MNGT1500

Introduction to Business

Summary

© AWM

Current Issues in Contemporary Business

1Chapter 1

What is Business?

Business: all profit-seeking activities and enterprises that provide goods and services necessary to an economic system. The output is divided into two types: goods (tangible goods, and services)

Simply to be described as: Buyer needs = Seller products

Profit: the rewards for businesspeople who take the risk involved to offer goods and services to customers. Accountants think of profits as the difference between a firm’s revenues and the expenses it incurs in generating these revenues. Profits are also a measure of how the company is doing. For long term success; businesspeople must deal responsibly with employees, customers, suppliers, competitors, etc.

Non-Profit Organization: organizations that has primary objectives such as public services rather than returning a profit to its owner. e.g: Public Library, museums, religious organizations. Although they don’t seek profit, but the managers face the same problems as for managers in profit-seeking org. Some not-for-profit sell merchandise or set-up profit generating arms to provide goods and services for which people are able to pay.

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Factors of ProductionProduction

The four basic inputs for effective operation; natural resources, capital, human resources, and entrepreneurship.

Natural Resources: all productions inputs that are useful in their natural states, including agricultural land, building sites, forests, and mineral deposits. Factor Payment: Rent.

Capital: production inputs consisting of technology, tools, information, and physical facilities. Factor Payment: Interest. To remain competitive, a firm needs continuos improvement in its capital, and the business needs money for these. The money source: owner-investment, profit, or extended loan. This money goes to work building factories, for: purchasing raw materials, hiring, training, and compensating workers.

Human Resources: production inputs consisting of anyone who works, including both the physical labor and the intellectual inputs contributed by workers. Companies rely on their employees as a valued source of ideas and innovation, as well as physical effort.

Entrepreneurship: the willingness to take risk to create and operate a business. An entrepreneur is someone who sets up a business taking on financial risk in the hope of profit.

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The Private Enterprise System

The private enterprise system: an economics system that rewards firms for their ability to identify and serve the needs and demands of customers. This system minimizes the interference of government in the economy activities. A.K.A Capitalism.

Competition: the battle among businesses for consumer acceptance. Adam Smith believed in the “invisible hand”, which regulates the competition, which will make the consumers receive the best possible products and prices, because the less efficient producers will be gradually driven from the marketplace.

Competitive Differentiation: unique combination of organizational abilities, products, and approaches that sets a company apart from competitors in minds of customers.

Basic rights in the private enterprise system:

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Six Eras in the History of Business

i. Consumer orientation: business philosophy that focuses first on determining unmet consumer wants and needs and then designing products to satisfy those needs.

ii. Branding: process of creating an identity in consumers’ minds for a good, service, or company; a major marketing tool in contemporary business.

iii. Brand: name, term, sign, symbol, or some combination that identifies the product of one firm and differentiates them from competitors’ offerings.

iv. Transaction management: building and promoting products in the hope that enough customers will buy them to cover costs and earn profit.

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Era Main Characteristics Time Period

Clainolo Primarily agricultural Prior to 1776

Industrial revolution Mass production by semi-skilled workers, aided by machines

1760 - 1850

Industrial entrepreneurship Advances in technology and increased demand for manufactured goods, leading to enormous opportunities

Late 1800s

Production Emphasis on producing more goods faster, leading to production innovations such as assembly lines

Through the 1920s

Marketing Consumer orientation, seeking to understand and satisfy consumer needs and preferences of consumer groups (i,ii,iii)

Since 1950s

Relationship firms seek ways to actively nature customer loyalty by carefully managing every interaction (iv)

Began 1990s

Business Workforce

A skilled and knowledgeable worker is an essential resource for keeping pace with the accelerating rate in changes in today’s business world.

Changes in the Workforce

• Aging of the population and Shrinking Labor Pool

• Increasingly diverse workforce: blending individuals of different genders, ethnic backgrounds, cultures, religions, ages, and physical and mental abilities to enhance a firm’s chance of success.

• Outsourcing and changing the nature of workforce

• Outsourcing: using outside vendors to produce goods and fulfill services and functions that were previously handled in-house or in-country.

