X100

Introduction to Business

Review for
Exam #2

Lectures 5 thru 8
Professor Robert L Grimm
Professor Kenneth EA Wendeln
X100

2014 KEAW R2

Small Business
and Trends
One that is independently owned & operated
for profit and is not dominant in its field
! 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

Small business is very important to the US

economy - and has helped to fuel its growth
X100

Entrepreneurship and Small Business

R2-2

Small Business Administration

SBA Smallness Guidelines
Service Industries
1. Services

% of Small Businesses

< $4.5m to $33.5m annual receipts

Distribution Industries
2. Retailing

Service

< $7m annual receipts

3. Wholesale Trade
< 100 employees

Production Industries

48%

Distribution
33%

4. Manufacturing
< 500 to 1500 employees

5. General & Heavy Construction

< $33.5m annual receipts

Production
19%

6. Special Trade Construction

< $14m annual receipts
X100

Entrepreneurship and Small Business

R2-3

Pros & Cons

of Small Businesses
Advantages

Disadvantages

1. Flexibility

1. Risk of failure

! Ability to adapt to
change

2. Independence
! You are your own
boss

3. Service

2. Limited potential
! Based on technical and
business skills of the owner

3. Limited ability to
raise capital

! Closer to the
customer

4. Simplified

! 67% begin with <$10,000

! Business form
! Record keeping

5. Specialization
X100

! 2 out of 3 close their doors

within the first 5 years

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

Entrepreneurship and Small Business

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
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Entrepreneurship and Small Business

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
X100

Entrepreneurship and Small Business

R2-6

" Developing a Business Plan

A carefully constructed guide for the person
starting the business . . . . also serves as a
concise document for potential investors.
1. Introduction
2. Executive
Summary
3. Benefits to
Community
4. Company &
Industry
5. Management Team
6. Operations Plan

7. Labor Force
8. Marketing
Plan
9. Financial
Plan
10. Exit Strategy
11. Assessment
of Risk
Alford
12. Appendix
Media

Video

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

X100

Entrepreneurship and Small Business

R2-7

# Small Business Administration

Americas small business resource

established in 1953 to aid, counsel, assist

and protect the interests of small business
! 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

http://www.sba.gov/
content/7a-loanamounts-fees-interestrates

! Encourage Legislation & Provide Information

X100

Entrepreneurship and Small Business

R2-8

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

Franchisor

Sells franchise to

Franchisee

Gains fast & selective

distribution with minimal
costs

Opportunity to start a
business with limited
capital

Collects upfront and

ongoing fees from the
franchisee

Makes use of proven

concepts & the business
experience of the others

Benefits from the

investments made by a
highly motivated franchisee

Benefits from brand names

and national/local
promotional activities

Retains a great deal of

control over the brand
name, product & service

One-time franchise fees and

continuing royalties can be
a financial burden

X100

Entrepreneurship and Small Business

R2-9

Still Operating after

Franchise Success vs
Independent Businesses
Franchises
1 year

Independents

5 years
Advice from the Wineguy

90%

10 years

Source: US Department
Of Commerce
X100

20

40

60

Entrepreneurship and Small Business

80

100%
R2-10

The Five-Step
Management Process
Management - is the process of leading and

coordinating people (along with other resources)

to achieve the organizations goals & objectives.

Planning
Strategic

Tactical
Operational
Contingency
Goal Setting

Organizing
Resources

Activities
Structure
Chain of
Command

w
Leading &
Motivating
Leading

Motivating
Delegating
Prioritizing

Controlling
Set standards

Measuring
Corrective
action

y Review and modify

Managements Focus Getting the Job Done
X100

The Management Process

R2-11

Planning

Planning establishing the organizations

mission, goals & objectives and developing
strategies & plans to achieve them

!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

X100

The Management Process

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

Organiz
ations
Video

Organizing resources, activities and structure

X100

The Management Process

R2-13

Corporate Organization
Levels of Management
Board of Directors
Hires the officers.
CENTRALIZED
ORGANIZATION
Management
systematically works to
concentrate authority at
the UPPER levels of the
organization

Officers
& Top
Management

Set corporate goals

& select managers.

Top
Mgm't
Video

Middle Management

Middle
Mgm't
Video

Implements strategy, develops

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

DECENTRALIZED
ORGANIZATION
Management
consciously
attempts to
spread authority
widely in the
LOWER levels
of the
organization
Delegation

First-Line Management

Coordinates & supervises activities of

employees/associates.

