X100.R02v14.Lecturs5thru8

X100 ©2014 KEAW R2

X100 Introduction to Business

Professor Robert L Grimm Professor Kenneth EA Wendeln

Review for Exam #2

Lectures 5 thru 8

X100 Entrepreneurship and Small Business R2-2

Small Business and Trends

!  Not large – of the 27.5 million businesses in the US, only 18,469 employ more than 500 workers – enough to be considered large

!  High growth – during the past decade, the number of small businesses in the US has increased nearly 50%

!  Part-time small business – 5 times growth in recent years and now account for one-third of all small businesses

!  Importance in providing jobs – small businesses employ about half of 50% private sector employees in the US

!  Technical Innovation – more than 50% of the major technological advances of the 20th century originated with individual inventors and small companies

One that is independently owned & operated for profit – and is not dominant in its field

Small business is very important to the US economy - and has helped to fuel its growth

X100 Entrepreneurship and Small Business

Small Business Administration SBA ‘Smallness’ Guidelines

Service Industries 1.   Services

< $4.5m to $33.5m annual receipts

Distribution Industries 2.   Retailing

< $7m annual receipts 3.   Wholesale Trade

< 100 employees

Production Industries 4.   Manufacturing

< 500 to 1500 employees 5.   General & Heavy Construction

< $33.5m annual receipts 6.   Special Trade Construction

< $14m annual receipts

% of Small Businesses

Service 48%

Distribution 33%

Production 19%

R2-3


Pros & Cons of Small Businesses

Advantages 1.   Flexibility

!  Ability to adapt to change

2.   Independence !  You are your own

boss

3.   Service !  Closer to the

customer

4.   Simplified !  Business form !  Record keeping

5.   Specialization

Disadvantages 1.   Risk of failure

!  2 out of 3 close their doors within the first 5 years

2.   Limited potential !  Based on technical and

business skills of the owner

3.   Limited ability to raise capital !  67% begin with <$10,000

4.   Little ‘power’ !  With big customers !  With major vendors

R2-4


Characteristics of a Successful Entrepreneur

1.  Vision 2.  High energy level 3.  Self-confidence 4.  Optimism 5.  Creativity 6.  Tolerance for uncertainty 7.  Tolerance for failure

R2-5


Likelihood of Success

“Statistically, over 70% of new businesses can be expected to fail within their first ten years.”

Improve your odds & likelihood of success: "  Good business plan #  Good advice (eg the SBA) $  Franchising

R2-6


Developing a Business Plan

1.   Introduction 2.   Executive

Summary 3.   Benefits to

Community 4.   Company &

Industry 5.   Management Team 6.   Operations Plan

A carefully constructed guide for the person starting the business . . . . also serves as a concise document for potential investors.

7.   Labor Force 8.   Marketing

Plan 9.   Financial

Plan 10.  Exit Strategy 11.  Assessment

of Risk 12.  Appendix

For more help from the SBA: http://www.sba.gov/category/navigation-structure/starting-managing-business

Alford Media Video

"

R2-7


Small Business Administration

!  Financial Assistance – %  7(a)Loans via SBA approved private lenders %  SBA guaranteed $19.5 billion in loans in 2006 %  Current maximum is $5 million, average was $337,730 in 2012

!  Assist with Government Procurement – %  Small business ‘set-aside’ programs %  Supplementary programs for minority & female owned businesses

!  Training and Consulting Assistance – %  SCORE – Service Corps of Retired Executives %  ACE – Active Corps of Executives %  SBI – Small Business Institute

!  Encourage Legislation & Provide Information

“America’s small business resource” established in 1953 to ‘aid, counsel, assist

and protect the interests of small business’

http://www.sba.gov/content/7a-loan-amounts-fees-interest-rates

#

R2-8


Franchising

Franchisor !  Gains fast & selective

distribution with minimal costs

!  Collects upfront and ongoing fees from the franchisee

!  Benefits from the investments made by a highly motivated franchisee

!  Retains a great deal of control over the brand name, product & service

An agreement between a Franchisor & a Franchisee, to market, sell or license products, services or concepts. Franchisee pays fees to the Franchisor.