• Offshoring: relocation of business processes to lower-cost locations overseas.

• Nearshoring: outsourcing production or services to locations near a firm’s home base.

• Flexibility and Mobility: share work with 2 or more, some are not interested in developing career, others are. The cubicle-filled office will likely never become obsolete, technology makes productive networking and virtual team efforts possible by allowing people to work where they choose and easily share knowledge.

• Innovation through collaboration: Businesses are increasingly focusing on collaborations rather than individual work. Many firms now recognize the value of a partnership with employees that encourages creative thinking and problem solving and that rewards risk taking and innovation. Managers are trained to listen and respect

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The 21st Century Manager

Today’s companies look for managers who are intelligent, highly motivated people with ability to create and sustain a vision of how organization can succeed, and apply critical thinking skills and creativity to business challenges.

Vision: the ability to understand marketplace needs and what an organization must do to satisfy them.

Critical Thinking: ability to analyze and assess information to pinpoint problems or opportunities.

Creativity: capacity to develop novel solutions to understand organizational problems.

The ability to lead change: Managers must be skilled at recognizing employees strengths and motivating people to move toward common goals as members of a team. The changes can come from external or internal sources, external as: feedbacks from customers, international marketplace, economics trends. internal as: new company goals, emerging employees needs, labor union demands, or production problems.

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What makes a company admired?

Company might be admired by the following: solid profits, stable growth, a safe and challenging work environment, high quality goods and services, business ethics, and social responsibility.

Business Ethics: the standards of conduct and moral values involving decisions made in the work environment.

Social responsibility: a management philosophy that includes contributing resources to the community, preserving the natural environment, and developing or participating in nonprofit programs designed to promote the well-being of the general public.

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Questions

What activity lies at the heart of every business endeavor? An exchange between buyers and sellers.

What are the primary objectives of a not-for-profit organization? Place public services above profits, although they need to raise money to operate and achieve their goals.

Identify the 4 basic inputs to an economic system. Natural resources, capital, human resources, entrepreneurship.

List 4 types of capital. Technology, tools, information, and physical facilities.

What is an alternative term for private enterprise system? Capitalism.

What is the most basic freedom under the private enterprise system? The right to private property.

What is an entrepreneur? someone who takes financial risks of starting a business in the hope of profit.

What was the industrial revolution? Began in the 1750s, the main characteristic was mass production.

During what era was the idea of branding developed? The marketing era.

Define outsourcing, offshoring, and nearshoring.

• Outsourcing: using outside vendors to produce goods and fulfill services and functions that were previously handled in-house or in-country.

• Offshoring: relocation of business processes to lower-cost locations overseas.

• Nearshoring: outsourcing production or services to locations near a firm’s home base.

Describe the importance of collaboration and employee partnership.

Businesses are focusing on collaboration rather than individual work, encourages partnership between employer-employee, results in teamwork and creative thinking, problem solving, and innovation.

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Why is vision an important managerial quality? Allows a firm to innovate and adapt to meet marketplace changes.

What is the difference between creativity and critical thinking?

• Critical Thinking: ability to analyze and assess information to pinpoint problems or opportunities.

• Creativity: capacity to develop novel solutions to understand organizational problems.

Define business ethics, and social responsibility.

• Business Ethics: the standards of conduct and moral values involving decisions made in the work environment.

• Social responsibility: a management philosophy that includes contributing resources to the community, preserving the natural environment, and developing or participating in nonprofit programs designed to promote the well-being of the general public.

Identify 3 criteria used to judge if a company might be considered admirable.

Solid profits, business ethics, social responsibility, high quality goods and services.

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The Most Chanllenging Economy in Decades

2Chapter 3

Microeconomics: The forces of demand and supplyEconomics: Social science that analyze the choices people and government make in allocating scare resources.

Microeconomics: study of small economics units, consumers, families, and businesses.

Demand: willingness and ability of buyers to purchase goods and services. PdDi, PiDd.

Supply: willingness and ability of sellers to produce goods and services.PiSi, PdSd.

Demand Curve: graph of the amount of a product that buyers will purchase at different prices.

