Bus106 Notes
BUS106LL
Business: an activity that seeks to provide goods and services to others while operating at a profit
Profit: The amount of money a business earns in revenue beyond expenses
Entrepreneur: a person who risks time and money to start and manage a business
Canada moving towards a service built economy instead of manufacturing
Stakeholders: Anyone with a vested interest in the company
Those who lose or gain:
Customers
Employees
Financial institutions (banks, credit unions)
Investors (stockholders)
Environmentalists
Governments
Suppliers
Dealers (retailers)
Offshoring: Sourcing part of the purchased inputs outside of the country
Outsourcing: Assigning various functions, such as accounting, production, security, maintenance, and legal work to outside organizations
Five factors of production:
Land
Labour
Capital
Entrepreneurship
Knowledge
Week 2: Basic_Ch02
Word of the week: Analyze (definition, what does it really mean, how to use it)
Strategic Alliance: A relationship where both parties gain benefits from creating or fortifying a relationship
Outsourcing can be beneficial to the company and country but quality control is an issue for fields such as pharmaceuticals.
Macroeconomics: Country’s economics
Microeconomics: Looks at behaviour of people and organizations in a certain market
Entrepreneurs: Make a lot of money fast (takes off) if it doesn’t work they move on
Stakeholders: All the people that stand to lose or gain from a companies policies or activities
Offshoring: Sourcing part of the purchased inputs outside of the country (product)
Outsourcing: contracting with other companies to do some or all of the functions of a firm such as production or accounting. (service)
Factors of Production: Resources used to create wealth
Land (or natural resources)
Labour (workers)
Capital Goods (Machines, tools, buildings, other production materials. Not money)
Entrepreneurship
Knowledge
Business Environment: The surrounding factors that either help or hinder the development of business.
The legal and regulatory environment
Tax laws
Contract laws
Elimination of curruption
The economic environment
Income and exenditures
Currency shifts
Economic systems
The technological environment
Information and technology
Databases
The Internet
The competitive environment
-Components of competition
Customer driven
Organization structure
The social environment
- Diversity
Demographic changes
Family changes
The global environment
Encompasses all these characteristics
Around the world
Goods: Tangible products such as computers, food, clothing, cars, and appliances.
Services: Intangible products (i.e products that can’t be held in your hand) such as education, health care, insurance, recreation, and travel and tourism.
Economics:
The study of how society chooses to employ resources to produce goods and services and distribute them for consumption among carious competing groups and individuals.
Macroeconomics: The part of economic study that looks at the operation of a nation’s economy as a whole
Microeconomics: The part of economic, study that looks at the behaviour of people and organizations in particular markets.
Invisible hand: A phrase coined by Adam smith to decscribe the process that turn self-directed gain into social and economic benefits for all.
Capitalism: An economic system in which all or most of the factors of production and distribution are privately owned and operated for profit
Supply: The 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.
Market price: The price determined by supply and demand
Perfect competition: The market situation in which there are many sellers in a large market and no seller is large enough to dictate the price of a product
Monopolistic competition: The market situation in which a large nnumber of sellers produce products that are very similar but that are perceived by buyers as different.
Oligopoly: A form of competition in which just a few sellers dominate the market.
Monopoly: A market in which there is only one seller for a product or service
Free market: Allows open competition among companies. Business must provide good value or they will not make money
Socialism: An economic system based on the premise that some, if not most, basic businesses should be owned by the government so that profits can be evenly distributed among the people. (more even distribution of wealth but less chance to go above and beyond the average worker)
Communism: An economic and political system in which the state makes almost all economic decisions and owns almost all of the major factors of production.
Equilibrium point: Where supply and demand curves meet on the graph
Free-market economies exist when the market largely determines what goods and services are produced, who gets them, and how the economy will grow. Capitalism is the popular term used to describe this system
Command economies: Exist when the government largely decides what goods and services are prodced, who gets them, and how the economy will grow. Socialism and communism are the popular terms to describe this variation.
Mixed economies: exist where some allocation of resources is made by the market and some is made by the government. Most countries don’t have a name for this system. It is the most commonly used system around the world now
Canada’s Mixed Economy:
One of the largest countries (geographically) with one of the lowest population densities.
One of the largest economies in the world resides just south of us, not only do they speak the same language as us but they are most powerful country in the world.
USA is Canada’s largest trading partner.
Government still owns banks, insurance companies, radio stations and TV channels.
Canada’s government is largely involved in ventures that no other entrepreneur wants to take on or has the capital to do. These include things such as the CPR and Air Canada (Trans Canada Airlines) as well as mail
In the 1990’s canada began privatization (taking control of businesses away from the government by selling them off)
Key economic indicators:
GDP - the total value of final goods and services produced in a country in a given year
The unemployment rate - The percentage of the work force that is *actively* seeking work but cannot find any
Frictional unemployment: Quit because they didn’t like the job, also refers to people newly entering the labour force or returning from an extended period of absence.
Structural unemployment: Refers to unemployment caused by the restructuring of firms (downsizing) or a mismatch of skill sets
Cyclical unemployment: Due to recession (business cycle [up and down])
Seasonal unemployment: occurs when demand for labour varies over the year (farming, agriculture, etc)
The price indexes
Standard of living - The amount of goods and services one can buy with a given amount of money
Quality of life - The general well0being of a society in terms of political freedom, a clean natural environment, education, health care, safety, free time and everything else that leads to satisfaction and joy
Productivity is measure by:
Total output of goods and services in a given period Total hours worked
An increase of productivity means more work can be done in less time.
Higher productivity generally equals lower price
Inflation: rise in price of goods or services over time
Disinflation: When price increases are slowing (inflation rate is declining)
Deflation: When prices decline
Stagflation: When the economy is declining but prices go up nonetheless
Consumer Price Index (CPI): Monthly statistic that measures the pace of inflation or deflation (done using a “basket” of 600 common household expenses)
Business cycles (economic cycles): Periodic rises and falls that occur within an economy over time (measured using GDP)
Economic boom - Period of a lot of jobs, growth, and economic prosperity
Recession - Two or more consecutive quarters of decline in the GDP. In a recession prices fall, people buy less and businesses fail. A recession has many consequences: high unemployment, increased business failures, overall drop in living standards.
Depression - Severe recession normally accompanied by deflation (very rare)
Recovery - When the economy stabilizes and starts to grow eventually leading to a boom and starting the cycle once more
How Government Affects Business:
Crown corporations - Owned and run by the federal or provincial government (Air Canada, Canadian National Railway, Bank of Canada)
They provide special services private companies are not allowed to (Bank of Canada) and fund areas that require too much risk for people in the private sector to be in interested in (Air Canada, CNR)
Laws and Regulations
Taxation and Financial Policies (Monetary and Fiscal)
Government Expenditures
Purchasing policies - Since they are the largest spender in Canada, where the government spends it’s money has a vast impact on the businesses.
Services - A vast array of activities including helping companies go international, bringing companies to canada, training and retraining the workforce and providing a comprehensive statistics service through statistics canada
National policy - High tariffs on US imports to protect Canadian manufacturing which had higher costs
The power to make laws is based on the British North America Act, 1867 (BNA Act)
Created canadian confederation and sets legal ground rules for Canada
In 1982 it became part of the new Constitution and was renamed the Constitutional Act, 1867
Laws are derived from four sources: the Constitution, precedents established by judges, provincial and federal statutes, and federal and provincial administrative agencies.
Federal Government Responsibilities:
Trade regulations (interprovincial and international)
Incorporation of federal companies
Taxation (direct and indirect)
Banking and Monetary System
National defense
Unemployment
immigration criminal law fisheries Aeronautics
Railways
Telecommunications
Atomic Energy
Major Consumer Protection Laws:
Canadian Agricultural Products Standards Act - covers farm products such as meat, fish, poultry, eggs, maple syrup, honey and dairy products
Consumer Packaging and Labeling Act - applies to all products not specifically included in other acts
Food and Drugs Act - covers a whole range of regulations pertaining to quality, testing approval, packaging and labeling
Marketing boards - Organizations that control the supply or pricing of certain agricultural products in Canada
Provincial Government Responsibilities:
Regulation of provincial trade and commerce
Natural resources within their boundaries
Direct Taxation for prov. purposes
Incorporation of prov. companies
Licensing for revenue purposes
The Administration of Justice
Health and social services
Municipal affairs
Property law
Labour law
Education
The federal and provincial governments run their own student loan programs (RAP and OSAP)
Municipal Government Responsibilities:
Consumer protection
Zoning laws
Parking laws
Speed limits
Water
Sewage
Garbage disposal
Road & Sidewalk construction
Building codes
Parks, playgrounds and libraries
Taxes - How government redistributes wealth
Fiscal policy - Increasing or decreasing taxes or government spending
Deficit - Spent too much
Surplus - Having excess after covering expenses
National Debt - The accumulation of government surpluses and deficits over time
Federal budget - A comprehensive report that reveals government financial policies for the coming year
Financial aid:
Loans
Loan guarantees
Grants
Consulting advice
Information
Monetary policy - The management of money supply and interest rates
Subprime mortgage crisis
Low starting interest rates on bad credit (subprime) and rises as time passes causing people not to be able to afford their payments
Due to a decline in the housing market people couldn’t get enough from their houses to offset the balance of the loans either
Transfer payments - Direct payments from governments to other governments or to individuals (elderly benefits and employment insurance as social security and income support)
Equalization - Federal Gov’t program that provides payments to provinces to fund public services such as health care and post-secondary eduction
Foreign Affairs and International Trade Canada:
Assists in exporting goods
Assists in foreign investment activities
Federal, Provincial and large Municipal gov’ts offer various ministries, depts and agencies such as:
Information
Marketing
Financial aid
Insurance & Guarantees
Publications
Contracts
Industrial Policy - A comprehensive, coordinated government plan to guide and revitalize the economy
Ethics - Standards of moral behaviour
Is it illegal?
