BMGT110F Chapter 1

10/14/2012 5:28:00 PM

Goods: tangible products Services: Intangible products 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 Revenue: total amount a business takes in over a given period. Profit: amount of money earned above upkeep costs Loss: occurs when businesss expenses are more than revenue Risk: is a chance entrepreneur takes at losing time and money on a business Standard of living: amount of goods and services people can buy with their money Quality of life: general well being of a society in terms of political freedom, natural environment, education, healthcare, safety, amount of leisure and rewards. Stakeholders: people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address. Outsourcing: contracting with other companies to do the same or all functions of a firm, like production or accounting Insourcing: opposite of outsourcing Non-Profit organization whose goals do not include making a personal profit for its owners or organizations. Social Entrepreneur: people who use business principles to start and manage not for profits and help address social issues. Factors of production: land, labor, capital, entrepreneurship, knowledge Management expert Peter Drucker states knowledge is most important Rich countries are due to a combination of entrepreneurship and knowledge. Business environment consists of Economic and legal environment Technological environment Competitive Environment Social Environment Global Business environment

Good business leads to good foundation for social benefits Governments can minimize spending and keep taxes and regulations low which favor businesses Governments can promote entrepreneurship by allowing for private ownership of business Governments in developing countries should minimize interference with the free exchange of goods and services. Risks can be lessened when the government allows business people to write enforceable contracts EX. Uniform Commercial Code regulate business agreements Establishing a currency thats tradable in world markets Government can minimize corruption in business and in its own ranks, Unlawfully minimize competition . Capitalist system relies heavily on honesty, integrity, and high ethical standards. Technology makes business processes more effective and efficient Productivity: amount of output you generate given amount of input E-commerce: buying and selling over the internet Two types of businesses Business to Consumer (B2C) Business to Business (B2B) Businesses must be responsive to customer wants and needs to be successful Database: an electronic storage file for information Companies trade databases which is why we get random catalogs and emails. This identity collection can result in identity theft o Federal Trade Commission states millions of U.S consumers are victims. Businesses compete by exceeding customer expectations. Being customer driven as opposed to management driven Since customers are king businesses must equip their workers with the ability to respond to customers requests.

o Empowerment: Giving front line workers the responsibility, authority, freedom, training, and equipment to respond to customer requests. Demography: statistical study of human population with regard to size, density and other characteristics such as age race gender and income The need to manage diversity, dealing sensitively with workers and cultures around the world. People aged 65-74 are the richest demographic World trade or globalization grew to efficient distributive systems and communication War and terrorism helped some industries while harming others Terrorism added to organizational costs. Climate change and global warming is an issue the business community has taken note of saving energy and producing products that cause less harm to the environment is known as greening Technology has made farming efficient that farmers used to be 33% and now 1% Farm size has increased to 450 from 160. Loss to society is minimized if wealth created by increased productivity and efficiency create new jobs. Fastest growing industries today are the service industries. Makes up 70%

BMGT110F Chapter 2

10/14/2012 5:28:00 PM

Collateral: Anything of significant value a borrower puts up as security for a loan. Major part of U.Ss business success is due to economic and social climate that allows most businesses to operate freely. Economics is the study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing goods and individuals. Also study of the allocation of scare resources. Macro: view a nations economy as a whole Micro: looks at the behavior of people and organizations in particular interests Resource Development: study of how to increase resources and create conditions that will make better use of them. Businesses can contribute to economic system by inventing products that greatly increase available resources Discover new energy sources New ways of growing food New ways of creating needed goods and services. Economist Thomas Malthus argued peasants would outpopulate available food and resources. Believed that poverty was birth control Thomas Carlyle called economics the disnormal science Studies about population growth on economy falls under macroeconomics. Secret to economic development are business owners that provide jobs and economic growth for their employees and communities. Adam Smith believed in creating more resources so that everyone could become wealthier. Freedom was vital because he believed people worked hard if there were incentives leading to prosperous economies. Identified the concept known as Invisible Hand: process that turns self directed gain into social and economic benefits for all.

Capitalism: an economic system where all or most factors of production and distribution are privately owned and operated for profit. It is the foundation of the economic systems of the U.S, England, Canada. And other developed countries. Four Basic rights under capitalism Own Property Own business and keep businesss profits Right to freedom of competition Freedom of choice Pres o o o o FDR additional 4 Speech and expression Worship From want From fear

Free market decision about what and how much to produce are determined by the market, price tells producers how much to produce. Supply: quantity of products that manufacturers or owners are willing to sell at different prices at a specific time. Demand: the quantity of products that people are willing to buy at different prices at a specific time Equilibrium point or market price: where supply and demand intersect Free market proponents argue laissez fair since supply and demand determine prices o In countries without free market business often produce surpluses or shortages. Four different types of Free Markets o Perfect Competition: degree of competition in which there are many sellers in a market and are price takers. o Monopolisitic competition: degree of competition in which a large number of sellers produce very similar products that buyers perceive as different. Product differentiation is key to success ex. Branding packaging

o Oligopoly: few sellers dominate the market, high barrier to entry in the market Tobacco gasoline automobile aluminum aircraft o Monopoly: one seller controls total supply of a product or service and sets the price. US allows monopolies in public utilities but the prices and profits are controlled by public service commissions Deregulation is used to increase competition among utility companies. Capitalism allows for opportunities and encourages business efficiency. Some times people abuse free market to gain intense profits through slavery and child labor. Socialism: some or all businesses are owned by government to evenly distribute profit. Top personal income tax in US was 35% in socialist 60%. They believe government should be more involved in the economy. Benefit is social equality o Tax goes to government social programs. Cons o Takes away business peoples incentives. o Brain Drain: loss of the best and brightest people o Fewer inventions and innovations Communism: an economic and political system in which the government makes almost all economic decisions and owns almost all major factors of production. Governments do not know what produce since price wont reflect supply and demand. Russia has flat tax of only 13% but increased revenue by 30% sine more people were willing to pay. Free Market Economies vs. Command Economies Free market mechanism dont help the poor, old or disabled (respond to their needs) Capitalist move towards socialism while socialist the other Mixed Economies: allocation of resources made by market and government