Employees/Associates
X100

The Management Process

R2-14

Span of Management
1

President

President

3
Flat Organization
- W i d e S p a n Many direct reports

4
5

Tall Organization
-Narrow SpanFew direct reports

Organizational Height refers to the number of

layers or levels of management in an organization
X100

The Management Process

R2-15

Leading & Motivating

Key Skills of Successful Managers

Analytic Skills

Conceptual
Skills

Key
Management
Skills

Communication
Skills

X100

Interpersonal
Skills

Technical Skills

The Management Process

R2-16

Leadership Styles and Traits

Subordinate-centered
leadership

Boss-centered
leadership

Area of FREEDOM for subordinates

Use of AUTHORITY by manager
Manager
MAKES
the
decision &
announces
it

Manager
SELLS
the
Decision

Manager
PRESENTS
decision
& invites
questions

Autocratic
Bureaucratic

Manager
presents
TENTATIVE
decision
but subject
to change
based on input
from
subordinates

Manager
presents
problem,
gets
SUGGESTIONS,
and
makes
the final
decision

Participative
Democratic

PERSONALITYBASED, manager
seeks to inspire
workers with a
VISION of what
can be
accomplished to
benefit all
stakeholders

Entrepreneurial

No single leadership trait is effective in all situations.

Use a style most appropriate to situation & employees.
Adapted from HBR, How to Choose a Leadership Pattern, 6/73, & Business 12e

X100

The Management Process

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
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.

3.

Assign accountability

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

Worker
X100

The Management Process

R2-18

The Control Function

Controlling - is the process of evaluating and

regulating ongoing activities to ensure that
goals & objectives are set & achieved.

Setting
Goals &
Objectives

Measuring
Actual
Performance

Taking
Corrective
Action

Evaluating performance to Goals & Objectives

X100

The Management Process

R2-19

Review & Modify

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

Planning
Strategic

Tactical
Operational
Contingency
Goal Setting

Organizing
Resources

Activities
Structure
Chain of
Command

w
Leading &
Motivating
Leading

Motivating
Delegating
Prioritizing

Controlling
Set standards

Measuring
Corrective
action

y Review and modify

X100

The Management Process

R2-20

Motivation Maslows
Hierarchy of Needs
A NEED is a personal requirement. Maslows Hierarchy
provides a useful way of viewing employee motivation.

5.
4.
3.
2.
1.
X100

Selfactualization
needs
Esteem
needs

The need to grow & develop and to

become all that we are capable of being
The need for respect, recognition - sense
of our own accomplishment & worth

Social needs

Our requirements for love and

affection & a sense of well-being

Safety needs

The things we require for

physical & emotional security

Physiological needs

The things we need for

survival

Managerial Issues

R2-21

Dr. Phils - Hierarchy of Needs

& Personal Critical Choices
Lower needs must be fulfilled before the next higher
need becomes relevant. External vs internal choices.
7.
6.
5.

Selfactualization
needs

4.
3.
2.
1.

Spiritual Fulfillment
Vision beyond personal interest
Intellectual Fulfillment The pursuit of knowledge or answers
Self-Expression
Uniquely ours mark on the world
Self-Esteem
needs

Self-validation from the inside . . .

. . . or the outside from someone else
Either have it . . .
. . .or driven to find it

Love needs

Security needs

Basis for physical & emotional

security acceptance & belonging
Life itself must be protected
Our most basic need

Survival needs
X100

Adapted from: Self Matters by Dr. Phil McGraw

Managerial Issues

R2-22

Motivation Vrooms
Expectancy Theory
Vrooms 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 ?
No

Not Motivated

X100

Yes

Does the person

think that the
outcome is
likely ?

Yes

Motivated !!!

No

Not Motivated

Managerial Issues

R2-23

Herzbergs
Motivation Hygiene Theory
Hygiene Factors eliminate job dissatisfaction.
Motivation Factors increase job satisfaction.
Motivators

Hygiene Factors

Achievement

Supervision

Recognition
Work itself
Responsibility
Advancement
Growth
Extremely
Satisfied
X100

Company Policy
Relationships
Working Conditions
Salary
Personal life
Status
Security

Neutral
No Satisfaction No Dissatisfaction
Managerial Issues

DisSatisfied
R2-24

Classical

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.