Is it balanced?
How will it make me feel about myself?
Compliance based ethics codes - Ethical standards that emphasize preventing unlawful behaviour by increasing control and penalizing wrongdoers
Integrity based ethics codes - Ethical standards that define the organizations guiding values, create an environment that supports ethically sound behaviour, and stress a shared accountability among employees
Six steps to improve business ethics:
Corporate code of conduct (from Top Management)
Employees must understand the importance of ethical behaviour
Managers and others must be trained to make ethical decisions
Ethics office should be set up for Whistleblowers*
Outsiders must be aware of the ethics program which pressures employees to abide
The ethics code must be enforced
*Whistleblower - People who report illegal or unethical behaviour
Sarbanes-Oxley Act of 2002 (SOX):
The SOX established stronger standards to prevent misconduct and improve corporate governance practices.
Applies to all publicly-traded companies under the U.S. S&E Comission
Goal to ensure accuracy & reliability of published financial information
Deals with admin routines, procedures and control activities
Protects whistleblowers
In response to SOX Canada launched a similar legislation.
Corporate Social Responsibility - A business’s concern for the welfare of society as a whole
Corporate philanthropy - Dimension of social responsibility that includes charitable donations
Corporate social initiatives - Using the company’s services to benefit others in need
Corporate responsibility - Everything from hiring minority workers to making safe products, minimizing pollution, using energy wisely, and providing a safe work environment. Every responsibility to employees and society
Corporate policy - Refers to the position a firm takes on social and political issues.
Corporate responsibility to stakeholders:
Strategic Approach - Requires managements primary orientation be toward the economic interests of shareholders.
Rationale: as owners, shareholders have the right to expect management to work in their best interest - to maximize profit
Pluralist Approach - Recognizes the special responsibility of management to optimize profits, but not at the expense of employees, suppliers, and members of the community. This approach recognizes moral responsibilities. Managers do not have moral immunity when making decisions.
Responsibility to customers - Offer goods and service with a good value to customers
Responsibility to Investors - Making money and doing it morally
Responsibility to Society - Create safe products, cleaning up the environment, designing more honest advertising, treating women and minority fairly
Responsibility to the Environment - Efforts to reduce footprint on the environment and make processes more efficient and “green”
Social Auditing - Systematic evaluation of an organizations progress toward implementing programs that are socially responsible and responsive. It commonly refers to workplace issues, the environment, product safety, community relations, and respecting the rights of local people in order to grasp the progress of a company’s social efforts
Triple Bottom Line (TBL, 3BL or People, Planet, Profit) - Framework for measuring corporate performance against economic, social and environmental parameters
Socially Responsible Business Activities:
Community involvement (fundraising, donating employee time to NPOs, participating in urban planning and development)
Employee-related activities (flextime & other benegits, job enrichment, job safety, employee development programs)
Political activities (taking position on legislature) on all levels
Support for higher education, the arts and other NPSA’s
Consumer activities (truthful ads, safe products, rectifying claims, setting fair prices
Types of Watchdogs:
Socially concerned investors:
Insist that a company extend its own high standards to all its suppliers
Socially Responsible Investing (SRI) is highly subjective, values for each are different
Ethics are different for each
Environmentalists:
Name companies who don’t abide by environmental standards
Union officials:
Find violations
Pursue companies to rectify them in order to avoid negative publicity
Customers:
Take their business elsewhere if a company is socially or ethically irresponsible
Sustainable development - implementing a process that integrates environmental, economic, and social considerations into decision making.
Chap 5
Sole Proprietorship:
Pros
Ease of starting and ending
Being your own boss
Pride of ownership
Retention of company profit
No special taxes
Less regulations
Cons
Unlimited liability (all debts)
Limited financial resources
Management difficulties
Overwhelming time commitment
Few fringe benefits (you pay them for others)
Limited lifespan (if owner is sick, dies, etc)
Possibly pay higher taxes (grossing over $400,000 per year)
Partnerships:
Pros
More financial resources
Shared management
Pooled/Complimentary knowledge and skills
Longer survival
Shared risk
No special taxes (all taxed as income)
Less regulation
Cons
Unlimited liability
Division of profits
Disagreements
Difficult to terminate
Possibly pay higher taxes ($400,000 up)
General Partner - Assumes unlimited liability & is active in the company
Limited Partner - Invests but only assumes limited liability; not active in the company
Corporations:
Pros
Limited liability
More money for investment (stocks)
Size (one area doesn’t necessarily effect the other)
Perpetual life (it’s a separate legal entity)
Ease of ownership change (sell your stock)
Ease of drawing talented employees (through benefits, including stock options)
Separation of ownership from management
Cons
Extensive paperwork (watched more carefully)
Double taxation (corporation is taxed for income, then stockholders are taxed on payouts)
Two tax returns (corporate and personal - may require an accountant)
Size (inflexibility, takes time to respond to market changes)
Conflicts with stockholders and board of directors
Initial cost (thousands to incorporate, plus fees for lawyers and accountants
Public Corporation - Has the right to issue shares to the public, shares may be listed on a stock exchange
Private Corporation - Is not allowed to issue stock to the public, stock is not listed on any exchanges; limited to 50 shareholders
Professional corporation - Smaller corps that are governed in their province for certain standards
Non-Resident corporation - Conducts business in a country while their headquarters is elsewhere
Non-Profit Corporations - Formed for charitable or socially beneficial purposes. Pays no income taxes and does not issue shares. Some properties may be tax exempt
Corporate governance - The process and policies that determine how a business interacts with its stakeholders both internal and external
Board of Directors - Management of a corp, separate from owners (stockholders), makes decisions based on interest of stakeholders
Articles of incorporation - Legal authorization from the fed/prov govt to allow your company to run in a corp format
Mergers
Merger - The result of two firms forming one company
Acquisition - When one company buys (acquires) another
Vertical merger - Joining of two companies in different stages of related business
Example: Soda (beverage) and sweetener (artificial flavouring)
Horizontal merger - Joining of two firms in the same industry
Example: Soda (beverage) and a mineral water company (beverage)
Conglomerate merger - Joining of firms in completely unrelated industries
Example: Soft drink company (beverages) and snack food company (processed foods)
Leveraged buyout - An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing
Franchising:
Pros
Management and marketing assistance (proven concept + mentoring)
Personal ownership (sole proprietorship with more help and rules)
Nationally recognized name (buying the brand)
Financial advice and assistance
Lower failure rate
Cons
Large start-up cost (franchise license fee + investment fee)
Shared profit (royalties)
Management regulation (may not like the rules and policies)
Coattail effects (different owners, looked at as one brand)
Restrictions on selling (franchisors must approve the new owner)
Fraudulent franchisors
Franchise - The right to use a specific business’s name and sell its goods or services in a given territory
Franchisee - A person who buys a franchise
Franchisor - The company that develops the products being franchised
Franchise Agreement - An agreement allowing the use of the brand and goods/services in a given territory
Home-Based Franchises - Head office with all the equipment, just work hard from home with the tools provided (usually on the phone or computer)
E-commerce in Franchising - PropertyGuys.com example
Success franchising in International markets depends on visibility, reliability, level of service and consistency
Franchises differ from chain stores in that they are all owned separately
Co-Operatives:
Co-Operative - An organization that is owned by members and customers, who pay an annual membership fee and share in any profits
Different from other businesses in several ways:
Different purpose - The primary purpose is to meet the common needs of their members
Different control structure - Votes per person not per share (helps avoid COInterest)
Different allocation of profit - Shares profits on the basis of how much they use the co op. Profits tend to be invested in improving services for members.
Profits distributed by a reduction in membership fees
Chap 6
Entrepreneurship - Accepting the challenge of starting and running a business
Difference from a small business owner:
Amount of Wealth Creation
Investment instead employment (income stream)
Substantial wealth creation (millions)
Speed of Wealth Creation
Rapid compared to small businesses (where the money is)
Large amounts of money in short spans ($1,000,000 in 5 years)
Risk
High risk (not always proven concepts)
Innovation
Substantial innovation (new ideas, rather than building on a foundation)
Innovation gives the competitive advantage that creates wealth
New products, new production methods, new markets, and new forms of organization
Why people take the entrepreneurial challenge:
New idea, process, or product
Make new products
Make current products better
Make current processes more efficient
Strong belief in being able to make everything better
Independence Entrepreneurs don’t normally like to work for people
Freedom
Entrepreneurs get satisfaction out of what they achieve
Challenge
Entrepreneurs like to be challenged
Excited by challenge
Thrive on overcoming challenges
Family Pattern
Many entrepreneurs grew up in households with a family business
May continue or extend the business
Interested in starting their own ventures
Profit
Monetary rewards for effort
Can make money doing things you like
Immigrants
Sometimes have a lack of eduction or language skills and no canadian job experience
If they can get the capital they can start their own business
Often have drive and desire to succeed
What does it take to be an entrepreneur?