Three major indicators of economic conditions Gross Domestic Product (GDP) the total value of final goods and services produced in a country in a given year. o Based largely on the productivity of its workforce. Unemployment rate: civilians elder than 16 who try to find a job within the prior 4 weeks. 2000 3.9% -> 2009 9% o Frictional Unemployment: quit and looking for new job or entering work force for the first time o Structural Unemployment: restructuring of firms or mismatch in skills o Cyclical Unemployment: due to recession or a similar downturn in business cycle o Seasonal Unemployment: occurs when labor varies over the year. Price indexes help gauge the health of the economy o Inflation: general rise in the prices of good and services over time. o Disinflation- price increase are slowing o Deflation- prices are declining. o Stagflation-economy is slowing down but prices are still rising o Consumer price index (CPI) monthly statistics that measure the pace of inflation or deflation o Core Inflation- CPI minus food and energy costs, usually lower than CPI o Chained consumer price index (CCPI) takes into consideration that customers shift their purchases as prices go up and down o Producer Price Index (PPI) measures prices at wholesale level. o Other indicators include housing starts, retail sales, change in personal incomes. Productivity in US rise due to technology. High productivity can result in high unemployment, In the service sector technology adds to quality but not necessarily the actual output per worker.

Business cycle: periodic rises and falls that occur in economies overtime. Joseph Schumpter identified 4 long term phases o Economic Boom o Recession 2 or more consecutive quarters of decline in GDP Brings high unemployment increased business failures, drop in living standards o Depression severe recession accompanied with deflation Depression is a rare phase o Recovery: economy stabilizes and starts to grow. Fiscal Policy: Federal governments efforts to keep the economy stable by increasing or decreasing taxes or government spending. Percentage of GDP government takes through taxes is 28.2% National deficit amount spent beyond tax revenues National Debt: sum of government deficits John Maynard Keynes- The General Theory of Employment Interest and worly Increased spending less taxes can stimulate an economy in recession Short term solution to wide swings in business cycle. Federal Reserve Bank- controls money supply Monetary Policy: management of money supply and interest rates by the FED

BMGT110F Chapter 4

10/14/2012 5:28:00 PM

Ethics is more than legality How to restore trust in free market system and leaders in general Those who broke laws must be punished o New laws make accounting records more transparent and others more accountable Can lead to measure of behavior becomes legal Ethics reflects peoples proper relationships with one another Ethics: standards of moral behavior, that is behavior accepted by society as right versus wrong Common basics moral values: integrity, respect for human life, self control, honesty courage and self sacrifice are right. When facing ethical dilemma ask the following Is my proposed action legal Is it balanced How will it make me feel about myself WTF? Ethics is learned more from observation than being taught Organizational ethics begins at the top Ethic of justice based on principles like justice, fairness, equality or authority. Ethic of care based on a sense of responsibility to reduce actual harm of suffering Trust and cooperation between workers and managers must be based on fairness, honesty openness and moral integrity. Manage ethically so Maintain good reputation keep customers avoid lawsuit reduce employee turnover

Compliance based ethics code emphasizes preventing unlawful behavior by increasing control and penalizing wrongdoers.

Integrity based ethics code define the organizations guiding values create an environment that supports ethically sound behavior and stress shared accountability. Top management must adopt and unconditionally support an explicit code of conduct. Employees must understand that expectations for ethical behaviors begin at the top and that senior management expects all employees to act accordingly. Managers and others must be trained to consider the ethical implications of all business decisions An ethics office must be set up with which employees can communicate anonymously. Whistleblowers must feel protected Outsiders must be told about ethics program. Ethics code must be enforced with timely action if rules are broken o Most critical step Need reliable ethics officer that set a positive tone, communicate effectively

Corporate Social Responsibility (CSR) concern businesses have for welfare of society not just for their owners Based on commitment to integrity fairness and respect Critics such as Milton Friedman believed businesses should only work to earn money for stockholders Advocates believe that businesses need the societies they serve Social performances have several dimensions. Corporate philanthropy, charitable donations Corporate social initiatives, enhanced forms of corporate philanthropy directly relating to companys competencies Corporate responsibility includes hiring minority workers to make safe products Corporate policy stance firms take on social and political issues. Many companies give paid leave for volunteer projects Responsibility to Customers JFK proposed 4 rights

o Right to safety o To be informed o To choose o To be heard Companies earn customers trust by demonstrating credibility over time. Responsibility to investors Ethical behavior helps in the long run Investing money into companies that vie back helps investors and society Insider trading- Using private company information to further ones personal fortune In 2000, SEC adopted regulation FD (fair disclosure) if company gives info to anyone it must tell everyone else Responsibility to employees Respect for them o Done through salaries and other benefits o Employee fraud costs 5% in annual revenue an 30% of business failures. Responsibility to society and environment Green movement reduce carbon foot print o Lowering environmental costs can also add value to business Social Audit: systematic evaluation of an organizations progress towards implementing socially responsible and responsive programs. Socially conscious investors insist that a company extend its own high standards to its suppliers Environmentalist apply pressure by naming companies that dont abide by their standards Union officials hunt down violations and force companies to comply Customers buy based on social conscience. US businesses also demand socially responsible behavior from international suppliers International Organisation for Standardization (ISO)