Supply Curve: graph that shows the relationship between different prices and quantities that seller will offer for sale, regardless of demand.

Equilibrium price: prevailing market price at which you can buy an item. i.e: The intersection point of D curve with S curve. EP shift with change in D or S curves.

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Factors

Demand Curve ShiftsDemand Curve Shifts

Factors To the right To the left

Customers preferences increase decrease

Number of buyers increase decrease

Buyers’ incomes increase decrease

Price of substitute goods increase decrease

Price of complementary goods decrease increase

Future expectations become more optimistic pessimistic

Factors

Supply Curve ShiftsSupply Curve Shifts

Factors To the right To the left

Costs of inputs decrease increase

Costs of technologies decrease increase

Taxes decrease increase

Number of suppliers increase decrease

Macroeconomics: Issues for the Entire Economy Macroeconomics: study of a nation’s overall economic issues, such as how economy maintains and allocates resources and how government’s policies affect the standards of living of its citizens.

The private enterprise system and competition

Planned Economics (Socialism and Communism): the government controls determine business ownership, profits, and resource allocation to accomplish government goals rather than those set by individual firms.

Socialism: economic system characterized by government ownership and operation of major industries such as communications, but private owners operates some small enterprises.

Communism: economic system in which all property would be shared equally to people of a community under direction of a strong central government.

Mixed Economics: an economic system which draws from both Private and Planned. Privatization: Conversion of government-owned property and operated companies to the private sector.

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Characteristics

Types of competitionsTypes of competitionsTypes of competitionsTypes of competitions

Characteristics Pure competitionMonopolistic competition Oligopoly Monopoly

Number of competitors Many Few to many Few No direct competition

Ease of entry into industry by new firm

Easy Somewhat difficult Difficult (high start-up cost)

Regulated by Government

Similarity of goods/ services offered by competitors

Similar (homogeneous)

Different (heterogeneous)

Similar / Different No close substitutes

Control over price by individual firms

No Some Some Considerable in pure, little in regulated

Evaluating Economic Performance

Business Cycle

Prosperity - High consumer confidence, businesses expanding.

Recession - Cyclical economic contraction lasting for six months or longer.

Depression - Extended recession.

Recovery - Declining unemployment, increasing business activity.

Productivity (GDP - Gross Domestic Product) an important concern for every economy is productivity, Productivity: relationship between the number of unit produced and the number of human and other production inputs necessary to produce them.

GDP is the sum of all goods and services produced within a country during a specific time period, typically a year.

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Depression

Prosperity

Reco

very

Recession

High

Low

Economic Activity

Time

Price-Level Changes

Inflation: rising the prices caused by a combination of excess consumer demand and increase in price of raw materials, human resources, and other factors of production.

Core inflation rate: rate of an economy after energy and food prices are removed.

Hyperinflation: economic situation characterized by high rise in prices.

Deflation: opposite of inflation, occurs when prices continue to fall.

Measuring Price Level Changes: using Consumer price index (CPI), which is a measurement of monthly average change in prices of goods and services.

Employment Levels

Unemployment rate: percentage of total workforce actively seeking work but are currently unemployed.

Four types of unemployment:

• Frictional unemployment: Temporarily not working but are looking for jobs.

• Seasonal unemployment: joblessness of workers in a seasonal industry, e.g: farms.

• Cyclical unemployment: Not working due to economic slowdown, jobcut.

• Structural unemployment: Not working due to no demand for skills, e.g: replaced by robots.

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Managing the Economy’s Performance

Tools that a government uses to manage its economy performance & fight inflation, increase employment level & encourage growth. Government can raise funds by: taxes, fees, and borrowing.

Monetary Policy: government actions to increase or decrease the money supply and change banking requirements and interest rates to influence bankers’ willingness to make loans.

Expansionary monetary policy: increase the money supply in an effort to cut the cost of borrowing, which encourages business decision makers to make new investments, in turn stimulating employment and economic growth.

Restrictive monetary policy: decrease the money supply to restrict rising prices, over expansion, and concern about overly rapid economic growth.