Self-directed
Self starter (initiative)
Confident
Self disciplined even though you are your own boss
“A lack of confidence is going to create a lack of performance” - Rebecca MacDonald
Determined
Must be driven
Have to believe in your idea
Be able to replenish your own enthusiasm
Be able to keep going when others would give up
Action Oriented:
Walk the talk
Put ideas into actions
Realize, Actualize and Build Your Dream
Highly Energetic
Must be able to work emotionally, physically and mentally long and hard
Enthusiasm intrigues others
Tolerant of Uncertainty
Successful entrepreneurs only take calculated risks (if they can help it)
Must be able to make risky decisions on a day-to-day basis (minor and major)
Not for the squeamish or those bent on security
Able to Learn Quickly
Learn from your mistakes
Adapt to change
Own up to their mistakes (put their pride aside)
Women Entrepreneurs:
Financial Need
Neccessity
Lack of Promotion Opportunities
Most higher management positions are still dominated by men
Family and Personal Responsibility
Financial need for single mothers or low income families to take care of children
Improvements in technology have made it easy to start home-based businesses
Public Awareness of Women in Business
Publicly highlighting achievements of women entrepreneurs gives others confidence
Often two or more women will pair up
Part-time occupations
Many women put their talents to good use in a part-time job
Success in their part-time jobs can lead to a promising career
Higher rate of success for women
Feel less pressure than men for quick results
More cautious (make fewer mistakes)
Accept advice more willingly than men
Entrepreneurial Team - Group of experience 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
Micro-Enterprise - A small business defined as having fewer than 5 employees
Micropreneurs - Small business owners with fewer than five employees who are willing to accept the risk of starting and managing the type of business that remains small, lets them do the kind of work they to do, and offers them a balanced lifestyle
Reasons for the growth of home based businesses
Computer Technology
Gives home-based companies as much reach as large corporations
Technology has become cheaper
Allows businesses to be created with a much smaller investment
Corporate Downsizing
No job security
People lose their jobs and cannot find another one
Change in Social Attitudes
Has become more acceptable
Was not referred to as a “real job”
Challenges of running a home based business
Getting New Customers
No storefront or signs
Done over word of mouth, telemarketing or gaining a presence on the Web
Managing Time
Must be able to use time wisely
Time is saved by eliminating the commute
You can work whenever you want to (job permitting)
Keeping Work and Family Tasks Separate
It is hard not to get sidetracked
Doing the laundry, dishes, etc. should be for after hours only
Getting away from your work when your office is at home can be difficult
Abiding by City Ordinances
Type of business allowed in the area
How much traffic it is allowed to drive to the area
Managing Risk
Homeowners policies do not cover the business even if it is at home
Some policies void coverage if there is a business in the home
May want to reconsider your insurance
Intrapreneurs - Creative people who work as entrepreneurs within corporations (adding to the company)
How government encourages entrepreneurship:
Aboriginal Business Service Network (ABSN)
Incubators - Centres that provide hands-on management assistance, education, information, technical and vital business support services, financial advice, as well as advice on where to go to seek financial assistance
Starting a Small Business
Business establishment - Has at least one paid employee, annual sales revenue of 30k or more, or is incorporated and has filed a federal corporate income tax return at least once in the past three years
Employer business - Meets one of the business establishment criteria and usually maintains a payroll of at least one person, possibly the owner
Small business - A business that is independently owned and operated, is not dominant in its field, and meets certain standards of size in terms of employees or annual revenues
Importance of small businesses
Most large businesses are foreign-owned, most small companies are Canadian
Helps maintain economic independance
On average, 130,000 new small businesses are created in canada each year
Small businesses employ approximately 5 million individuals in Canada, or 48% of the private labour force
Small businesses account for almost 98% of all employer businesses
Businesses with >50 employees contributed about 26% to Canada’s GDP
Approximately 15% of all employed workers in the economy were self employed
1/4 of small businesses list “lack of qualified workers” as one of their biggest obstacles to growth
Owners of small businesses report that their advantages over large companies are more personal customer support and their ability to respond quickly to opportunities
Big businesses are the boulders to fill a big hole, small businesses is the sand to fill the gap (niche markets)
Wide Diversification:
Service Businesses
Many labour based
Travel Agencies, hotels and motels, amusement parks, income tax prep org, employment agencies
Growth in computer consulting
Growth in the knowledge-based industries
Retail Businesses
Businesses selling products from many suppliers in one location
Food stands (bubble tea, flavoured popcorn, cafés)
Construction Firms
Supervises construction workers
Bridges, roads, homes, schools, buildings and dams all apply
Wholesalers
Sell items in bulk at a discount
Make more money
Have more free time
Travel more
Find their work much more enjoyable than retail workers
Manufacturing
Make the most money among small business owners
Cause of Small-Business Failure
Plunging in without first testing the waters on a small scale
Underpricing or over pricing goods or services
Underestimating how much time it will take to build a market
Starting with too little capital
Starting with too much capital and being careless in it’s use
Going into business with little or no experience and without first learning something about the industry or market
Borrowing money without planning just how and when to pay it back
Attempting to do too much business with too little capital
Not allowing for setbacks and unexpected expenses
Buying too much on credit
Extending credit too freely
Expanding credit too rapidly
Failing to keep complete, accurate records so that the owners drift into trouble without realizing it
Carrying habits of personal extravangence into the business
Not understanding business cycles
Forgetting about taxes, insurance, and other cost of doing business
Mistaking the freedom of being in business for oneself for the liberty to work or not, according to whim
Situations for small business success
When the customer needs special attention (hair salon)
The product is not easily made by mass producers (custom tailored clothes)
Sales are not large enough to appeal to a large firm (novelty shop)
Franchises
The owner pays attention to competition
Is in a growing industry
Chapter 7:
What are the reasons for changes in management?
How are managers roles changing?
What are the four primary function of management?
Planning
Anticipating trends
Determining the best strats and tactics for organizational goals and objectives
Other management functions depend heavily on a good plan
Main aim is to please customers
Organizing
Designing the structure of an organization
Creating conditions and systems in which everyone and everything work together to achieve the organizations goals and objective
Allocating resources, assigning tasks
Showing lines of authority
Recruiting, selecting and training employees
Placing employees where they’ll be most effective
Leading
Creating a vision for the organizing
Guiding
Training
Coaching
Motivating others to work effectively
There is a direct relationship between motivation and output
Controlling
Establishes clear standards to determine whether an organization is progressing
Rewards people for doing a good job
Taking corrective action if they are not
Basically measuring whether or not what actually occurs meets the organizations goals
What are the four types of planning?
Strategic (long term)
Outlines how the company will meet its objectives and goals
Provides foundation for the policy, procedures, and strategies for obtaining and using resources to achieve those goals
Tactical (short term)
Process of developing detailed, short term statements about what is to be done
Who is to do it
How it is do be done
Planning for lower levels (actions plans)
Operational
Work standards and schedules
Specific responsibilities
Operational budgets
Contingency
Back up plan
Made in case primary plans fail or do not work as expected
Example: If a company doesn’t meet it’s quota for sales in a certain period, they may slash prices to drive sales or increase advertising initiatives
What are the steps involved in decision making?
Define the situation
Describe and collect needed information
Develop alternatives
Develop agreement among those involved
Decide which alternative is best
Do what is indicated (begin implementation)
Determine whether the decision was a good one and follow up
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Chapter 8:
Importance of Global Trade
No country is self sufficient
Other countries need products that prosperous countries produce
Natural resources & Technological Skills are not distributed evenly around the world
Importance of Importing & Exporting + terms
Without importing items we would only have products made within our country
Most countries do not have enough resources to sustain themselves or grow rapidly
Importing lets us gain access to products and technology never seen before
Exporting is one of Canada’s main cash cows
Exporting lets us bring more money into our economy from another economy
Exporting lets us have a much larger market to target
Exporting can mean goods or services; same with importing
Balance of Trade - Relationship of exports to imports
Balance of Payments - Balance of trade + other money flows such as tourism and foreign aid
Comparative Advantage Theory - A country should produce those things it can do most efficiently but buy things that they cannot produce as efficiently
Absolute Advantage - A country that can produce something more efficiently and at a lower cost than another country. (Copper in Zambia)
Different strategies
• Exporting
Licensing (including franchising)
Contract manufacturing
Joint ventures
Strategic alliances
Direct Foreign Investment
Role of multinational corporations on the economy
• Creates jobs
Stimulates the economy
Not only do multinational corporations sell their products to a country but they also have manufacturing facilities or other physical presence in the country.