Step 6
6..
X100

IMPLEMENT the

chosen alternative

LEARN from feedback & consequences

Managerial Issues

R2-25

Cognitive Biases
Leading to Systematic Errors
Errors that managers make over and over again
that result in poor decision making - examples:
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.

Cognitive
Biases
Errors

3. Illusion of control

Tendency to overestimate ones 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.

X100

Managerial Issues

Be Aware of
Your Biases !
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.
X100

Managerial Issues

R2-27

Types of Formal Teams

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

Virtual Teams

Permanent

A team consisting of members who

are geographically dispersed by
communicate electronically. Connect
employees on a common task across
continents & organizations.

Problem-Solving Teams

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.

Temporary

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.

A team of knowledgeable employees

brought together to tackle a specific
problem. Generally used
temporarily, once the problem is
solved the team is disbanded.
X100

Cross Functional Teams

Managerial Issues

R2-28

Group Cohesiveness
and Productivity

X100

High

COHESIVENESS of the Group

Moderate increase
in productivity

Strong increase
in productivity

Low

ALIGNMENT of Group
& Organizational Goals

Cohesiveness is the degree to which members

are attracted to one another and share the
groups goals.

No significant effect
on productivity

Decrease in
productivity

Low

High
Managerial Issues

R2-29

Conflict and
Group Performance
Low

Level of Conflict

High

High

Level of
Group
Performance

Low

Level of
Conflict
Type of Conflict
Groups Internal
Characteristics

Group
Performance
X100

Low or none

Optimal

High

Dysfunctional

Functional

Dysfunctional

Stagnant, Apathetic
Unresponsive to
change & new ideas

Viable
Self-critical
Innovative

Disruptive
Chaotic
Uncooperative

Low

High

Low

Managerial Issues

R2-30

Personnel Law
!Employment-at-Will Doctrine
!Collective Bargaining
(Unions)
!Individuals Rights
!Workplace Safety & Security
!Employment Discrimination
X100

Organizational Issues and Styles

R2-31

Employment-at-Will
Doctrine
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.
Basic doctrine may be modified by:
1. Employment contracts
(written & implied)

2. Union contracts
3. Applicable Federal & State
laws and regulations
X100

Organizational Issues and Styles

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
X100

Organizational Issues and Styles

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 employees child
& Or if an employee, employees child, spouse or parent
is seriously ill
X100

Organizational Issues and Styles

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
X100

Organizational Issues and Styles

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
X100

Organizational Issues and Styles

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

Social
Factors &
Influences

Opportunity
Codes &
Compliance

= Ethical/Unethical Choices in Business

X100

Organizational Issues and Styles

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 !!!!

X100

Organizational Issues and Styles

R2-38

Pyramid & Views

of Social Responsibility
Economic Model

Society will benefit

most when business is
left alone to market
products that society
needs profit focus

Socio-Economic Model

Voluntary

Responsibilities

Business should
emphasize not only
profits, but also the
impact of its decisions on
society

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
(societys codification of right & wrong)
Playing by the rules of the game

Economic Responsibilities
Being profitable
X100

Organizational Issues and Styles

Source: The Pyramid

of Corporate Social
Responsibility, Business
Horizons by Carroll, IU

R2-39

General Criteria for

Evaluating Courses of Action
Is the possible course of action:
Legal ?
Ethical ?
Economical ?
Practical ?

X100

Organizational Issues and Styles

R2-40

Deal & Kennedys

Corporate Cultural Model
Corporate culture -

the inner rites, rituals and values of a firm

RISK

FEEDBACK & REWARD

Rapid

Low

Work-Hard, Play-Hard

Tough-Guy Macho Culture

Stress comes from quantity of work

versus uncertainty
High speed action leads to high speed
recreation
Examples: Software Companies,
Restaurants

Process Culture

Slow

High

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

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

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

X100

Organizational Issues and Styles

R2-41

Individual Characteristics &

Types of Corporate Culture
High

Networked Culture

Communal Culture

Sociability

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

Fragmented Culture

Mercenary Culture

Low

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

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

Low

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

High

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

X100

Organizational Issues and Styles

R2-42

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
Amundsmens ship was the most astonishing he had
ever seen: No orders were given, but everyone
seemed to know exactly what to do.
Amundsmens 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

The Management Process

L6-43