Fiscal Policy: government spending and taxation decisions designed to control inflation, reduce unemployment rate, improve general welfare of citizens, and encourage economic growth.

Budget: organization’s plan for how to raise and spend money during a given period of time.

Budget deficit: situation in which the government spends more than the amount of money it raises through taxes.

National debt: money owed by government to individuals, businesses, and government agencies who purchase Treasury (funds of institution) bills, Treasury notes, and Treasury bonds sold to cover expenditure.

Budget surplus: excess funding, when government spend less than funds raised.

Balanced budget: total funds raised (tax, fees) = total spendings of the government.

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Questions

Define microeconomics and macroeconomics.

Microeconomics: study of small economics units, consumers, families, and businesses. Macroeconomics: study of a nation’s overall economic issues, such as how economy maintains and allocates resources and how government’s policies affect the standards of living of its citizens.

Explain demand and supply curves.

Demand Curve: graph of the amount of a product that buyers will purchase at different prices. Supply Curve: graph that shows the relationship between different prices and quantities that seller will offer for sale, regardless of demand.

How do factors of production influence overall supply of goods and services?

A change in costs or availability in inputs can shift the entire curve to the right/left at every price.

What is the difference between pure competition and monopolistic competition?

In Pure; the products are homogeneous and individual firms can’t make significant change in price. In Monopolistic; the products are heterogeneous, thus, makes individual firms have some control over price.

What is privatization?

The conversion of government properties to the private sector.

Describe the four stages of a business cycle.

Prosperity (low unemployment rate and strong consumer confidence), Recession (consumer postponing major purchases, layoffs, and decreased household savings), Depression (economic slowdown continues in a downward spiral over long period), Recovery (consumers spendings increase and business activities increase).

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What are some measures that economist use to determine the health of an economy? GDP, general prices levels, core inflation rate, CPI, and unemployment rate.

What is the difference between an expansionary monetary and restrictive monetary policy? Expansionary; increase the money supply to cut the cost of borrowing. Restrictive; reduce the money supply to curb rising prices, over expansion, and concerns about rapid economic growth.

What are the three primary sources of government funds? Taxes, fees, and borrowing.

Does a balanced budget erase the federal budget? No, it doesn’t erase the national debt, but it also doesn’t increases it.

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How the Managerial Hierarchy Operates within a Business Organization

3Chapter 7

What is management?

Management: process of achieving organizational objectives through people and other resources.

The management hierarchy:

Top management: Chief Executive officer, Chief Financial officer, Governor, Mayor.

• Develop Long-rang strategic plans.

• They are responsible for creating a vision for their organizations.

Middle management: Regional manager, Division head, Director, Dean.

• Focus on specific operations within the organization.

• They are responsible for developing detailed plans to implement the strategic plans of top managers.

Supervisory (first-line) management: Supervisors, Head of department.

• Responsible for assigning non-management employees to specific jobs and evaluate their performance everyday.

• Focus on implementing middle managers plans and have short term goals (daily, weekly or monthly).

Skills Needed for Managerial Success:

• Technical Skills: the ability to understand and use techniques, knowledge, and tools and equipments of a specific discipline of the department.

• Human Skills: are interpersonal skills that enable managers to work effectively with and through people, for overseas (local language is vital, cultural customs)

• Conceptual Skills: determines the manager’s ability to see the organization as a unified whole and to understand how each part of the overall organization interacts with others.

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Managerial Functions:

• Planning: process of anticipating future events and conditions and determining courses of action for achieving organizational objectives. Effective planning helps business focus its vision, avoid costly mistakes, and seize opportunities.

• Organizing: process of blending human and material resources through a formal structure of tasks and authority; arranging work, dividing tasks among employees, and coordinating them to ensure implementation of plans and accomplishment of objectives.

• Directing: guiding and motivating employees to accomplish organizational objectives.

• Controlling: function of evaluating an organization’s performance against its objectives. The four basic steps in controlling: • establish performance standards, • monitor actual performance, • compare actual performance with established standards, • make corrections where necessary.

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Primary type of planning Management Level Examples

Strategic Top managementOrganizational objectives,

long-term plans.

Tactical Middle managementQuarterly / semiannual

plans, department policies.