Franchisee !  Opportunity to start a

business with limited capital

!  Makes use of proven concepts & the business experience of the others

!  Benefits from brand names and national/local promotional activities

!  One-time franchise fees and continuing royalties can be a financial burden

Sells franchise to

$

R2-9


0 20 40 60 80 100

10 years

5 years

1 year

Sti

ll O

per

atin

g a

fter

Franchises

Independents

Franchise Success vs Independent Businesses

Source: US Department Of Commerce

%

90%

Advice from the Wineguy

R2-10

X100

The Five-Step Management Process

Review and modify y

Management - is the process of leading and coordinating people (along with other resources) to achieve the organization’s goals & objectives.

Controlling •  Set standards •  Measuring •  Corrective action

x Leading & Motivating •  Leading •  Motivating •  Delegating •  Prioritizing

w Organizing •  Resources •  Activities •  Structure •  Chain of Command

v Planning •  Strategic •  Tactical •  Operational •  Contingency •  Goal Setting

u

Managements’ Focus – ‘Getting the Job Done’ The Management Process R2-11

X100 The Management Process

Planning �

! Strategic planning – the fundamental longer-term strategies and key GOALS of the organization

! Tactical planning – specific action-oriented OBJECTIVES related to specific functions & departments

! Operational planning – very short-term (weekly & daily) plans, BUDGETS & performance expectations

! Contingency planning – ‘WHAT-IF’ plans that address possible ‘downside & upside’ economic & business scenarios

Planning – establishing the organization’s mission, goals & objectives and developing strategies & plans to achieve them

R2-12


The Organizing Process !  Defining the Jobs

!  Major FUNCTIONS and related TASKS !  Organize into WORK ASSIGNMENTS

!  Departmentalization !  Group jobs into manageable units - ‘DEPARTMENTS’ or ‘SECTIONS’ !  Form by major FUNCTION, PRODUCT, LOCATION, hybrid or matrix

!  Delegation !  Distribute RESPONSIBILITY & AUTHORITY within the organization

!  Span of management !  WIDE or NARROW – number of subordinates reporting to each manager !  ORGANIZATIONAL HEIGHT – layers or levels of management

!  Chain of command !  LINE positions – with direct authority !  STAFF positions – support positions

Organizing resources, activities and structure

�

Organizations Video

R2-13


Corporate Organization Levels of Management

Employees/Associates

Officers & Top

Management Set corporate goals & select managers.

First-Line Management Coordinates & supervises activities of

employees/associates.

Middle Management Implements strategy, develops

tactical & operational plans & objectives. Supervises first-line managers.

Board of Directors Hires the officers.

CENTRALIZED ORGANIZATION

Management systematically works to concentrate authority at the UPPER levels of the

organization

DECENTRALIZED ORGANIZATION

Management consciously attempts to

spread authority widely in the

LOWER levels of the

organization

Delegation

Top Mgm't Video

Middle Mgm't Video

R2-14


1

3

4

5

Span of Management

‘Organizational Height’ refers to the number of layers or levels of management in an organization

President

Tall Organization - Narrow Span-

Few direct reports

President

F l a t O r g a n i z a t i o n -  W i d e S p a n -

Many direct reports

R2-15


Leading & Motivating Key Skills of Successful Managers �

Analytic Skills

Key

Management Skills

Conceptual Skills

Interpersonal Skills

Communication

Skills

Technical Skills

R2-16


Entrepre- neurial

Participative Democratic

Autocratic Bureaucratic

Leadership Styles and Traits

No single leadership trait is effective in all situations. Use a style most appropriate to situation & employees.

Area of FREEDOM for subordinates

Subordinate-centered leadership

Boss-centered leadership

Use of AUTHORITY by manager

Manager MAKES

the decision & announces

it

Manager ‘SELLS’

the Decision

Manager PRESENTS decision & invites questions

Manager presents

‘TENTATIVE’ decision –

but subject to change

based on input from

subordinates

Manager presents problem,

gets SUGGESTIONS,

and makes

the final decision

PERSONALITY-

BASED, manager seeks to inspire workers with a VISION of what

can be accomplished to

benefit all stakeholders

Adapted from HBR, How to Choose a Leadership Pattern, 6/73, & Business 12e

R2-17


Steps in the Delegation Process

To be successful in an organization, a manager must learn to delegate. No one person can do everything alone.

Manager

Worker

3. Assign accountability The OBLIGATION of a worker to accomplish an assigned job or task.

1. Assign Responsibility The DUTY to do a job or perform a task.

2. Grant Authority The POWER to accomplish an assigned job or task.

R2-18


The Control Function Controlling - is the process of evaluating and regulating ongoing activities to ensure that goals & objectives are set & achieved.

