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

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Presentation on theme: "EXAM REVIEW Chapters 1-5, 7 and 8 EXAM REVIEW McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved."— Presentation transcript:

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

3 Entrepreneurship and Wealth Building 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. BUSINESS and ENTREPRENEURSHIP LG1 1-3

4 Matching Risk with Profit 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. RISK LG1 1-4 Dualstar worth $1B

5 The Competitive Environment 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. USING EMPOWERMENT to COMPETE in TODAY’S MARKET LG5 1-5

6 Responding to the Various Business Stakeholders 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 STAKEHOLDERS LG1 1-6

7 The Importance of Entrepreneurs to the Creation of Wealth 1. Land 2. Labor 3. Capital – examples tools, machinery, buildings 4. Entrepreneurship 5. Knowledge Entrepreneurs use what they’ve learned to grow their businesses and increase wealth. FIVE FACTORS of PRODUCTION LG2 1-7

8 Responding to the Various Business Stakeholders 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. OUTSOURCING and INSOURCING LG1 1-8

9 Businesses Add to the Standard of Living and Quality of Life 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. STANDARD of LIVING LG1 Photo courtesy of Walmart Stores 1-9

10 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. QUALITY of LIFE LG1 Businesses Add to the Standard of Living and Quality of Life 1-10

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

12 What Is Economics? 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. The MAJOR BRANCHES of ECONOMICS LG1 2-12

13 Resource Development -- The study of how to increase resources and create conditions that will make better use of them. What Is Economics? RESOURCE DEVELOPMENT LG1 2-13

14 How Businesses Benefit the Community 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. Adam Smith’s INVISIBLE HAND THEORY LG1 2-14

15 Understanding Free-Market Capitalism Capitalism -- All or most of the land, factories and stores are owned by individuals, not the government, and operated for profit. CAPITALISM LG2 2-15

16 How Free Markets Work 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. FREE MARKETS in Capitalist Countries LG2 2-16

17 Key Economic Indicators 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). Three important economic indicators for the United States LG 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. Consumer Price Index (CPI) -- Monthly statistics that measure the pace of inflation or deflation.

18 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. INFLATION Key Economic Indicators LG5 2-18

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

20 Measuring Global Trade 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. HOW to MEASURE GLOBAL TRADE LG2 3-20

21 Strategies for Reaching Global Markets Least Amount of commitment, control, risk and profit potential Most LicensingExportingFranchising Contract Manufacturing International joint ventures and strategic alliances Foreign direct investment KEY STRATEGIES for REACHING GLOBAL MARKETS LG3 3-21

22 Licensing 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. LICENSING LG3 3-22

23 International Joint Ventures and Strategic Alliances Joint Venture -- A partnership in which two or more companies join to undertake a major project. JOINT VENTURES LG 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.

24 Foreign Direct Investment 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. FOREIGN DIRECT INVESTMENT LG3 3-24

25 Trade Protectionism 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. TRADE PROTECTIONISM LG5 3-25

26 Trade Protectionism 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. TARIFFS LG5 3-26

27 The World Trade Organization 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.WTO WORLD TRADE ORGANIZATION LG5 3-27

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

29 Ethics Begins with Each of Us Ask yourself these questions:  Is it legal?  Is it balanced?  How will it make me feel about myself? FACING ETHICAL DILEMMAS It can be a hard balance…with equally unsatisfactory alternatives LG2 4-29

30 Managing Businesses Ethically and Responsibly 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 ETHICS START at the TOP LG3 4-30

31 Setting Corporate Ethical Standards 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???? ETHICS CODES LG4 4-31

32 Corporate Philanthropy -- Includes charitable donations. Corporate Social Initiatives -- Include enhanced forms of corporate philanthropy. Examples of Corporate Social Responsibility CORPORATE PHILANTHROPY and SOCIAL INITIATIVES LG5 Corporate Social Responsibility 4-32

33 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 INSIDER TRADING LG5 Responsibility to Investors 4-33

34 Social Auditing 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 1) Socially conscious investors 2) Socially conscious research organizations 3) Environmentalists 4) Union officials 5) Customers SOCIAL AUDITING LG5 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 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. MAJOR FORMS of OWNERSHIP 5-36

37 Partnerships General Partnership -- All owners share in operating the business and in assuming liability for the business’s debts. MAJOR TYPES of PARTNERSHIPS LG2 Limited Partnership -- A partnership with one or more general partners and one or more limited partners. 5-37

38 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 TYPES OF PARTNERS LG2 Partnerships 5-38

39 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. TYPES of MERGERS LG4 Corporate Expansion: Mergers and Acquisitions 5-39

40 Franchises 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 17.5 million people. FRANCHISING LG5 5-40

41 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 DISADVANTAGES of FRANCHISING LG5 Disadvantages of Franchises 5-41

42 Cooperatives 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. COOPERATIVES LG6 5-42

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

44 Managers’ Roles Are Evolving 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 TODAY’S MANAGERS LG1 7-44

45 Goals -- The broad, long-term accomplishments an organization wishes to attain. Objectives -- Specific, short- term statements detailing how to achieve the organization’s goals. SETTING GOALS and OBJECTIVES LG3 Planning & Decision Making 7-45

46 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 STRATEGIC and TACTICAL PLANNING LG3 Planning & Decision Making 7-46

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

48 Analyzes the organization’s Strengths, Weaknesses, Opportunities and Threats. PLANNING ANSWERS FUNDAMENTAL QUESTIONS LG3 Planning & Decision Making 7-48 What is the situation now? SWOT Analysis – a planning tool

49 SWOT MATRIX LG3 Planning & Decision Making 7-49 Allowing the company to plan…

50 Leadership Styles 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.. LEADERSHIP STYLES LG5 7-50

51 Empowering Workers 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. EMPOWERMENT LG5 7-51

52 Managing Knowledge 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. MANAGING KNOWLEDGE LG5 7-52

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

54 Building an Organization from the Bottom Up Create a division of labor Set up teams or departments Allocate resources Assign tasks Establish procedures STRUCTURING an ORGANIZATION LG1 8-54

55 Division of labor Unity of command Hierarchy of authority Managers authority to make decisions Equity Two Organization theorists HENRI FAYOL’S PRINCIPLES LG2 Fayol’s Principles of Organization 8-55

56 Max Weber and Organizational Theory 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 MAX WEBER’S PRINCIPLES LG2 8-56

57 TYPICAL ORGANIZATION CHART LG2 Turning Principles into Organization Design 8-57 Organization charts shows who is accountable for the completion of specific work and who reports to whom.

58 Benchmarking and Core Competencies 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 CORE COMPETENCIES LG5 8-58

59 Weighing the Advantages and Disadvantages of Departmentalization Departmentalization -- Divides organizations into separate units. Workers are grouped by skills and expertise to specialize their skills. DEPARTMENTALIZATION LG3 8-59

60 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. BUREAUCRATIC ORGANIZATIONS LG2 Turning Principles into Organization Design 8-60

61 Restructuring for Empowerment 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. LG5 8-61

62 Managing the 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. No organization can be effective without Formal and Informal Organization. LG6 8-62

63 Informal Organization -- The system of relationships that develop spontaneously as employees meet and form relationships. FORMAL &INFORMAL ORGANIZATION Informal organization helps foster camaraderie and teamwork among employees. LG6 Managing the Informal Organization 8-63

64 TRADITIONAL and INVERTED ORGANIZATIONS LG5 Restructuring for Empowerment 8-64

65 EXAM 1 58 questions total - 60 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 EXAM 1 Structure 5-65


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