Forces that affect trade
Sociocultural forces (religion, social stigma, culture, etc)
Economic (amount of disposable income, wealth of the country, willingness to spend $)
Legal & Regulatory (bribery is illegal in some places and the only way to do business in others)
Technological forces (Internet availability)
Dis/Adv of trade protectionism
Advantages
Promotes buying domestically
Helps domestic companies grow
Ensures money is being kept in our economy
Disadvantages:
Impedes trading in the global market
Increases price to both suppliers and consumers
Trade protectionism - Use of government regulations to limit the importation of goods and services
Dumping - The act of selling a product for a lower cost in a foreign market than in the country it was produced
Believers say it allows domestic producers to surve and grow, producing more jobs.
Those against it argue it only impedes global trade, but that it also adds millions of dollars to the price of products, costing consumers billions of dollars
Define tariff and non tariff barriers
Protective Tariffs - Used to raise the price of foreign products
Revenue Tariffs - Used to raise money for the government
Non-Tariff Barriers - Barriers that include safety, health, and labeling standards
Tariffs - A tax imposed on imports
Organizations that try to eliminate trade barriers & facilitate trade among other countries
WTO replaced GATT (General Agreements on Tariffs and Trade) to mediate disputes
IMF (International Monetary Fund) to offer short-term loans to countries
World Bank (Robin Hood bank)
Examples of common markets
Canada and US
Common Market - A regional group of countries that have a common external tariff, no internal tariff and a coordination of laws to facilitate exchange (US & Canada NAFTA)
Changing landscape of the global market
From US to China, India and Russia
Outsourcing - Purchasing goods and services from another country instead of from inside the firm (call centers, IT dept, web hosting)
Chapter 9
Define Operations Management and what types of firms use it
Operation Management - A specialized area in management that converts or transforms resources (including human resources) into goods or services
Firms in both manufacturing and services industries use it
Describe the Planning Issues involved in the Service & Manufacturing Industries
Picking a good geographical location is key to being successful due to specific needs of each business and general needs of all businesses. Energy, water, labour and capital must all be readily available and transportation must be cheap.
Functions
Facility Location
Physical place of the facility
Best geographical location (china for manufacturing due to labour wages)
Main factors:
Labour costs
Land costs
Amount of resources and cost
Availability of skilled or adaptable workers
Low taxes & local government support
Energy and water are available
Low cost of transportation
High quality of life and education are high
Facility Layout
Physical arrangement of resources for optimum efficiency
Placement of people
Arrangement of machinery, tools, etc
Quality Control
Six Sigma quality control (3.4 defects per million) detects problems before they occur
Statistical Quality Control monitors production to ensure quality from the beginning
Statistical Process Control picks random samples from different stages and compares variances in quality
What quality standards do firm use in Canada?
ISO 9004:2000 (ISO9000) - European standard for quality
ISO14000 - Collection of the best practices for managing an organizations impact on the environment
Discuss the problems in measuring productivity in the service sector & how technology is helping us
Why is it hard to measure?
Traditional method is productivity (worker hours) to outputs (dollars). Quality improvements are not weighed.
A new system must be made to track the quality of goods and services, the speed of their delivery, and customer satisfaction
How is technology creating productivity gains?
Computers allow tasks to be done quicker and more accurately
ATMs make banking faster and easier
Automated check-outs reduce traffic to clerks and lets them process items more efficiently
Explain how manufacturing processes can be used in the manufacturing sector
What is process manufacturing, and how does it differ from assembly processes?
Process manufacturing physically or chemically changes materials (sand into glass)
Assembly processes puts components together (frame, engine, chassis of a car)
Are there other production processes?
Continuous - Long production runs turn out finished goods over time
Intermittent - Short production runs, machines are changed frequently
Describe seven manufacturing techniques that have improved the productivity of companies (make them more profitable)
Materials Requirement Planning
Just-in-Time Inventory Control
When manufacturers have their parts and materials delivered just in time to on the assembly line
Purchasing
How have purchasing agreements changed?
• Less suppliers with more quality goods
One supplier gets all related business and in turn offers services at a discount
Many internet companies have started to make the exchange easier
Manufacturers need to be more well rounded
Flexible Manufacturing
Designing machines that can make a variety of products
Lean Manufacturing
The production of goods using less of everything than mass production
Less human effort, less space, less investment in tools, less time to develop a new product
Mass Customization
Making custom-designed products for a large number of individual customers
Flexible Man makes this type possible
Customized goods can be made as fast as mass produced goods used to be made
Computer Aided Design and Manufacturing (CAD/CAM)
CAD lets users design a product in 3D views down to the last detail
CAM takes the tweaks from CAD and incorporates it into the manufacturing process
What relationship does Enterprise Resource Planning have with the production process
ERP is a software that allows multiple firms to manage all of their operations (finance, requirements planning, human resources, and order fulfillment) on the basis of a single, integrated set of corporate data.
Shorter time between orders and payments
Less staff needed
Reduced inventories
Better customer service
Lessens the chance of human error
Chapter 10
Describe the importance of the financial services industry to Canada
Why is it important?
Employs more than 1 million Canadians
Represents 5% of Canada’s GDP
More than $9 billion in tax revenues is generated
Nearly $50 billion of services are exported annually
One of the most regulated sectors in the country due to the importance
Regulation to ensure integrity, safety, and soundness of financial institutions
Explain what money is and how it’s value is determined
Money is currency, or, anything that people will generally accept as payment for goods and services
How is the value of money determined?
It is determined on the money supply (how much money there is to buy goods and services)
Too much money in circulation causes inflation but too little causes deflation, recession and unemployment
Discuss the roles banks have in providing services
Who benefits from their services?
Almost everyone
What are the key criteria when selecting investment options?
Investment Risk
The chance your investment may be worth less in the future than it is now
Yield
Expected rate of return on an investment over a period of time
Duration
The length of time your money is committed to the investment
Liquidity
How quickly you can get your money out if you need it
Tax consequences
How the investment will affect your tax situation
Chapter 11
Describe the importance of finance and financial management to an organization, and explain the responsibilities of financial managers
Finance - Comprises those functions in a business responsible for acquiring funds for the firm, managing funds with the firm and planning for the expenditure of various funds on various assets
What are the most common ways in which firms fail financially?
Undercapitalization
Poor control over cash flow
Inadequate expense control
What do financial managers do?
Plan
Budget
Control funds
Obtain funds
Collect funds
Audit
Manage taxes
Advise top management on financial matters
Outline the financial planning process and explain the three key budgets in the financial plan
What are the three budgets of finance?
Operating (master) Budget - summarizes the two other budgets
Projects dollar allocations to various costs and expenses given various revenues
Capital Budget
Spending plan for expensive assets
Properties
Plants
Equipment
Cash Budget
Projected cash inflows and outflows for a period
Projected balance at the end of a given period
Explain the major reasons why firms need operating funds, abd identify various types of financing that can be used to obtain these funds
What are the major financial needs for firms?
Managing day-to-day needs of the business
Controlling credit operations
Acquiring needed inventory
Making capital expenditures
What’s the difference between short and long term financing?
Short term - Repaid in less than one year
Long term - Repaid in a specific period of over one year (mortgage)
What’s the difference between debt financing and mortgage financing?
Debt financing - Going into debt
Equity financing - Obtaining funds from within the firm (selling stocks, retained earnings, etc)
Identify and describe different sources of short-term financing
Sources
Trade credit
Promissory notes
Family and friends commercial banks
Factoring
Commercial paper
Why should businesses use trade credit?
It is the least expensive and most convenient form (buy goods today, pay later)
What’s a line of credit?
An agreement made by the bank to lend up to a specific amount to a business at any time as long as certain conditions are met.
A revolving credit agreement means a loan will always be available - for a fee
What’s the difference between a secure loan and an unsecured loan?
Secured - Has collateral
Unsecured - No collateral
Is factoring a form of secured loan?
No, it means selling accounts receivables (payments to be made to your company) at a discounted rate to a factor (intermediary who will pay cash for those accounts)
What’s commercial paper?
A corporation’s unsecured promissory note (written agreement to pay) of $100,000 and up maturing in 365 days
Appendix B
Speculative risk - a risk that involves the chance of profit or loss
Pure risk - the threat of loss with no chance for profit (fire, accident, loss), if they occur the company loses profit but if they don’t the company gains nothing
Uninsurable risk - Risks that no insurance company will cover such as market changes (a new style makes your product obsolete, price changes induce losses), political risk (losses from war or government restriction on trade), some personal risk (losing your job), and some risks of operation (strikes)
Insurable risk - The type most insurance companies will cover.