BMGT110F Chapter 7

10/14/2012 5:28:00 PM

Manager Roles are evolving Managers are now more progressive; emphasize team and team building o Tend to guide, train, support, and motivate rather than tell employees what to do Emphasize teamwork and cooperation than discipline and order giving o Skilled communicator, team player, planner, organizer, motivator, leader Management: process used to accomplish organizational goals through planning organizing leading and controlling people Planning: includes anticipating trends and determine the best strategies and tactics to achieve organizational goals and objectives o Set organizational goals o Develop strategies to reach those goals o Determine resources needed o Set precise standards o Planning teams monitor environment, find business opportunities and watch for challenges Organizing: includes designing the structure of the organization and creating conditions and systems in which everyone and everything works together o Allocate resources, assigning tasks, establish procedures for accomplishing goals o Prepare a structure showing lines of authority and responsibility o Recruiting, selecting training and developing employees o Placing employees where they are most effective Leading: creating a vision for the organization and guiding, training, coaching and motivating others to work effectively to achieve the organizations goals and objectives o Giving assignments o Explaining routines o Clarifying policies o Providing feedback on performance

Controlling: establishes clear standards to determine whether or not an organization is progressing towards its goals and objectives rewarding people for doing a good job and taking corrective action o Measuring results against corporate objectives o Monitoring performance relative to standards o Rewarding outstanding performance o Taking corrective action when necessary

Planning and Decision Making Vision: an encompassing explanation of why the organization exists and where its headed Mission statement: outline of the fundamental purposes of an organization o Organizations self concept, philosophy long term survival needs, customer needs, social responsibility, nature of the product or service. o Goals- broad long term accomplishments an organization wishes to attain o Objectives specific short term statements detailing how to achieve goals. Planning Answers o SWOT Analysis, Strenghts, weaknesses, opportunities and threats it faces o How to get goal from present stance. Four levels of Planning o Strategic planning, process of determining the major goals of the organization and the policies and strategies for obtaining and using resources to achieve these goals. Policies are broad guidelines for action Strategies determine best way to use resources Top management o Tactical planning, process of developing detailed, short term statements about what is to be done, who is to do it and how it is done Lower level managers

o Operational Planning: process of setting work standards and schedules necessary to implement the companys tactical objectives Setting of work standards and schedules o Contingency Plan- process of preparing alternative courses of action that may be used if the primary plans dont achieve the organizations objectives. Decision making choosing among two or more alternatives o Rational decision making model Define the situation Describe and collect needed information Develop alternatives Develop agreement among those involved Decide which alternative is best Do what is indicated Determine whether decision was good

Problem solving, process of solving the everyday problems that occur. Problem solving is less formal than decision making and usually calls for quicker action Brainstorming- coming up with as many solutions to a problem PMI- list all the pluses and minuses and their implications Organization chart- visual device that shows relationships among people and divides the organizations work; shows who reports to whom Top management: highest level of management CEO, COO, Chief Info Officer (CIO), Chief Knowledge Officer (CKO), CFO, o Intro change (CEO), put change to effect(COO), obtain funds (CFO) Middle management- general division branch and plant managers Supervisory management- managers who are directly responsible for supervising workers and evaluating their daily performance Skills

Technical, ability to perform tasks in a specific discipline or department Human Relations, communication and motivation enable managers to work with and through people Conceptual, let managers picture organizations as a whole and relationship among its parts. Staffing, hiring motivating and retaining the best people available to accomplish the companys objectives.

Leaders: Communicate a vision and rally others around it Establish corporate values Promote corporate ethics Embrace change Stress accountability and responsibility o Transparency- presentation of a companys facts and figures in a way that is clear and apparent to all stake holders

Autocratic leadership- making decisions without consulting others Participative / democratic leadership- managers and employees working together to make decisions Free Rein leadership managers set objectives and employees are free to do whatever to accomplish those objectives Directing- giving explicit directions to employees Empowerment- giving employees the authority to make a decision Enabling- giving workers the education and tools they need to make decisions Knowledge Management: Finding the right information keeping info in a readily accessible place and making info known to everyone in the firm Controlling Establish clear performance standards Monitoring and recording performance Compare results against standards Communicate results

If needed take corrective action and give feedback

External customers- dealers and ultimate customers Internal customers- individuals and units within the firm that receives services from other individuals or units.

BMGT110F Chapter 10

10/14/2012 5:28:00 PM

Engaged workers work with passion and feel a connection to the company Lowered productivity costs $300 billion a year Intrinsic rewards- personal satisfaction you feel when you perform well and complete goods Extrinsic rewards- something given to you by someone else as recognition for good work. Frederick Taylor wrote The Principles of Scientific Management Scientific Management- studying workers to find the most efficient ways of doing things and then teaching them the techniques Time Motion Studies- tasks performed to do a job and time needed to complete those tasks

Frank and Lillian Gibreth Principle of motion economy theory that every job an be broken down into series of elementary motions known as therblig. Scientific Management viewed people as machines that needed to be programmed Hawthorne Effect- tendency for people to behave differently when they know they are being studied. Abraham Maslow believed motivation arises from needs. Maslows Hierarchy of needs o Physiological needs, safety needs, social needs, esteem and self actualization To compete U.S firms must create a work environment that includes social contribution honesty, reliability, service quality dependability and unity Frederick Herebergs motivating factors Sense of achievement Earned recognition Interesting work Opportunity for growth For advancement Importance of responsibility

