning Goal 5: Explain the differences between leaders and managers, and describe the various leadership styles. 7-52

53 Structuring Organizations for Today’s Challenges
Chapter 08 Structuring Organizations for Today’s Challenges McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

54 STRUCTURING an ORGANIZATION
Building an Organization from the Bottom Up LG1 Create a division of labor Set up teams or departments Allocate resources Assign tasks Establish procedures See Learning Goal 1: Outline the basic principles of organization management. 8-54

55 Two Organization theorists HENRI FAYOL’S PRINCIPLES
Fayol’s Principles of Organization LG2 Division of labor Unity of command Hierarchy of authority Managers authority to make decisions Equity See Learning Goal 2: Compare the organizational theories of Fayol and Weber. Read about his principles outlined in the book. DMV– slow response times because of rigid rule making (not empowering) 8-55

56 MAX WEBER’S PRINCIPLES
Max Weber and Organizational Theory LG2 Employees just need to do what they’re told. In addition to Fayol’s principles, Weber emphasized: Job descriptions Strict written rules, decision guidelines and detailed records Bureaucracy…example UPS See Learning Goal 2: Compare the organizational theories of Fayol and Weber. Weber, a German sociologist and economist, wrote The Theory of Social and Economic Organizations. Weber’s principles were similar to Fayol’s. He emphasized job descriptions, written rules, consistent policies, regulations, and procedures, and staffing and promotions based on qualifications. Weber was in favor of bureaucracy and believed that these principles were necessary for large organizations’ effective functioning. However, in today’s corporate world, these rules and bureaucracy do not necessarily work. Organizations need to respond to customers and other environmental factors quickly which calls for a creative, flexible, and a quick decision making process contrary to a bureaucratic process. 8-56

57 TYPICAL ORGANIZATION CHART
Turning Principles into Organization Design LG2 See Learning Goal 2: Compare the organizational theories of Fayol and Weber. Organization charts shows who is accountable for the completion of specific work and who reports to whom.  8-57

58 Benchmarking and Core Competencies
LG5 Core Competencies -- The functions an organization can do as well as or better than any other organization in the world. It agrees to perform these functions in-house, rather than outsourcing See Learning Goal 5: Identify the benefits of inter-firm cooperation and coordination. CD – printing Aerospace – reduce vibration Cable industry on braiding fiberglass and carbon together 8-58

59 DEPARTMENTALIZATION Weighing the Advantages and Disadvantages of Departmentalization LG3 Departmentalization -- Divides organizations into separate units. Workers are grouped by skills and expertise to specialize their skills. See Learning Goal 3: Evaluate the choices managers make in structuring organizations. 8-59

60 BUREAUCRATIC ORGANIZATIONS
Turning Principles into Organization Design LG2 Bureaucracy -- An organization with many layers of managers who set rules and regulations and oversee all decisions. It can take weeks or months to have information passed down to lower-level employees. Bureaucracies are not very responsive to customers can annoy customers. See Learning Goal 2: Compare the organizational theories of Fayol and Weber. Empowerment: Nordies return Policy – no approval Training can help first responders in a crisis 8-60

61 Restructuring for Empowerment
LG5 Inverted Organization -- An organization that has contact people at the top and the CEO at the bottom of the organizational chart. The manager’s job is to assist and support frontline workers, not boss them. See Learning Goal 5: Identify the benefits of inter-firm cooperation and coordination. Why does this work…who do you interact with first. Is it someone’s manager or the customer service rep? 8-61

62 Managing the Informal Organization
LG6 No organization can be effective without Formal and Informal Organization. Formal Organization -- Details lines of responsibility, authority and position. The formal system is often slow and bureaucratic, but it helps guide the lines of authority. See Learning Goal 6: Explain how organizational culture can help businesses adapt to change. Formal is tall or flat??? 8-62

63 FORMAL &INFORMAL ORGANIZATION
Managing the Informal Organization LG6 Informal Organization -- The system of relationships that develop spontaneously as employees meet and form relationships. Informal organization helps foster camaraderie and teamwork among employees. See Learning Goal 6: Explain how organizational culture can help businesses adapt to change. 8-63

64 TRADITIONAL and INVERTED ORGANIZATIONS
Restructuring for Empowerment LG5 See Learning Goal 5: Identify the benefits of inter-firm cooperation and coordination. 1. The inverted organization structure is an alternative to the traditional management layers. The critical idea behind the inverted organization structure is that the managers’ job is to support and facilitate the jobs of the frontline people, not boss them around. 2. Ask the students: What type of organization structure would they prefer to work under: traditional or inverted? Why? 8-64

65 58 questions total - 60 minutes to complete
EXAM 1 Structure EXAM 1 58 questions total minutes to complete 300 points total 27 multiple choice x 6 pts each 28 T/F x 3 pts each 3 written x 18 pts each Chap 1 : 3 x T/F and 3 x multiple choice Chap 2: 4x T/F and 4 x multiple choice Chap 3: 4x T/F and 4 x multiple choice Chap 4: 3 x T/F and 3 x multiple choice Chap 5: 4x T/F and 4 x multiple choice Chap 7: 5 x T/F and 5 x multiple choice Chap 8: 5 x T/F and 4 x multiple choice See Learning Goal 6: Explain the role of cooperatives. 5-65


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