Insurable interest - The policy holder is the one at risk of loss
Guidelines
Must have insurable interest
The loss should be measurable
The chance of loss should be measurable
The loss should be accidental
The risk should be dispersed
The insurance company can set standards for accepting the risk
Insurance policy- A written contract between the insured and an insurance company that promises to pay for all or part of a loss
Premium - The fee charged by an insurance company for an insurance policy
Law of large numbers - Principle that if a large number of people are exposed to the same risk, a predictable number of losses will occur during a given period of time
Rule of Indemnity - Rule of saying that an insured person or organization cannot collect more than the actual loss from an insurable risk
Stock Insurance Company - A type of insurance company owned by stockholders (for a profit)
Mutual insurance company - Owned by it’s policyholders and any excess funds go to reducing premiums or dividends for it’s policyholders
Health, Disability, Workplace Safety and Liability insurance are all available
Business: an activity that seeks to provide goods and services to others while operating at a profit
Profit: The amount of money a business earns in revenue beyond expenses
Entrepreneur: a person who risks time and money to start and manage a business
Canada moving towards a service built economy instead of manufacturing
Stakeholders: Anyone with a vested interest in the company
Those who lose or gain:
Customers
Employees
Financial institutions (banks, credit unions)
Investors (stockholders)
Environmentalists
Governments
Suppliers
Dealers (retailers)
Offshoring: Sourcing part of the purchased inputs outside of the country
Outsourcing: Assigning various functions, such as accounting, production, security, maintenance, and legal work to outside organizations
Five factors of production:
Land
Labour
Capital
Entrepreneurship
Knowledge
Week 2: Basic_Ch02
Word of the week: Analyze (definition, what does it really mean, how to use it)
Strategic Alliance: A relationship where both parties gain benefits from creating or fortifying a relationship
Outsourcing can be beneficial to the company and country but quality control is an issue for fields such as pharmaceuticals.
Macroeconomics: Country’s economics
Microeconomics: Looks at behaviour of people and organizations in a certain market
Entrepreneurs: Make a lot of money fast (takes off) if it doesn’t work they move on
Stakeholders: All the people that stand to lose or gain from a companies policies or activities
Offshoring: Sourcing part of the purchased inputs outside of the country (product)
Outsourcing: contracting with other companies to do some or all of the functions of a firm such as production or accounting. (service)
Factors of Production: Resources used to create wealth
Land (or natural resources)
Labour (workers)
Capital Goods (Machines, tools, buildings, other production materials. Not money)
Entrepreneurship
Knowledge
Business Environment: The surrounding factors that either help or hinder the development of business.
The legal and regulatory environment
Tax laws
Contract laws
Elimination of curruption
The economic environment
Income and exenditures
Currency shifts
Economic systems
The technological environment
Information and technology
Databases
The Internet
The competitive environment
-Components of competition
Customer driven
Organization structure
The social environment
- Diversity
Demographic changes
Family changes
The global environment
Encompasses all these characteristics
Around the world
Goods: Tangible products such as computers, food, clothing, cars, and appliances.
Services: Intangible products (i.e products that can’t be held in your hand) such as education, health care, insurance, recreation, and travel and tourism.
Economics:
The study of how society chooses to employ resources to produce goods and services and distribute them for consumption among carious competing groups and individuals.
Macroeconomics: The part of economic study that looks at the operation of a nation’s economy as a whole
Microeconomics: The part of economic, study that looks at the behaviour of people and organizations in particular markets.
Invisible hand: A phrase coined by Adam smith to decscribe the process that turn self-directed gain into social and economic benefits for all.
Capitalism: An economic system in which all or most of the factors of production and distribution are privately owned and operated for profit
Supply: The 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.
Market price: The price determined by supply and demand
Perfect competition: The market situation in which there are many sellers in a large market and no seller is large enough to dictate the price of a product
Monopolistic competition: The market situation in which a large nnumber of sellers produce products that are very similar but that are perceived by buyers as different.
Oligopoly: A form of competition in which just a few sellers dominate the market.
Monopoly: A market in which there is only one seller for a product or service
Free market: Allows open competition among companies. Business must provide good value or they will not make money
Socialism: An economic system based on the premise that some, if not most, basic businesses should be owned by the government so that profits can be evenly distributed among the people. (more even distribution of wealth but less chance to go above and beyond the average worker)
Communism: An economic and political system in which the state makes almost all economic decisions and owns almost all of the major factors of production.
Equilibrium point: Where supply and demand curves meet on the graph
Free-market economies exist when the market largely determines what goods and services are produced, who gets them, and how the economy will grow. Capitalism is the popular term used to describe this system
Command economies: Exist when the government largely decides what goods and services are prodced, who gets them, and how the economy will grow. Socialism and communism are the popular terms to describe this variation.
Mixed economies: exist where some allocation of resources is made by the market and some is made by the government. Most countries don’t have a name for this system. It is the most commonly used system around the world now
Canada’s Mixed Economy:
One of the largest countries (geographically) with one of the lowest population densities.
One of the largest economies in the world resides just south of us, not only do they speak the same language as us but they are most powerful country in the world.
USA is Canada’s largest trading partner.
Government still owns banks, insurance companies, radio stations and TV channels.
Canada’s government is largely involved in ventures that no other entrepreneur wants to take on or has the capital to do. These include things such as the CPR and Air Canada (Trans Canada Airlines) as well as mail
In the 1990’s canada began privatization (taking control of businesses away from the government by selling them off)
Key economic indicators:
GDP - the total value of final goods and services produced in a country in a given year
The unemployment rate - The percentage of the work force that is *actively* seeking work but cannot find any
Frictional unemployment: Quit because they didn’t like the job, also refers to people newly entering the labour force or returning from an extended period of absence.
Structural unemployment: Refers to unemployment caused by the restructuring of firms (downsizing) or a mismatch of skill sets
Cyclical unemployment: Due to recession (business cycle [up and down])
Seasonal unemployment: occurs when demand for labour varies over the year (farming, agriculture, etc)
The price indexes
Standard of living - The amount of goods and services one can buy with a given amount of money
Quality of life - The general well0being of a society in terms of political freedom, a clean natural environment, education, health care, safety, free time and everything else that leads to satisfaction and joy
Productivity is measure by:
Total output of goods and services in a given period Total hours worked
An increase of productivity means more work can be done in less time.
Higher productivity generally equals lower price
Inflation: rise in price of goods or services over time
Disinflation: When price increases are slowing (inflation rate is declining)
Deflation: When prices decline
Stagflation: When the economy is declining but prices go up nonetheless
Consumer Price Index (CPI): Monthly statistic that measures the pace of inflation or deflation (done using a “basket” of 600 common household expenses)
Business cycles (economic cycles): Periodic rises and falls that occur within an economy over time (measured using GDP)
Economic boom - Period of a lot of jobs, growth, and economic prosperity
Recession - Two or more consecutive quarters of decline in the GDP. In a recession prices fall, people buy less and businesses fail. A recession has many consequences: high unemployment, increased business failures, overall drop in living standards.
Depression - Severe recession normally accompanied by deflation (very rare)
Recovery - When the economy stabilizes and starts to grow eventually leading to a boom and starting the cycle once more
How Government Affects Business:
Crown corporations - Owned and run by the federal or provincial government (Air Canada, Canadian National Railway, Bank of Canada)
They provide special services private companies are not allowed to (Bank of Canada) and fund areas that require too much risk for people in the private sector to be in interested in (Air Canada, CNR)
Laws and Regulations
Taxation and Financial Policies (Monetary and Fiscal)
Government Expenditures
Purchasing policies - Since they are the largest spender in Canada, where the government spends it’s money has a vast impact on the businesses.
Services - A vast array of activities including helping companies go international, bringing companies to canada, training and retraining the workforce and providing a comprehensive statistics service through statistics canada
National policy - High tariffs on US imports to protect Canadian manufacturing which had higher costs
The power to make laws is based on the British North America Act, 1867 (BNA Act)
Created canadian confederation and sets legal ground rules for Canada
In 1982 it became part of the new Constitution and was renamed the Constitutional Act, 1867
Laws are derived from four sources: the Constitution, precedents established by judges, provincial and federal statutes, and federal and provincial administrative agencies.
Federal Government Responsibilities:
Trade regulations (interprovincial and international)
Incorporation of federal companies
Taxation (direct and indirect)
Banking and Monetary System
National defense
Unemployment
immigration criminal law fisheries Aeronautics
Railways
Telecommunications
Atomic Energy
Major Consumer Protection Laws:
Canadian Agricultural Products Standards Act - covers farm products such as meat, fish, poultry, eggs, maple syrup, honey and dairy products
Consumer Packaging and Labeling Act - applies to all products not specifically included in other acts
Food and Drugs Act - covers a whole range of regulations pertaining to quality, testing approval, packaging and labeling
Marketing boards - Organizations that control the supply or pricing of certain agricultural products in Canada
Provincial Government Responsibilities:
Regulation of provincial trade and commerce
Natural resources within their boundaries
Direct Taxation for prov. purposes
Incorporation of prov. companies
Licensing for revenue purposes
The Administration of Justice
Health and social services
Municipal affairs
Property law
Labour law
Education
The federal and provincial governments run their own student loan programs (RAP and OSAP)
Municipal Government Responsibilities:
Consumer protection
Zoning laws
Parking laws
Speed limits
Water
Sewage
Garbage disposal
Road & Sidewalk construction
Building codes
Parks, playgrounds and libraries
Taxes - How government redistributes wealth
Fiscal policy - Increasing or decreasing taxes or government spending
Deficit - Spent too much
Surplus - Having excess after covering expenses
National Debt - The accumulation of government surpluses and deficits over time
Federal budget - A comprehensive report that reveals government financial policies for the coming year
Financial aid:
Loans
Loan guarantees
Grants
Consulting advice
Information
Monetary policy - The management of money supply and interest rates
Subprime mortgage crisis
Low starting interest rates on bad credit (subprime) and rises as time passes causing people not to be able to afford their payments
Due to a decline in the housing market people couldn’t get enough from their houses to offset the balance of the loans either
Transfer payments - Direct payments from governments to other governments or to individuals (elderly benefits and employment insurance as social security and income support)
Equalization - Federal Gov’t program that provides payments to provinces to fund public services such as health care and post-secondary eduction
Foreign Affairs and International Trade Canada:
Assists in exporting goods
Assists in foreign investment activities
Federal, Provincial and large Municipal gov’ts offer various ministries, depts and agencies such as:
Information
Marketing
Financial aid
Insurance & Guarantees
Publications
Contracts
Industrial Policy - A comprehensive, coordinated government plan to guide and revitalize the economy
Ethics - Standards of moral behaviour
Is it illegal?