� Measuring Actual Performance

� Taking Corrective Action

� Setting Goals & Objectives

�

Evaluating performance to Goals & Objectives R2-19


Review & Modify

Review and modify y

Review & modify the steps in the process - periodically (usually annually) … or when shortfalls or key economic or competitive events occur.

Controlling •  Set standards •  Measuring •  Corrective action

x Leading & Motivating •  Leading •  Motivating •  Delegating •  Prioritizing

w Organizing •  Resources •  Activities •  Structure •  Chain of Command

v Planning •  Strategic •  Tactical •  Operational •  Contingency •  Goal Setting

u

�

R2-20

X100 Managerial Issues

The need to grow & develop – and to become all that we are capable of being

The things we need for survival

The things we require for physical & emotional security

Our requirements for love and affection & a sense of well-being

The need for respect, recognition - sense of our own accomplishment & worth

Motivation – Maslow’s Hierarchy of Needs

A NEED is a personal requirement. Maslow’s Hierarchy provides a useful way of viewing employee motivation.

Physiological needs

Safety needs

Social needs

Esteem needs

Self- actualization

needs

1.

2.

3.

4.

5.

R2-21


Life itself must be protected Our most basic need

Basis for physical & emotional security acceptance & belonging

Either have it . . . . . .or driven to find it

‘Self-validation’ – from the inside . . . . . . or the outside from someone else

‘Uniquely ours’ – mark on the world

Vision beyond personal interest The pursuit of knowledge or answers

Dr. Phil’s - Hierarchy of Needs & Personal Critical Choices

Lower needs must be fulfilled before the next higher need becomes relevant. External vs internal ‘choices’.

Survival needs

Security needs

Love needs

Self-Esteem needs

Spiritual Fulfillment

1.

2.

3.

4. 5.

Intellectual Fulfillment Self-Expression

6. 7. Self-

actualization needs

Adapted from: Self Matters by Dr. Phil McGraw R2-22


No

Not Motivated

Yes Motivated !!! Yes

Does the person think that the outcome is likely ?

No

Not Motivated

Motivation – Vroom’s Expectancy Theory

Vroom’s theory is based on the idea that motivation depends on:

1st - how much people want something . . . AND 2nd - on how likely they think they are to get it.

Does the person want the outcome ?

R2-23


Motivation Factors – increase job satisfaction.

Herzberg’s Motivation – Hygiene Theory

Hygiene Factors – eliminate job dissatisfaction.

Dis- Satisfied

Hygiene Factors

•  Supervision •  Company Policy •  Relationships •  Working Conditions •  Salary •  Personal life •  Status •  Security

Motivators

Extremely Satisfied

Neutral No Satisfaction – No Dissatisfaction

•  Achievement •  Recognition •  Work itself •  Responsibility •  Advancement •  Growth

R2-24


‘Six-Step Action-Oriented’ Decision Making Process

Step 1. RECOGNIZE the need - to make a decision

Step 2. LIST - Generate alternatives

Step 3. RANK - Assess the alternatives

Step 4. SELECT - Choose among the alternatives

Step 5. IMPLEMENT the chosen alternative

Step 6. LEARN from feedback & consequences Step 6.

C l

a s

s i c

a l

R2-25


Be Aware of Your Biases !

‘Cognitive Biases’ Leading to Systematic Errors

Errors that managers make over and over again that result in poor decision making - examples:

Cognitive Biases »

Errors

1.   Prior hypothesis bias Tendency to base decisions on strong prior

beliefs even if evidence shows that those beliefs are wrong.

2.   Representativeness bias Tendency to generalize inappropriately from a

small sample or from a single vivid event or episode.

3.   Illusion of control Tendency to overestimate one’s own ability to

control activities and events.

4.   Escalating commitment Tendency to commit additional resources to a

project even if evidence shows that the project is failing.

R2-26


Group Decision Making Group decision making is usually superior to

individual decision making in many respects: 1.   Group are less likely to fall victim to the cognitive

biases & systematic errors. 2.   Draws on combined skills, competencies and

knowledge of the group. 3.   Ability to process more information and correct each

others’ errors. 4.   Improves ability to generate more feasible

alternatives and make better decisions. 5.   Increases the probability that the decision will be

implemented successfully.

Beware of the perils of ‘Groupthink’: A pattern of faulty and biased decision making that occurs in groups - whose members strive for agreement among themselves - at the

expense of accurately assessing information relevant to a decision.