 Peer and group relations Pay Supervisor fairness Company policy and rules Stans Job security Supervisor friendliness Working condition. Motivators factors: those that cause employees to be productive and relate to the job Hygiene Factors- cause dissatisfaction if missing but does not really motivate the workers Having them makes jobs seem interesting Theory XYZZZZZZ Theory X management o Average person dislikes work and will avoid it if possible o Workers must be forced or threatened to work o Average worker likes being bossed around has little ambition o Primary motivators are fear and money Theory Y o People like to work o People work towards committed goals o Depth of persons commitment depends on rewards o People seek responsibility o People are smart o In industry an average persons intellect is only partially recognized o People are stimulated by a reward unique to them Empowerment, how to use o Ask people what problems in the organization are o Let them design solution o Let them implement their solution Ouchis Z Theory o Type A (American) Short term employment

 o Type o Type

Individual decision making and responsibility Rapid evaluation and promotion Explicit formalized control Specialized career paths Segmented concern for employees J (Japanese) Life time employment Consensual decision making Collective responsibility Slow evaluation and promotion Implicit informal control Nonspecialized career paths Holistic concern for employees. Z (mix) Long term employment Collective decision making Individual responsibility Slow evaluation and promotion Implicit informal control with explicit control Moderately specialized career paths Holistic concerns for employees

Goal Setting Theory: setting ambitious but attainable goals can motivate workers and improve performance if goals are accepted, accompanied by feedback and facilitated by organizational conditions Management by objectives (MBO)- system of goal setting and implementation involves cycle of discussion review and evaluation of objectives among top and middle level managers supervisors and employees Developed by Peter Drucker Victor Vrooms Expectancy theory Amount of effort employees exert on a task depends on their expectations of the outcome. o Nadler and Lawler suggest the following steps Determine what rewards employees value

Determine their desired performance standards Ensure standards are attainable Guarantee rewards tied to performance Bet certain employees consider rewards adequate.

Reinforcement theory- positive and negative reinforces motivate a person to act in a certain way. Publicly recognize or praise; positive Ignore completely; extinction Publicly reprimand; punishment Equity Theory- employees try to maintain equity between inputs and outputs compared to others in similar positions Perceived inequity can lead to lower productivity, reduced quality, increased absenteeism and voluntary resignation Job enrichment- strategy that motivates through job itself Contrasted with job simplification, produces task efficiency by breaking job into simple steps and assigning people to each Advocates believe the following are important Skill variety Task identity Task significance Autonomy Feedback Contributes to meaningfulness of the job Job enlargement combines a series of tasks into one challenging and interesting assignment Job rotation- move employees from on job to another o o o o o

Procedures to encourage open communication Create an organizational culture that rewards listening Train supervisors and managers to listen Use effective questioning techniques Remove barriers to open communication Avoid vague and ambiguous communication Make it easy to communicate

 Ask employees what is important to them Recognition helps to motivate. Highcontext culture- workers build personal relationships and develop group trust before focusing on tasks Low context culture- workers view relationships as a waste of time.

BMGT110F Chapter 5

10/14/2012 5:28:00 PM

Basic forms of business ownership Sole proprietorship owned by on person Partnership 2 or more owners Corporation legal entity with authority to act and have liability apart from its owners Sole Proprietorship Advantages o Ease of starting and ending businesses o Being your own boss o Pride of ownership o Learning a legacy wtf.. creating? o Retention of company profit o Special taxes Disadvantages o Unlimited liability- risk of personal losses o Limited financial resources o Management difficulties o Overwhelming time commitment o Few fringe benefits (ex. Health insurance, pension plan) o Limited growth o Limited life span. Partnerships Types o General Partnership all owners share in operating the business and in assuming liability for the businesss debts General partner an owner who has unlimited liability and is active in managing the firm. o Limited Partnership: Partnership with one or more general partner and limited partner Limited partner: owner who invest in business but does not hold any management responsibility or liability for losses beyond the investment Limited liability, debt of business limited to amount partner contributes

o Master Limited Partnership (MLP) Looks much like a cooperation (acts and is traded on stock exchange) but is taxed like a partnership and thus avoids corporate income tax o Limited Liability Partnership (LLP) Limits partners risk of losing their personal assets to only their own acts and omissions of people under their supervision Excludes bank loans, leases and business debts. o Uniform Partnership Act (UPA) except Louisiana Common ownership Shared profits and losses Right to participate in managing operations of the business.

Advantages o More financial resources o Shared management and pooled/ complementary skills and knowledge o Longer survival o No special taxes. Disadvantages o Unlimited liability o Division of profits o Disagreements among partners o Difficulty of termination.

Corporations Conventional corporation- state chartered legal entity with authority to act and have liability separate from owners (Stock holders) Advantages o Limited liability o Ability raise more money for investment o Size Has access to more resources o Perpetual life o Ease of ownership change

o Ease of attracting talented employees o Separation of ownership from management Disadvantages o Initial cost o Extensive paperwork o Double taxation o Two tax returns o Size Being too big affects ability to adjust quickly o Difficulty of termination o Conflict between board of directors and stockholders Individuals can incorporate o Usually do not issue stock to others o Advantages are limited liability and possible tax benefits Usually takes 30 days to incorporate S-Corporations- government creation that is a corporation but is taxed as a sole proprietorship and partnership o Name due to being governed by subchapter s of IRS code o Avoids double taxation of C corporation o To qualify No more than 100 shareholders (onefamily = one shareholder) Shareholders are individuals or estates and who as individuals are citizens or permanent residents of the US One class of stock Derive no more than 25% of income from passive sources Ex. Rent royalties and interest o If S status is lost cannot regain for 5 years. Limited Liability Companies (LLC) is like a S corp but w/o special eligibility requirements o Began 1977 in Wyoming and recognized by IRS in 1988 Advantages o Limited liability o Choice of taxation

o Flexible ownership rules o Flexible distribution of profits and losses o Operation flexibility Disadvantages o No stock o Limited life span o Fewer incentives cant deduct fringe benefits cost for those with more than 2% shares o Taxes o Paperwork

Corporate Expansions: mergers acquisitions Merger: result of two firms forming one company o Vertical merger joins companies involved in different stages o Horizontal merger joins within same industry o Conglomerate joins those completely unrelated Acquisition: one companys purchase of the property and obligations of another company Taking a firm private: management or group of stockholders buy all of the shares to their firm Leverage buyouts (LBO) an attempt buy employees management or a group of investors to purchase an organization primarily through borrowing.