Is it balanced?
How will it make me feel about myself?
Compliance based ethics codes - Ethical standards that emphasize preventing unlawful behaviour by increasing control and penalizing wrongdoers
Integrity based ethics codes - Ethical standards that define the organizations guiding values, create an environment that supports ethically sound behaviour, and stress a shared accountability among employees
Six steps to improve business ethics:
Corporate code of conduct (from Top Management)
Employees must understand the importance of ethical behaviour
Managers and others must be trained to make ethical decisions
Ethics office should be set up for Whistleblowers*
Outsiders must be aware of the ethics program which pressures employees to abide
The ethics code must be enforced
*Whistleblower - People who report illegal or unethical behaviour
Sarbanes-Oxley Act of 2002 (SOX):
The SOX established stronger standards to prevent misconduct and improve corporate governance practices.
Applies to all publicly-traded companies under the U.S. S&E Comission
Goal to ensure accuracy & reliability of published financial information
Deals with admin routines, procedures and control activities
Protects whistleblowers
In response to SOX Canada launched a similar legislation.
Corporate Social Responsibility - A business’s concern for the welfare of society as a whole
Corporate philanthropy - Dimension of social responsibility that includes charitable donations
Corporate social initiatives - Using the company’s services to benefit others in need
Corporate responsibility - Everything from hiring minority workers to making safe products, minimizing pollution, using energy wisely, and providing a safe work environment. Every responsibility to employees and society
Corporate policy - Refers to the position a firm takes on social and political issues.
Corporate responsibility to stakeholders:
Strategic Approach - Requires managements primary orientation be toward the economic interests of shareholders.
Rationale: as owners, shareholders have the right to expect management to work in their best interest - to maximize profit
Pluralist Approach - Recognizes the special responsibility of management to optimize profits, but not at the expense of employees, suppliers, and members of the community. This approach recognizes moral responsibilities. Managers do not have moral immunity when making decisions.
Responsibility to customers - Offer goods and service with a good value to customers
Responsibility to Investors - Making money and doing it morally
Responsibility to Society - Create safe products, cleaning up the environment, designing more honest advertising, treating women and minority fairly
Responsibility to the Environment - Efforts to reduce footprint on the environment and make processes more efficient and “green”
Social Auditing - Systematic evaluation of an organizations progress toward implementing programs that are socially responsible and responsive. It commonly refers to workplace issues, the environment, product safety, community relations, and respecting the rights of local people in order to grasp the progress of a company’s social efforts
Triple Bottom Line (TBL, 3BL or People, Planet, Profit) - Framework for measuring corporate performance against economic, social and environmental parameters
Socially Responsible Business Activities:
Community involvement (fundraising, donating employee time to NPOs, participating in urban planning and development)
Employee-related activities (flextime & other benegits, job enrichment, job safety, employee development programs)
Political activities (taking position on legislature) on all levels
Support for higher education, the arts and other NPSA’s
Consumer activities (truthful ads, safe products, rectifying claims, setting fair prices
Types of Watchdogs:
Socially concerned investors:
Insist that a company extend its own high standards to all its suppliers
Socially Responsible Investing (SRI) is highly subjective, values for each are different
Ethics are different for each
Environmentalists:
Name companies who don’t abide by environmental standards
Union officials:
Find violations
Pursue companies to rectify them in order to avoid negative publicity
Customers:
Take their business elsewhere if a company is socially or ethically irresponsible
Sustainable development - implementing a process that integrates environmental, economic, and social considerations into decision making.
Chap 5
Sole Proprietorship:
Pros
Ease of starting and ending
Being your own boss
Pride of ownership
Retention of company profit
No special taxes
Less regulations
Cons
Unlimited liability (all debts)
Limited financial resources
Management difficulties
Overwhelming time commitment
Few fringe benefits (you pay them for others)
Limited lifespan (if owner is sick, dies, etc)
Possibly pay higher taxes (grossing over $400,000 per year)
Partnerships:
Pros
More financial resources
Shared management
Pooled/Complimentary knowledge and skills
Longer survival
Shared risk
No special taxes (all taxed as income)
Less regulation
Cons
Unlimited liability
Division of profits
Disagreements
Difficult to terminate
Possibly pay higher taxes ($400,000 up)
General Partner - Assumes unlimited liability & is active in the company
Limited Partner - Invests but only assumes limited liability; not active in the company
Corporations:
Pros
Limited liability
More money for investment (stocks)
Size (one area doesn’t necessarily effect the other)
Perpetual life (it’s a separate legal entity)
Ease of ownership change (sell your stock)
Ease of drawing talented employees (through benefits, including stock options)
Separation of ownership from management
Cons
Extensive paperwork (watched more carefully)
Double taxation (corporation is taxed for income, then stockholders are taxed on payouts)
Two tax returns (corporate and personal - may require an accountant)
Size (inflexibility, takes time to respond to market changes)
Conflicts with stockholders and board of directors
Initial cost (thousands to incorporate, plus fees for lawyers and accountants
Public Corporation - Has the right to issue shares to the public, shares may be listed on a stock exchange
Private Corporation - Is not allowed to issue stock to the public, stock is not listed on any exchanges; limited to 50 shareholders
Professional corporation - Smaller corps that are governed in their province for certain standards
Non-Resident corporation - Conducts business in a country while their headquarters is elsewhere
Non-Profit Corporations - Formed for charitable or socially beneficial purposes. Pays no income taxes and does not issue shares. Some properties may be tax exempt
Corporate governance - The process and policies that determine how a business interacts with its stakeholders both internal and external
Board of Directors - Management of a corp, separate from owners (stockholders), makes decisions based on interest of stakeholders
Articles of incorporation - Legal authorization from the fed/prov govt to allow your company to run in a corp format
Mergers
Merger - The result of two firms forming one company
Acquisition - When one company buys (acquires) another
Vertical merger - Joining of two companies in different stages of related business
Example: Soda (beverage) and sweetener (artificial flavouring)
Horizontal merger - Joining of two firms in the same industry
Example: Soda (beverage) and a mineral water company (beverage)
Conglomerate merger - Joining of firms in completely unrelated industries
Example: Soft drink company (beverages) and snack food company (processed foods)
Leveraged buyout - An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing
Franchising:
Pros
Management and marketing assistance (proven concept + mentoring)
Personal ownership (sole proprietorship with more help and rules)
Nationally recognized name (buying the brand)
Financial advice and assistance
Lower failure rate
Cons
Large start-up cost (franchise license fee + investment fee)
Shared profit (royalties)
Management regulation (may not like the rules and policies)
Coattail effects (different owners, looked at as one brand)
Restrictions on selling (franchisors must approve the new owner)
Fraudulent franchisors
Franchise - The right to use a specific business’s name and sell its goods or services in a given territory
Franchisee - A person who buys a franchise
Franchisor - The company that develops the products being franchised
Franchise Agreement - An agreement allowing the use of the brand and goods/services in a given territory
Home-Based Franchises - Head office with all the equipment, just work hard from home with the tools provided (usually on the phone or computer)
E-commerce in Franchising - PropertyGuys.com example
Success franchising in International markets depends on visibility, reliability, level of service and consistency
Franchises differ from chain stores in that they are all owned separately
Co-Operatives:
Co-Operative - An organization that is owned by members and customers, who pay an annual membership fee and share in any profits
Different from other businesses in several ways:
Different purpose - The primary purpose is to meet the common needs of their members
Different control structure - Votes per person not per share (helps avoid COInterest)
Different allocation of profit - Shares profits on the basis of how much they use the co op. Profits tend to be invested in improving services for members.
Profits distributed by a reduction in membership fees
Chap 6
Entrepreneurship - Accepting the challenge of starting and running a business
Difference from a small business owner:
Amount of Wealth Creation
Investment instead employment (income stream)
Substantial wealth creation (millions)
Speed of Wealth Creation
Rapid compared to small businesses (where the money is)
Large amounts of money in short spans ($1,000,000 in 5 years)
Risk
High risk (not always proven concepts)
Innovation
Substantial innovation (new ideas, rather than building on a foundation)
Innovation gives the competitive advantage that creates wealth
New products, new production methods, new markets, and new forms of organization
Why people take the entrepreneurial challenge:
New idea, process, or product
Make new products
Make current products better
Make current processes more efficient
Strong belief in being able to make everything better
Independence Entrepreneurs don’t normally like to work for people
Freedom
Entrepreneurs get satisfaction out of what they achieve
Challenge
Entrepreneurs like to be challenged
Excited by challenge
Thrive on overcoming challenges
Family Pattern
Many entrepreneurs grew up in households with a family business
May continue or extend the business
Interested in starting their own ventures
Profit
Monetary rewards for effort
Can make money doing things you like
Immigrants
Sometimes have a lack of eduction or language skills and no canadian job experience
If they can get the capital they can start their own business
Often have drive and desire to succeed
What does it take to be an entrepreneur?