Operational Supervisory managementDaily / Weekly plans, rules,

and procedure of each department.

ContingencyPrimary top, but all

contribute

Ongoing plans for actions and communications in an

emergency.

Managers as Decision Makers

Decision making: process of 1. recognizing a problem or opportunity, 2. developing alternatives, 3. evaluating alternatives, 4. selecting and implementing an alternative, and 5. assessing the results.

Programmed Decisions: involves simple, common, and frequently occurring problems for which solutions have been already determined. These decisions saves the company time and money, because new decision don’t have to be made each time the situation arise.

Nonprogrammed Decisions: involves a complex and unique problem / opportunity with important consequences for the organization. e.g: entering new market, developing new product, etc.

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Managers as Leaders

Leadership: ability to direct or inspire people to attain certain goals. It involves the use of influence or power. Power could be from the leader’s position in the company, or could be from the leader’s experience / expertise.

The way a leader use his power determines his style of leadership:

Autocratic leadership: is centered on the boss. Leaders makes their own decisions without consulting the employees.

Democratic leadership: includes subordinates in decision-making process. This leadership style centers on employees’ contribution. This comes with the concept of empowerment (giving employees shared authority, responsibility, and decision making with their manager).

Free-rein leadership: believe in minimal supervision, allowing subordinates to make most of their own decisions. The leader communicate with employees frequently, as the situation warrants.

Which leadership style is the best?

There is no best style, there is a best for each firm, depending on the situation.

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Organizational Structure

Organization: structured group of people working together to achieve common goals.

Steps in the Organizing process:

Types of organizational structure:

• Line organization: the oldest and the simplest,establishes a direct flow of authority from the chief executive to employees. Everyone knows who is in charge, and decisions are made quickly.

• Line and Staff organization: combines the direct flow of of authority of a line org. with staff departments that support the line department. Line dept. participate directly in decisions that affect the core of the operations, and the staff dept. provide specialized technical support.

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• Committee organization: structure that places authority and responsibility jointly in the hands of a group of individuals rather than a single manager. Committee tends to act slowly and conservatively, and may make decisions by compromising conflicting interests rather than choosing the best alternative. The structure is a part of a regular line and staff structure.

• Matrix organization: links employees from different parts of the organization to work together on specific projects, in this structure, an employee reports to two managers, one is line manager and the other is the project manager. Called matrix because of intersecting horizontal and vertical lines of authority. (ver. functional dept. & hor. project instructions.)

Important terminology:

• Delegation: managerial process of assigning work to employees.

• Span of management: number of subordinate a manager supervise.

• Centralization: decision making controlled by top management.

• Decentralization: locates decision making at lower levels.

• Departmentalization: process of dividing work activities into units within the organizations, Forms: • Product, • Geographical, • Customer, • Functional, • Process.

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Questions

What is management? is the process of achieving organizational objectives through people and other resources. The manager should combine technical, human, and conceptional resources.

How do the jobs of top managers, middle managers, and supervisory managers differ? Page 20.

What is the relationship between the manager’s planning and controlling functions? The basic purpose of controlling is to assess the success of the planning function.

Distinguish between programmed and nonprogrammed decisions. Programmed decisions are simple and frequently happening, but the nonprogrammed decisions require more individual evaluations.

What are the steps in decision-making process? 1. recognizing a problem or opportunity, 2. developing alternatives, 3. evaluating alternatives, 4. selecting and implementing an alternative, and 5. assessing the results.

How is leadership defined? directing or inspiring people to attain organizational goals.

Identify the styles of leadership as they appear along a continuum of greater or lesser employee participation.

At one end of the continuum, autocratic leaders make decisions without consulting the employees. In the middle continuum, democratic leaders ask employees for suggestions and encourage participation. In the other end of the continuum, free-rein leaders leave most decisions to their employees.

What is the purpose of an organization chart? An organizational structure is visual representation of firm’s structure that illustrates job positions and functions.

What are the five major forms of departmentalization? •Product, •Geographical, •Customer, •Functional, •Process.

What does span of management mean? number of subordinates a manager supervise.26