Franchises Franchise agreement: an arrangement where someone with good idea for a business sells rights to use business name and sell product or service to others o Franchisor company that developed idea o Franchise: right to use a specific businesss ame and sell its products o Franchisee person who busy franchise Advantages o Management and marketing assistance o Nationally recognized name o Financial advice and assistance

o Personal ownership o Lower failure rate Disadvantages o Large setup cost o Shared profit Percentage commission based on sales = royalties o Management regulation o Coattail effects Other franchises actions affect you too o Restrictions on selling o Fraudulent franchisors Home based, work from home o E-commerce in franchising o Computer networking in franchises to improve communication o International franchising counter balanced by less competition and expanding consumer base

Cooperative or coop- business owned and controlled by the people who use it. Products consumers or workers with similar needs who pool their resources for mutual gains Farm co-ops work together for better price.

BMGT110F Chapter 6

10/14/2012 5:28:00 PM

Entrepreneurship is accepting the risk of starting and running a business Many startup through borrowing money from friends and family Why people take the entrepreneurial challenge Opportunity Profit Independence Challenge What does it take Self-directed Self-nurturing Action oriented Highly energetic Tolerant of uncertainty Business idea is good opportunity if It fills customers needs You have skills and resources to start business Can sell at a profit Can deliver before window of opportunity closes You can keep the business going Entrepreneurial teams Group of experienced people from different areas of business who join together to form a managerial team with the skills needed to develop make and market a new product Micropreneurs Entrepreneurs willing to accept the risk of starting and managing the type of business that remains small lets them do the kind of work they want to do and offers a more balanced lifestyle o More than 66% of self employed run businesses from their homes Growth of home business due to o Computer technology o Corporate downsizing o Changed social attitudes Challenges

o Getting new customers o Managing time o Keeping work and family separate o Abiding by city ordinances o Managing risk Web based businesses must Offer unique merchandise Affiliate marketing: internet based marketing strategy in which a business rewards individuals or other businesses for each visitor or customer it sends to its website Intrapreneurs: creative people who work as entrepreneurs within corporations. Encouraging Entrepreneurship Immigration act 1990: 10000 people who invest 1 million dollars can come Enterprise zones specific geographic areas governments want to attract businesses to by offering lower taxes o Empowerment zones: enterprise communities Incubators: centers that offer new businesses low cost offices with basic business services

Small Business Association (SBA): a U.S government agency that advises and assists small businesses by providing management training and financial advice and loans up to 35000 defines a small business as independently owned and operated, is not dominant in its field of operation and meets certain standards of size in terms of employees and receipts. o Account for 50% of GDP o 60-80% of new jobs o 56% dont last four years failure rate is only 18% over eight years o To succeed Learn from others Get experience Take over successful firm

Small business investment company program: private investment companies licensed by SBA lend money Small business development centers Provides o Guaranteed loans max 1 million dollars o Micro loans 100- 35000 o Export express for exporting companies 250000 o Community adjustment and investment program o Pollution control loans 1million o 504 certified development company 1.3 million

Managing: Begin with plan o Business plan: detailed written statement that describes the nature of the business target market, advantages the business will have in relation to competition and the resources and qualifications of the owners. Write plan o Executive summary needs to catch interest o Parts include Cover letter, executive summary, company background, management team, financial plan, capital required, marketing plan, location analysis, manufacturing plan, appendix Angel Investors: Private individuals who invest before company goes public Venture Capitalists: individuals or companies that invest for partial ownership Market: people with unsatisfied needs and wants who have resources and willingness to buy Know your market Manage employees Keep recods Look for help Service corps of retired executives (SCORE) can also help those in small businesses out

International trade advantage Overseas buyers prefer individuals Faster shipping and wide variety of suppliers Personal service and good attention

BMGT110F Chapter 8

10/14/2012 5:28:00 PM

Building an Organization from the bottom up Organizing: determining what work needs to get done Dividing tasks, division of labor Job specialization dividing even further Departmentalization- setting up individual departments to do specialized tasks. Organization chart- relationships among people Bureaucracy- reliance on rules Economics of scale: companies can reduce their production costs if they can purchase raw materials in bulk average cost of goods goes down as production levels increase Fayols Principles of Organization General and industrial management o Unity of command o Hierarchy of authority o Division of labor o Authority o o o o o o Order Equity Clear communication channels Degree of centralization Subordination of individual interests to general interests Spirit de corps (pride)

Max Weber and Organization Theory of Social and Economic Organisations o Like Fayols but added Job descriptions Written rules, decision guidelines and detailed records Consistent procedures regulations and policies Staffing and promotion based on qualifications o Supported bureaucracy