Self-directed
Self starter (initiative)
Confident
Self disciplined even though you are your own boss
“A lack of confidence is going to create a lack of performance” - Rebecca MacDonald
Determined
Must be driven
Have to believe in your idea
Be able to replenish your own enthusiasm
Be able to keep going when others would give up
Action Oriented:
Walk the talk
Put ideas into actions
Realize, Actualize and Build Your Dream
Highly Energetic
Must be able to work emotionally, physically and mentally long and hard
Enthusiasm intrigues others
Tolerant of Uncertainty
Successful entrepreneurs only take calculated risks (if they can help it)
Must be able to make risky decisions on a day-to-day basis (minor and major)
Not for the squeamish or those bent on security
Able to Learn Quickly
Learn from your mistakes
Adapt to change
Own up to their mistakes (put their pride aside)
Women Entrepreneurs:
Financial Need
Neccessity
Lack of Promotion Opportunities
Most higher management positions are still dominated by men
Family and Personal Responsibility
Financial need for single mothers or low income families to take care of children
Improvements in technology have made it easy to start home-based businesses
Public Awareness of Women in Business
Publicly highlighting achievements of women entrepreneurs gives others confidence
Often two or more women will pair up
Part-time occupations
Many women put their talents to good use in a part-time job
Success in their part-time jobs can lead to a promising career
Higher rate of success for women
Feel less pressure than men for quick results
More cautious (make fewer mistakes)
Accept advice more willingly than men
Entrepreneurial Team - Group of experience 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
Micro-Enterprise - A small business defined as having fewer than 5 employees
Micropreneurs - Small business owners with fewer than five employees who are willing to accept the risk of starting and managing the type of business that remains small, lets them do the kind of work they to do, and offers them a balanced lifestyle
Reasons for the growth of home based businesses
Computer Technology
Gives home-based companies as much reach as large corporations
Technology has become cheaper
Allows businesses to be created with a much smaller investment
Corporate Downsizing
No job security
People lose their jobs and cannot find another one
Change in Social Attitudes
Has become more acceptable
Was not referred to as a “real job”
Challenges of running a home based business
Getting New Customers
No storefront or signs
Done over word of mouth, telemarketing or gaining a presence on the Web
Managing Time
Must be able to use time wisely
Time is saved by eliminating the commute
You can work whenever you want to (job permitting)
Keeping Work and Family Tasks Separate
It is hard not to get sidetracked
Doing the laundry, dishes, etc. should be for after hours only
Getting away from your work when your office is at home can be difficult
Abiding by City Ordinances
Type of business allowed in the area
How much traffic it is allowed to drive to the area
Managing Risk
Homeowners policies do not cover the business even if it is at home
Some policies void coverage if there is a business in the home
May want to reconsider your insurance
Intrapreneurs - Creative people who work as entrepreneurs within corporations (adding to the company)
How government encourages entrepreneurship:
Aboriginal Business Service Network (ABSN)
Incubators - Centres that provide hands-on management assistance, education, information, technical and vital business support services, financial advice, as well as advice on where to go to seek financial assistance
Starting a Small Business
Business establishment - Has at least one paid employee, annual sales revenue of 30k or more, or is incorporated and has filed a federal corporate income tax return at least once in the past three years
Employer business - Meets one of the business establishment criteria and usually maintains a payroll of at least one person, possibly the owner
Small business - A business that is independently owned and operated, is not dominant in its field, and meets certain standards of size in terms of employees or annual revenues
Importance of small businesses
Most large businesses are foreign-owned, most small companies are Canadian
Helps maintain economic independance
On average, 130,000 new small businesses are created in canada each year
Small businesses employ approximately 5 million individuals in Canada, or 48% of the private labour force
Small businesses account for almost 98% of all employer businesses
Businesses with >50 employees contributed about 26% to Canada’s GDP
Approximately 15% of all employed workers in the economy were self employed
1/4 of small businesses list “lack of qualified workers” as one of their biggest obstacles to growth
Owners of small businesses report that their advantages over large companies are more personal customer support and their ability to respond quickly to opportunities
Big businesses are the boulders to fill a big hole, small businesses is the sand to fill the gap (niche markets)
Wide Diversification:
Service Businesses
Many labour based
Travel Agencies, hotels and motels, amusement parks, income tax prep org, employment agencies
Growth in computer consulting
Growth in the knowledge-based industries
Retail Businesses
Businesses selling products from many suppliers in one location
Food stands (bubble tea, flavoured popcorn, cafés)
Construction Firms
Supervises construction workers
Bridges, roads, homes, schools, buildings and dams all apply
Wholesalers
Sell items in bulk at a discount
Make more money
Have more free time
Travel more
Find their work much more enjoyable than retail workers
Manufacturing
Make the most money among small business owners
Cause of Small-Business Failure
Plunging in without first testing the waters on a small scale
Underpricing or over pricing goods or services
Underestimating how much time it will take to build a market
Starting with too little capital
Starting with too much capital and being careless in it’s use
Going into business with little or no experience and without first learning something about the industry or market
Borrowing money without planning just how and when to pay it back
Attempting to do too much business with too little capital
Not allowing for setbacks and unexpected expenses
Buying too much on credit
Extending credit too freely
Expanding credit too rapidly
Failing to keep complete, accurate records so that the owners drift into trouble without realizing it
Carrying habits of personal extravangence into the business
Not understanding business cycles
Forgetting about taxes, insurance, and other cost of doing business
Mistaking the freedom of being in business for oneself for the liberty to work or not, according to whim
Situations for small business success
When the customer needs special attention (hair salon)
The product is not easily made by mass producers (custom tailored clothes)
Sales are not large enough to appeal to a large firm (novelty shop)
Franchises
The owner pays attention to competition
Is in a growing industry
Chapter 7:
What are the reasons for changes in management?
How are managers roles changing?
What are the four primary function of management?
Planning
Anticipating trends
Determining the best strats and tactics for organizational goals and objectives
Other management functions depend heavily on a good plan
Main aim is to please customers
Organizing
Designing the structure of an organization
Creating conditions and systems in which everyone and everything work together to achieve the organizations goals and objective
Allocating resources, assigning tasks
Showing lines of authority
Recruiting, selecting and training employees
Placing employees where they’ll be most effective
Leading
Creating a vision for the organizing
Guiding
Training
Coaching
Motivating others to work effectively
There is a direct relationship between motivation and output
Controlling
Establishes clear standards to determine whether an organization is progressing
Rewards people for doing a good job
Taking corrective action if they are not
Basically measuring whether or not what actually occurs meets the organizations goals
What are the four types of planning?
Strategic (long term)
Outlines how the company will meet its objectives and goals
Provides foundation for the policy, procedures, and strategies for obtaining and using resources to achieve those goals
Tactical (short term)
Process of developing detailed, short term statements about what is to be done
Who is to do it
How it is do be done
Planning for lower levels (actions plans)
Operational
Work standards and schedules
Specific responsibilities
Operational budgets
Contingency
Back up plan
Made in case primary plans fail or do not work as expected
Example: If a company doesn’t meet it’s quota for sales in a certain period, they may slash prices to drive sales or increase advertising initiatives
What are the steps involved in decision making?
Define the situation
Describe and collect needed information
Develop alternatives
Develop agreement among those involved
Decide which alternative is best
Do what is indicated (begin implementation)
Determine whether the decision was a good one and follow up
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Chapter 8:
Importance of Global Trade
No country is self sufficient
Other countries need products that prosperous countries produce
Natural resources & Technological Skills are not distributed evenly around the world
Importance of Importing & Exporting + terms
Without importing items we would only have products made within our country
Most countries do not have enough resources to sustain themselves or grow rapidly
Importing lets us gain access to products and technology never seen before
Exporting is one of Canada’s main cash cows
Exporting lets us bring more money into our economy from another economy
Exporting lets us have a much larger market to target
Exporting can mean goods or services; same with importing
Balance of Trade - Relationship of exports to imports
Balance of Payments - Balance of trade + other money flows such as tourism and foreign aid
Comparative Advantage Theory - A country should produce those things it can do most efficiently but buy things that they cannot produce as efficiently
Absolute Advantage - A country that can produce something more efficiently and at a lower cost than another country. (Copper in Zambia)
Different strategies
• Exporting
Licensing (including franchising)
Contract manufacturing
Joint ventures
Strategic alliances
Direct Foreign Investment
Role of multinational corporations on the economy
• Creates jobs
Stimulates the economy
Not only do multinational corporations sell their products to a country but they also have manufacturing facilities or other physical presence in the country.
