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
X100 Entrepreneurship and Small Business
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
X100 Entrepreneurship and Small Business
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
X100 Entrepreneurship and Small Business
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
X100 Entrepreneurship and Small Business
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
X100 Entrepreneurship and Small Business
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
X100 Entrepreneurship and Small Business
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
X100 Entrepreneurship and Small Business
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
X100 The Management Process
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
X100 The Management Process
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
X100 The Management Process
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
X100 The Management Process
Leading & Motivating Key Skills of Successful Managers �
Analytic Skills
Key
Management Skills
Conceptual Skills
Interpersonal Skills
Communication
Skills
Technical Skills
R2-16
X100 The Management Process
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
X100 The Management Process
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
X100 The Management Process
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
X100 The Management Process
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
X100 Managerial Issues
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-
actual- ization needs
Adapted from: Self Matters by Dr. Phil McGraw R2-22
X100 Managerial Issues
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
X100 Managerial Issues
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
X100 Managerial Issues
‘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
X100 Managerial Issues
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
X100 Managerial Issues
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
X100 Managerial Issues
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
X100 Managerial Issues
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
X100 Managerial Issues
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
X100 Organizational Issues and Styles
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
X100 Organizational Issues and Styles
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
X100 Organizational Issues and Styles
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
X100 Organizational Issues and Styles
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
X100 Organizational Issues and Styles
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
X100 Organizational Issues and Styles
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
X100 Organizational Issues and Styles
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
X100 Organizational Issues and Styles
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
X100 Organizational Issues and Styles
General Criteria for Evaluating Courses of Action Is the possible course of action:
Legal ?
Ethical ?
Economical ?
Practical ?
R2-40
X100 Organizational Issues and Styles
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
X100 Organizational Issues and Styles
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.