Hierarchy: a system in which one person is at the top of the organization and there is a ranked or sequential ordering from top down of managers are responsible to that person Chain of command: line of authority that moves from the top of hierarchy to bottom Bureaucracy: organization with many layers of mangers who set rules and oversee all decisions Centralized Authority: decision making is maintained at top level management Decentralized authority decision making authority is delegated to lower level managers more familiar with local conditions than headquarter management could be. Span of Control: optimal number of subordinates a manager supervises or should supervise Tall organization structure pyramid Flat organization fewer layers and broad span of control. Departmentalization Advantages o Employees can develop skills in depth o Achieve economies of scale o Employees can coordinate work within the fuctnion Disadvantages o No interdepartemental communication o Employees identify with department rather than organization o External change response slows o People become narrow specialists

o Engage in group think, less creative. Ways to departmentalize o Product o Function o Customer group o Geographic location o Process Organizational models

Line organizations has direct two way lines of responsibility authority and communication running from top to bottom of organization with all people reporting to one supervisor Line and staff o Line personnel employees who are part of the chain of command that is responsible for achieving organistational goals o Staff personnel employees who advise and assist line personnel in meeting their goals Matrix style organisations o Specialists from different parts of organization are brought together to work on specific projects but still remain a part of a line-staff o Advantages Gives manager flexibility Encourages interorganizational cooperation and teamwork Produce creative solutions to product development problems Makes efficient use of organizational resources o Disadvantages Costly and complex Confuse employee loyalty Good interpersonal skills are needed Only a temp solution to long term problems Cross functional self manage teams o Groups of employees from different departments who work together on a long term basis Self managed means empowered to make own decisions.

Networking: using communications technology and other means to link organizations and allow them to work together on common objectives Virtual corporation: temporary networked organization made up of replaceable firms that join and leave as needed

Benchmarking: comparing an organisations practices, processes and products against the worlds best Core competencies functions the organization can do as well or better than any other organization in the world Digital natives: people who grew up with the internet Restructuring: redesigning an organization so that it can more effectively and efficiently serve its customers Inverted organization: contact people at the top and chief executive officer at the bottom of organizational chart. Organisational (corporate) culture: widely shared values within an organization that provide unity and cooperation to achieve common goals Formal organization: structure details lines of responsibility authority and position that is the structure shown on organization carts Informal organization: develops spontaneously as employees meet and form cliques and relationships

BMGT110F Chapter 17

10/14/2012 5:28:00 PM

Accounting: recording classifying, summarizing and interpreting economic events for interested users Managerial for those inside the business o Certified management accountant (CMA) professional accountant certified by Institute of Certified Management Accountants Financial for those outside o Private accountatns: accountants who work for a single firm government agency or nonprofit organization o Public accountant provides services for a fee o Certified public accountant (CPA) passes exams of American institute of certified public accounting Auditing: job of reviewing and evaluating the information used to prepare financial statements Independent: evaluation and unbiased opinion about the accuracy of a companys financial statement Certified internal auditor (CIA) Bachelors degree and 2 yrs experience in internal auditin and passes institute of internal auditors. Tax Accountant: trained in tax law responsible for preparing tax returns or developing tax strategies. Government and not for profit accounting: system for those who serve rate payers, tax payers and others according to a duly approved budget. Accounting cycle Economic event Bookkeeping Post to ledger Trial balance Financial statements Analyze financial statements Financial statements: balance sheet, income statement, statement of cash flows Fundamental accounting equation: Assets = Liabilites + Stockholders equity

Liquidity easiness to convert to cash Current assets: can or will be converted to cash within a year Fixed assets relatively permanent Intangible: long-term no physicality ex patents, trademark, copyright. Gross profit: how much firm made from goods Statement of cash flows Operations cash transactions to run investments Financing cash made from gaining debt Ratio analysis: assessment of a firms financial condition using calculations and interpretations of financial ratios developed from the firms financial statements Liquidity ratio Current ratio = current assets / current liability Acid test / quick ratio = (cash+ accounts receivable+ marketable securities) / current liability Leverage Debt Debt to owners equity ratio = Total liabilities / owners equity Profitability (Performance ratio) EPS, basic earnings per share = net income after tax / # common stock share outstanding Return on essays = net income / net sales Return on equity= net income after tax / total owners equity Inventory turnover ratio: COGS / average inventory

BMGT Chapter 18 Financial Management10/14/2012 5:28:00 PM

Finance: the function in a business that acquires funds for the firms and manages those funds within the firm Financial management: manage firms resource to meet its objectives o Managers examine financial data prepped by accountants and recommend strategies for improving the financial performance of the firm o Comptrollers are chief accounting officer as opposed to CFOs o Managers need to Audit Plan Budget Obtain funds Fund and credits management Manage tax Advise top management on financial matters Three reasons firms fail o Undercapitalization o Poor control over cash flow o Inadequate expense control Financial planning Forecasting financial needs o Short-term forecast predicts revenues costs and expenses for a period of one year or less Cash flow forecast predicts the cash inflows and outflows in future periods, usually months or quarters Long term forecast predicts revenue costs and expenses for a period longer than one year and as far as 5-10 years Working with budget process o Budget: financial plan that sets forth managements expectations and on the basis of those expectations allocates the use of specific resources throughout the firm.

Capital budget highlights firms spending plans for major assets purchases that often require large sums of money Cash budget estimates cash inflows & outflows during a period Operating (master) budget ties together other budgets and summarizes its proposed financial activities. Establish financial Control o Process in which firm periodically compares its actual revenues costs and expenses with its budgets.