Forces that affect trade
Sociocultural forces (religion, social stigma, culture, etc)
Economic (amount of disposable income, wealth of the country, willingness to spend $)
Legal & Regulatory (bribery is illegal in some places and the only way to do business in others)
Technological forces (Internet availability)
Dis/Adv of trade protectionism
Advantages
Promotes buying domestically
Helps domestic companies grow
Ensures money is being kept in our economy
Disadvantages:
Impedes trading in the global market
Increases price to both suppliers and consumers
Trade protectionism - Use of government regulations to limit the importation of goods and services
Dumping - The act of selling a product for a lower cost in a foreign market than in the country it was produced
Believers say it allows domestic producers to surve and grow, producing more jobs.
Those against it argue it only impedes global trade, but that it also adds millions of dollars to the price of products, costing consumers billions of dollars
Define tariff and non tariff barriers
Protective Tariffs - Used to raise the price of foreign products
Revenue Tariffs - Used to raise money for the government
Non-Tariff Barriers - Barriers that include safety, health, and labeling standards
Tariffs - A tax imposed on imports
Organizations that try to eliminate trade barriers & facilitate trade among other countries
WTO replaced GATT (General Agreements on Tariffs and Trade) to mediate disputes
IMF (International Monetary Fund) to offer short-term loans to countries
World Bank (Robin Hood bank)
Examples of common markets
Canada and US
Common Market - A regional group of countries that have a common external tariff, no internal tariff and a coordination of laws to facilitate exchange (US & Canada NAFTA)
Changing landscape of the global market
From US to China, India and Russia
Outsourcing - Purchasing goods and services from another country instead of from inside the firm (call centers, IT dept, web hosting)
Chapter 9
Define Operations Management and what types of firms use it
Operation Management - A specialized area in management that converts or transforms resources (including human resources) into goods or services
Firms in both manufacturing and services industries use it
Describe the Planning Issues involved in the Service & Manufacturing Industries
Picking a good geographical location is key to being successful due to specific needs of each business and general needs of all businesses. Energy, water, labour and capital must all be readily available and transportation must be cheap.
Functions
Facility Location
Physical place of the facility
Best geographical location (china for manufacturing due to labour wages)
Main factors:
Labour costs
Land costs
Amount of resources and cost
Availability of skilled or adaptable workers
Low taxes & local government support
Energy and water are available
Low cost of transportation
High quality of life and education are high
Facility Layout
Physical arrangement of resources for optimum efficiency
Placement of people
Arrangement of machinery, tools, etc
Quality Control
Six Sigma quality control (3.4 defects per million) detects problems before they occur
Statistical Quality Control monitors production to ensure quality from the beginning
Statistical Process Control picks random samples from different stages and compares variances in quality
What quality standards do firm use in Canada?
ISO 9004:2000 (ISO9000) - European standard for quality
ISO14000 - Collection of the best practices for managing an organizations impact on the environment
Discuss the problems in measuring productivity in the service sector & how technology is helping us
Why is it hard to measure?
Traditional method is productivity (worker hours) to outputs (dollars). Quality improvements are not weighed.
A new system must be made to track the quality of goods and services, the speed of their delivery, and customer satisfaction
How is technology creating productivity gains?
Computers allow tasks to be done quicker and more accurately
ATMs make banking faster and easier
Automated check-outs reduce traffic to clerks and lets them process items more efficiently
Explain how manufacturing processes can be used in the manufacturing sector
What is process manufacturing, and how does it differ from assembly processes?
Process manufacturing physically or chemically changes materials (sand into glass)
Assembly processes puts components together (frame, engine, chassis of a car)
Are there other production processes?
Continuous - Long production runs turn out finished goods over time
Intermittent - Short production runs, machines are changed frequently
Describe seven manufacturing techniques that have improved the productivity of companies (make them more profitable)
Materials Requirement Planning
Just-in-Time Inventory Control
When manufacturers have their parts and materials delivered just in time to on the assembly line
Purchasing
How have purchasing agreements changed?
• Less suppliers with more quality goods
One supplier gets all related business and in turn offers services at a discount
Many internet companies have started to make the exchange easier
Manufacturers need to be more well rounded
Flexible Manufacturing
Designing machines that can make a variety of products
Lean Manufacturing
The production of goods using less of everything than mass production
Less human effort, less space, less investment in tools, less time to develop a new product
Mass Customization
Making custom-designed products for a large number of individual customers
Flexible Man makes this type possible
Customized goods can be made as fast as mass produced goods used to be made
Computer Aided Design and Manufacturing (CAD/CAM)
CAD lets users design a product in 3D views down to the last detail
CAM takes the tweaks from CAD and incorporates it into the manufacturing process
What relationship does Enterprise Resource Planning have with the production process
ERP is a software that allows multiple firms to manage all of their operations (finance, requirements planning, human resources, and order fulfillment) on the basis of a single, integrated set of corporate data.
Shorter time between orders and payments
Less staff needed
Reduced inventories
Better customer service
Lessens the chance of human error
Chapter 10
Describe the importance of the financial services industry to Canada
Why is it important?
Employs more than 1 million Canadians
Represents 5% of Canada’s GDP
More than $9 billion in tax revenues is generated
Nearly $50 billion of services are exported annually
One of the most regulated sectors in the country due to the importance
Regulation to ensure integrity, safety, and soundness of financial institutions
Explain what money is and how it’s value is determined
Money is currency, or, anything that people will generally accept as payment for goods and services
How is the value of money determined?
It is determined on the money supply (how much money there is to buy goods and services)
Too much money in circulation causes inflation but too little causes deflation, recession and unemployment
Discuss the roles banks have in providing services
Who benefits from their services?
Almost everyone
What are the key criteria when selecting investment options?
Investment Risk
The chance your investment may be worth less in the future than it is now
Yield
Expected rate of return on an investment over a period of time
Duration
The length of time your money is committed to the investment
Liquidity
How quickly you can get your money out if you need it
Tax consequences
How the investment will affect your tax situation
Chapter 11
Describe the importance of finance and financial management to an organization, and explain the responsibilities of financial managers
Finance - Comprises those functions in a business responsible for acquiring funds for the firm, managing funds with the firm and planning for the expenditure of various funds on various assets
What are the most common ways in which firms fail financially?
Undercapitalization
Poor control over cash flow
Inadequate expense control
What do financial managers do?
Plan
Budget
Control funds
Obtain funds
Collect funds
Audit
Manage taxes
Advise top management on financial matters
Outline the financial planning process and explain the three key budgets in the financial plan
What are the three budgets of finance?
Operating (master) Budget - summarizes the two other budgets
Projects dollar allocations to various costs and expenses given various revenues
Capital Budget
Spending plan for expensive assets
Properties
Plants
Equipment
Cash Budget
Projected cash inflows and outflows for a period
Projected balance at the end of a given period
Explain the major reasons why firms need operating funds, abd identify various types of financing that can be used to obtain these funds
What are the major financial needs for firms?
Managing day-to-day needs of the business
Controlling credit operations
Acquiring needed inventory
Making capital expenditures
What’s the difference between short and long term financing?
Short term - Repaid in less than one year
Long term - Repaid in a specific period of over one year (mortgage)
What’s the difference between debt financing and mortgage financing?
Debt financing - Going into debt
Equity financing - Obtaining funds from within the firm (selling stocks, retained earnings, etc)
Identify and describe different sources of short-term financing
Sources
Trade credit
Promissory notes
Family and friends commercial banks
Factoring
Commercial paper
Why should businesses use trade credit?
It is the least expensive and most convenient form (buy goods today, pay later)
What’s a line of credit?
An agreement made by the bank to lend up to a specific amount to a business at any time as long as certain conditions are met.
A revolving credit agreement means a loan will always be available - for a fee
What’s the difference between a secure loan and an unsecured loan?
Secured - Has collateral
Unsecured - No collateral
Is factoring a form of secured loan?
No, it means selling accounts receivables (payments to be made to your company) at a discounted rate to a factor (intermediary who will pay cash for those accounts)
What’s commercial paper?
A corporation’s unsecured promissory note (written agreement to pay) of $100,000 and up maturing in 365 days
Appendix B
Speculative risk - a risk that involves the chance of profit or loss
Pure risk - the threat of loss with no chance for profit (fire, accident, loss), if they occur the company loses profit but if they don’t the company gains nothing
Uninsurable risk - Risks that no insurance company will cover such as market changes (a new style makes your product obsolete, price changes induce losses), political risk (losses from war or government restriction on trade), some personal risk (losing your job), and some risks of operation (strikes)
Insurable risk - The type most insurance companies will cover.
Insurable interest - The policy holder is the one at risk of loss
Guidelines
Must have insurable interest
The loss should be measurable
The chance of loss should be measurable
The loss should be accidental
The risk should be dispersed
The insurance company can set standards for accepting the risk
Insurance policy- A written contract between the insured and an insurance company that promises to pay for all or part of a loss
Premium - The fee charged by an insurance company for an insurance policy
Law of large numbers - Principle that if a large number of people are exposed to the same risk, a predictable number of losses will occur during a given period of time
Rule of Indemnity - Rule of saying that an insured person or organization cannot collect more than the actual loss from an insurable risk
Stock Insurance Company - A type of insurance company owned by stockholders (for a profit)
Mutual insurance company - Owned by it’s policyholders and any excess funds go to reducing premiums or dividends for it’s policyholders
Health, Disability, Workplace Safety and Liability insurance are all available
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