R2-27


Permanent

Temporary

Types of Formal Teams Teams

Two or more workers operating as a coordinated unit to accomplish a specific task or goal.

Self-Managed Work Teams

Groups of employees with the authority and skills to manage themselves. Workers are more motivated and satisfied because they have more task variety and job control.

Virtual Teams

A team consisting of members who are geographically dispersed by

communicate electronically. Connect employees on a common task across

continents & organizations.

Cross Functional Teams

A team of individuals with varying specialties, expertise, and skills brought together to achieve a common task. Usually faced with projects that require a diversity of skills.

Problem-Solving Teams A team of knowledgeable employees brought together to tackle a specific problem. Generally used temporarily, once the problem is solved the team is disbanded.

R2-28


COHESIVENESS of the Group

ALI

GN

MEN

T of

Gro

up

& O

rgan

izat

ion

al G

oals

High Low

Hig

h

Low

Group Cohesiveness and Productivity

Cohesiveness is the degree to which members are attracted to one another and share the group’s goals.

Strong increase in productivity

Moderate increase in productivity

No significant effect on productivity

Decrease in productivity

R2-29


Conflict and Group Performance

Low High Level of Conflict High

Low

Level of Group

Performance

Level of Conflict

Low or none Optimal High

Type of Conflict Dysfunctional Functional Dysfunctional

Group’s Internal Characteristics

Stagnant, Apathetic Unresponsive to

change & new ideas

Viable Self-critical Innovative

Disruptive Chaotic

Uncooperative

Group Performance

Low

High

Low

R2-30

X100 Organizational Issues and Styles

Personnel Law ! Employment-at-Will Doctrine ! Collective Bargaining

(Unions)

! Individuals’ Rights

! Workplace Safety & Security

! Employment Discrimination

R2-31


Employment-at-Will Doctrine

Basic doctrine may be modified by: 1.   Employment contracts

(written & implied) 2.   Union contracts 3.   Applicable Federal & State

laws and regulations

An employer can hire and fire an employee . . . . at ANY time . . . . for ANY reason . . . or NO reason.

An employee can QUIT. . . at any time . . . without notice.

R2-32


Collective Bargaining !  National Labor Relations Act (1935) –

&  Establishes a collective bargaining process & the NLRB

!  Labor-Management Relations Act (1947) – &  Also known as the Taft-Hartley Act &  Provides a balance between union

power and management power

!  Worker Adjustment and Retraining Notification (1988) – &  Also known as the WARN Act

&  Requires employer to give employees 60 days notice regarding plant closure or layoff of 50 or more employees

R2-33


Individuals’ Rights !  Fair Labor Standards Act (1935) –

&  Establishes a minimum wage & an overtime pay rate for employees working more than 40 hours per week

!  Equal Pay Act (1963) – &  Specifies that men and women who do

equal jobs must be paid the same wage

!  Family and Medical Leave Act (1993) – &  Affects only organizations with 50 or more employees

&  Provides up to 12 weeks of leave without pay upon the birth (or adoption) of an employee’s child

&  Or if an employee, employee’s child, spouse or parent is seriously ill

R2-34


Workplace Safety & Security

!  Occupational Safety and Health Act (1970) – &  OSHA regulates the degree

to which employees can be exposed to hazardous substances

&  Specifies the safety equipment that the employer must provide

!  Employment Retirement Income Security Act (1974) – &  ERISA regulates company retirement programs

&  Provides a a federal insurance program for retirement plans that go bankrupt

R2-35


Employment Discrimination !  Title VII of the Civil Rights Act (1964) –

&  Outlaws discrimination in employment practices based on sex, race, color, religion or national origin

!  Age Discrimination in Employment Act (1967) &  ADEA outlaws personnel practices that discriminate against

people aged 40 and older &  1986 amendment eliminated a mandatory retirement age

!  Americans with Disabilities Act (1990) – &  ADA prohibits discrimination against qualified individuals

with disabilities in all employment practices (job application procedures, hiring, firing, advancement, compensation, training and terms of employment)

!  Civil Rights Act (1991) – &  Facilitates employees’ suing employers for sexual

discrimination and collecting punitive damages R2-36


Ethical Behavior in Organizations

Ethics: is the study of right and wrong – and of the morality of choices individuals make.

Business Ethics: is the motivating force of business behavior (often seen as impositions & constraints).