Need for operating Funds: Managing day by day needs of business o Financial managers need to make sure there are enough funds for day to day ops since money has time-value Try to minimize cash expenditures Controlling credit operations o Need to speed up to get needed cash Acquire needed inventory Making capital expenditures o Major investments in either tangible long term assets such as land buildings and equipment or intangible assets such as patents trademarks. Alternative sources of funding o Debt finance, funds raised through various farms of borrowing must be repaid o Equity financing: money raised from within the firm from operations or through the sale of stock o Short term financing funds for less than one year o Long term financing usually 2-10 years. Obtaining Short term financing Trade credit practice of buying goods and services now and paying for them later o Promissory note: written contract with a promise to pay a supplier a specific sum of money at a definite time.

o o o o

Family and friends Commercial banks Commercial banks Different forms of short-term loans Secured loan is backed by collateral Unsecured loans dont need collateral Line of credit a given amount of unsecured funds a bank will lend to a business Revolving credit agreement line of credit but usually with a fee Commercial finance companies: organisations that make short term loans to borrowers who offer tangible assets as collateral.

Factoring Accounts Receivable Factoring process of selling accounts receivable for cash o Factor is market intermediary Commercial paper unsecured promissory notes of 100 thougsand dollars and up that mature in 270 days or less Credit cards

Obtaining long term financing Debt financing o Borrowing from lenders Term loan agreement a promissory note that requires the borrower to repay the loan in specified installments. Risk / return tradeoff: the greater the risk a lender takes in making a loan the higher the interest rate required Issuing bonds o Indenture terms: terms of agreement in a bond issue o Secured bonds has collateral o Unsecured or debenture bond backed only by reputation of issuer Equity financing o Sell stock

 IPO, initial public offering o Retained earnings Profits reinvested in time o Venture capital Invested in new or emerging companies that are perceived as having great profit potential Comparing debt and equity financing Leverage, raising funds through borrowing to increase a firms rate of return Cost of capital rate of return a company must earn in order to meet the demands of its lenders and expectations of its equity holders.

BMGT110F Chapter 19

10/14/2012 5:28:00 PM

The Function of Securities Markets Two Functions o Assist businesses in finding long-term funding to finance capital needs. o Provide private investors a place to buy and sell securities Primary markets handle sale of new securities o Corporations make money only once from securities (stocks) The IPO, initial public offering. Secondary market handles trading of these securities between investors Role of Investment Bankers o Investment Bankers, specialists who assist in the issue and sale of new securities Can underwrite new issues of stock, IB buys all stocks at discount price and sells for full price o Institutional investors: large organizations such as pension funds mutual funds and insurance companies that invest their own funds or funds of others.

Stock Exchanges An organization whose members can buy and sell (exchange) securities for companies and individual investors o New York Stock Exchange (NYSE) 1792, floor based Electronic in 2005 archipelago 2007 euronext 2008 took amex, American stock exchange. Over the counter market (OTC): exchange that provides a means to trade stocks not listed on the national exchanges. o NASDAQ evolved from OTC, a national electronic system that links dealers across the nation so that they can buy and sell securities electronically Securities regulations and the SEC o SEC; securities and exchange commission a federal agency that has responsibility for regulating various stocks exchanges o Prospectus: a condensed version of economic and financial information that a company must file with the SEC before

issuing stock; the prospectus must be sent to prosepective investors o Insider Trading: using knowledge or information that individuals gain through their position that allows them to benefit unfairly from fluctuations in security prices Foreign stock exchanges exist

How businesses raise capital by selling stock Stocks are shares of ownership in a company Stock certificates are evidence of stock ownership that specifies the name of the company, the number of shares it represents and the type of stock being issued o Parvalue dollar amount assigned to earn share Dividends, part of a firms profits that the firm may distribute to stockholders as either cash payments or additional shares of stock Advantages o Stockholders never have to be repaid o Selling stock can improve the condition of firms balance sheet since issuing stock creates no debt Disadvantages o Alters control of firm o Dividends paid after tax and non tax deductible Two Classes of Stock o Common Stock; most basic form of ownership in a firm, it confers voting rights and the right to share in the firms profits through dividends it approved by the firms board of directors Holders have preemptive right to purchase new shares o Preferred stock: stock that gives its owners preference in payment of dividends and an earlier claim on assets than common stockholders if the company is force out of business and its assets sold. Callable, stockholders need t sell shares back Cumulative: stock becomes common stock. How businesses raise capital by issuing bonds

Bond: a corporate certificate indicating that a person has lent money to a firm o Principal: face value of bond required to pay o Maturity date: exact date issuer of bond must pay to principal o Interest payment issuer of ond makes to bond holder Bond interest dependent on coupon rate Advantages o Bond interest is tax deductible o Temporary source of funding o Can be paid before maturity if call provision exists Disadvantages o Increase debt o Interest legal obligation o Face value must be repaid by maturity date o Debenture/ unsecured bond not backed by collateral o Mortgage / secure bond are backed by collateral o Special bond features Sinking fund: reserve account in which issuer of a bond periodically reties some part of the bond principle prior to maturity Callable bond lets issuer pay off principle

How investor buy securities Stockbroker: a registered representative who works as a market intermediary to buy and sell securities for clients Investment strategy o Investment risk , yield, duration, liquidity, tax consequences Diversification; buying several different investment alternatives to spread risk of investing. Investing in Stocks Bulls believe that stock prices will rise Bears believe that stock prices will decline Capital gains: the positive difference between the purchase price of a stock and its sale price

Blue chip stocks: pay regular dividends and consistent stock appreciation Growth stocks: grow at faster rate Income stocks high dividend yields Penny stocks cheap stocks that are super risky usually under $5 Market order tells a broker to buy or sell a stock immediately Limit order buy at a specific price Round lots :100 shares Odd lots: fewer than 100 shares Stock splits gives shareholders 2 or more stocks per stock they own Buying stock on margin: purchasing stock by borrowing some of the purchase cost from the brokerage firm.