Level of Business Ethical Behavior

Individual Standards &

Values

Ethical/Unethical Choices in Business

Social Factors & Influences

+ Opportunity Codes &

Compliance

+

= R2-37


Snapshot of an Ethical Organization

An ethical company: !  Treats all stakeholders adequately & fairly !  Consistently makes fairness the first priority !  Expects individual, rather than vaguely collective,

accountability !  Defines objectives & goals that all members value !  Portrays a clear vision of integrity, exemplified by

management !  Demands & reward integrity at all times & in all situations Your role:

If you feel good about the company - you should act in harmony with the firm & its values.

If you feel that the organization is wanting in ethics - you need to make some choices.

The first choice is to act ethically yourself !!!! R2-38


Pyramid & Views of Social Responsibility

Voluntary

Responsibilities

Being a ‘good corporate citizen’ – Contributing to the

community & quality of life

Ethical Responsibilities

Being ‘ethical’: Doing what is right, just & fair;

Avoiding harm

Legal Responsibilities

Obeying the law (society’s codification of right & wrong)

Playing by the ‘rules of the game’

Economic Responsibilities

Being profitable

Source: ‘The Pyramid of Corporate Social Responsibility’, Business Horizons by Carroll, IU

Socio-Economic Model Business should

emphasize not only profits, but also the

impact of its decisions on society

Economic Model Society will benefit

most when business is left alone to market

products that society needs – profit focus

R2-39


General Criteria for Evaluating Courses of Action Is the possible course of action:

Legal ?

Ethical ?

Economical ?

Practical ?

R2-40


Deal & Kennedy’s Corporate ‘Cultural Model’

Corporate culture - the inner rites, rituals and values of a firm

Work-Hard, Play-Hard •  Stress comes from quantity of work versus uncertainty •  High speed action leads to high speed recreation •  Examples: Software Companies, Restaurants

Process Culture

•  Low stress, plodding work, comfort & security. Stress comes from internal politics & stupidity of the system •  Development of bureaucracies & ways to maintain the status quo. •  Focus on security of the past & the future •  Examples: Banks, Insurance Companies

Tough-Guy ‘Macho’ Culture •  Stress comes from high risk & potential loss/gain of reward •  Focus on the present … rather than the longer term future •  Examples: Surgeons, Police, Sports

Bet-the-Company Culture

•  Stress coming from high risk and delays before knowing if actions have paid off •  The long view is taken, but then much work is put into making sure things happen as planned. •  Examples: Aircraft Manufacturers, Oil Companies.

Source: Deal & Kennedy, ‘Corporate Cultures’, 2000 reprinted. ChangingMinds.org

RISK Low High

FEE

DB

AC

K &

REW

AR

D

Slo

w R

apid

R2-41


Individual Characteristics & ‘Types of Corporate Culture’

Networked Culture •  Extrovert energized by relationships •  Tolerant of ambiguities & have low needs

for structure •  Can spot politics and act to stop negative

politics •  Consider yourself easygoing, affable and

loyal to others

Fragmented Culture •  Are a reflective & self-contained introvert •  Have a high autonomy drive and strong

desire to work independently •  Have a strong sense of self •  Consider yourself analytical rather than

intuitive

Communal Culture •  You consider yourself passionate •  Strong need to identify with something

bigger than yourself •  You enjoy being in teams •  Prepared to make sacrifices for the

greater good

Mercenary Culture •  Goal-oriented and have an obsessive desire to complete tasks •  Thrive on competitive energy •  Keep ‘relationships’ out of work – develop them only to achieve your goals •  Keep things clear cut and see the world

in black and white

Solidarity - Unity Low High

Source: ‘Types of Corporate Culture’ from The Character of the Corporation by Goffee & Jones

Soc

iab

ility

Low

High

R2-42

X100 The Management Process L6-43

Competence The Norwegian explorer Roald Amundsmen was the first to reach the South Pole on December 11, 1911.

His management style was based on meticulous planning and a choice of capable men to whom he gave

almost absolute freedom of operation. One pilot said Amundsmen’s ship was the most astonishing he had

ever seen: “No orders were given, but everyone seemed to know exactly what to do.”

Amundsmen’s chief rival in the race to the pole was the Englishman Robert Scott. Scott reached the pole a

month after Amundsmen did and lost his life and the life of his men on their return.

X100.R02v14.Lecturs5thru8

Documents

small business r2

small business characteristics

field small business

parttime small business

business skills

business form

small companies

small businesses service