Investing in Bonds When selling early may sell at discount, prices less than face value o Premium sell at price higher than face value o As interest rates go up bond prices fall and vice versa. Investing in High Risk (Junk) Bonds o These are high risk high interest bonds S&P says they also have high default rate

Investing in Mutual funds and Exchange traded funds A mutual fund, organization that buys stocks and bonds and then sells shares in those securities of the public. Index funds that invest in a certain kind of stocks or bonds or in the market as a whole. Easily transferable from bond fund to stock fund and you can avoid broker fees or commissions A load fund charges investors a commission to buy or sell its shares A no load fund charges no commission Open end funds accept the investments of any interested investor Closed end funds limit the number of shares once the fund reaches its target number Exchange traded funds (ETFs) is collections of stocks and bonds that are traded on exchanges but are traded more like individual stocks than like mutual funds.

Stock market indicators Dow jones industrial average (the DOW) is the average cost of 30 selected industrial stocks. o S&P uses 500 400 industrial, 40 financial, 40 public utility and 20 transportation stocks. Some say market crashes due to program trading o Giving instructions to computers to automatically sell if the price of a stock dips to a certain point to avoid potential losses. Curbs, when program trading is halted Circuit breakers triggered when dow falls 10,20,30 percent in a day, stops trading for half an hour to 2 hours.

BMGT110F Chapter 20

10/14/2012 5:28:00 PM

Money is anything people generally accept as payment for goods and services Barter is the direct trading of goods and services for other goods or services Five standards for useful from of money is Portability Divisibility Stability Durability Uniqueness What is the Money Supply The money supply is the amount of money the federal reserve bank makes available for people to buy goods and services o M1, money that can be accessed quickly and easily o M-2 is everything in M1 plus money in savings accounts, money market accounts, mutual funds and certificates of deposit o M3 is M2 plus big deposits like institutional money market funds. Inflation, too much money chasing too few goods Falling dollar values means that the amount of goods and services you can buy with a dollar decreases o RSING DOLLAR VALUE IS THE OPPOSITE When economy is strong the demand for dollars declines and the value of the dollar falls.

Control of money supply FED consists of 5 majors parts o Board of governors Administers and super vises the 12 Federal reserve banks 7 members are appointed by president and confirmed by senate set monetary policy o Federal Open Market Committee (FOMC) 12 voting members and is policy making body

o 12 Federal Reserve Banks o three advisory councils o member banks of the system Fed buys and sells foreign currencies regulates various types of credit Buys and sells government securities known as open market operation Lends money to member banks at interest rate known as discount rate Three basic tools use to manage supply o Reserve Requirement A percentage of commercial banks checking and savings accounts tat must be physically kept in the bank Increase in money supply can stimulate the economy but can create inflation o Open market operations The buyng and selling of us government bonds by the Fed with the goal of regulating the money supply. To decrease money supply it would sell U.S government bonds to public. o Discount Rate The interest rate charge for loans to member banks. Increase in the rate decreases available loans decreasing money supply. Rate banks charge each other is the federal funds rate. Also has Check Clearing Role. o Goes from local banks to the federal banks

History

of Banking and the Need for the Fed Land banks were established to lend money to farmers. Alexander Hamilton created central bank in 1791. Under Federal reserve act of 1913 all federally chartered banks had to join the federal reserve.

U.S Banking System Commercial bank a profit seeking organization that receives deposits from individuals and corporations in the form of checking and savings accounts and then uses some of these funds to make loans. o Two types of customers Depositor, whose money goes to interest bearing loans And borrowers o Services provided Demand deposit, technical name for checking account, the money in this deposit can be withdrawn anytime on demand from the depositor Time deposit, technical name for savings account, the bank can require prior notice before owner withdraws money from a time deposit Certificate of Deposit (CD) a time deposit that earns interest to be delivered at the end of the certificates maturity date. Depositor cannot withdraw money until that date.

Can give loans too. Savings and Loan Associations (S&Ls) o A financial institution that accepts both savings and checking deposits and provides home mortgage loans. Credit unions nonprofit member owned financial cooperatives that offer the full variety of banking services to their members. Nonbanks: financial organizations that accept no deposits but offer many services like pension funds, insurance companies, commercial finance companies, consumer finance companies and brokerage house.) o Pension funds are monies put aside by corporations, npos, or unions to cover part of the financial needs of members when they retire.

Current banking crisis Protecting your funds o Federal Deposit Insurance Corporation

Independent agency of the U.S government that insures bank deposits. Up to 100,000 250,000 until December 31 2013 Savings Association Insurance Fund part of FDIC that insures holders of accounts in savings and loan associations. National credit union administration. Provides up to 100,00 coverage per individual depositor per institution , covers all accounts. IRA, individual accounts are up to 250,000

Electronic fund transfer system, a computerized system that electronically performs financial transactions such as making purchases, paying bills and receiving paychecks, Debit card, an electronic funds transfer tool that serves the same function as checks, it withdraws funds from a checking account. Pay roll debit cards are an efficient way some firms to pay their workers, and an alternative to cash, for those that are unbanked. Smart card, electronic funds transfer tool that is a combination credit card, debit card, phone card, drivers license card and more. Direct deposit is a credit made directly to a checking or savings account in place of a paycheck Direct payment is a preauthorized electronic payment.

International Banking and Banking Services Letter of credit, promise by the bank to pay the seller a given amount if certain conditions are met Bankers acceptance promises that the bank will pay some specified amount at a particular time. World Banks and the IMF (international monetary fund) o World bank, primarily responsible for financing economic development; also known as the international bank for reconstruction and development.

o IMF created as an organization that assists the smooth flow of money among nations, it established to foster cooperative monetary polices that sta bilize exchange.