ADMS 1010.

Exploring the functions of business

Section C Shante Amugo Di-mez
Eytan Lasry 218816884
ADMS 1010 CLASS NOTES
Name final exam file: Amugo Di-mez Shante 218816884 ADMS 1010 Final Exam
Week 2: So, you want to be manager.
The classical view of management
aka, the rational view provided by French industrialist, Henri Fayol in 1916
Managers:
 Plan
 Organize
 Coordinate
 Control
The critic
Henry Mintzberg
Manager myths
1. Planning
Folklore: The manager is a reflective, systematic planner
Fact: Managers work at an unrelenting pace. Activities are characterized by brevity, variety,
discontinuity. Managers like action, avoid reflection.
Evidence: ½ of activities last less than 9 minutes. average 583 activities in 8-hour shift (1 every
48 seconds). work for ½ hour or more once every 2 days
2. Duties
Folklore: The effective manager has no regular duties
Fact: Many regular duties including ritual & ceremonial, negotiations, processing of soft
information that links org. to its environment.
Evidence: small companies cannot afford staff specialists – the manager steps in to fill gaps. see
important customers. ceremonial duties – meeting dignitaries, giving out gold watches,
Christmas dinners – routine part of managers work.
3. Information
Folklore: Managers need aggregated information provided by formal management information
system
Fact: Managers favour verbal media, telephone calls and meetings over documents
Evidence: 66%-80% of time in verbal communication. Treat mail processing/reports as a burden.
Preference for “soft” information (gossip, hearsay, speculation) due to ‘need for speed’.
4. Science and profession
Folklore: Management is a science and a profession
Fact: The managers’ programs – to schedule time, process information, make decisions, etc. –
remain locked deep inside their brains. We rely on words like judgment & intuition -> labels for
ignorance??
Evidence: Managers act in the same way as their historic (prehistoric?) counterparts: verbal
communication and decision making. Cannot easily delegate tasks. Superficiality, brevity,
fragmentation.
The manager’s roles
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Section C Shante Amugo Di-mez
Eytan Lasry 218816884

Introspection
The process of examining your own thoughts and feelings. “In psychology the process of
introspection relies exclusively on observation of one's mental state, while in a spiritual context
it may refer to the examination of one's soul. Introspection is closely related to human self-
reflection and is contrasted with external observation… Introspection has been a subject of
philosophical discussion for thousands of years. The philosopher Plato asked, "…why should we
not calmly and patiently review our own thoughts, and thoroughly examine and see what these
appearances in us really are?””

Managing oneself by Peter F. Drucker

• Compare to yesteryear:
– Most of human history: little change in social position
– The modern era: lifetime employment
• Why is it important:
– knowledge workers must be their own CEOs.
– companies today are not managing their employees’ careers.
Knowing Yourself
1. What are my strengths?
Feedback analysis:
a. When you make a key decision:
i. make a forecast (what you think will happen)
ii. 9 or 12 mos. latter compare to what happened.
Why?
b. Puts the focus on performance and results.
c. Remedy your bad habits!
Implications:
d. Concentrate on your strengths and improve them.
e. Waste as little time as possible on areas of low competence
f. Root out intellectual arrogance (learn everything you can to maximize strengths)

2. How do I perform?
A reader or a listener? How do I learn?
a. writing
b. doing
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Section C Shante Amugo Di-mez
Eytan Lasry 218816884
c. talking
d. reading etc…
Also:
e. Work well with people or alone?
f. Decision maker or adviser?
g. Uncertainty or structure?
h. Big organization or small?

3. What are my values?

Not just about ethics:
a. The “mirror” test: What kind of person do I want to see in the mirror in the morning?
Values alignment:
b. Organizations have values (Goals and actions)
i. Incremental vs. breakthrough innovation
ii. Short term results vs. long term growth
c. Do my values fit the organization’s values?

4. Where do I belong?
 Most don’t know until past their mid-20’s
 Knowing strengths, how you perform, and values helps
 At least understand where you do NOT belong

5. What should I contribute?

a. What does the situation require?
b. How can I make the greatest contribution given my strengths, way of performing and
values?
c. What results must be achieved to make a difference?
d. Look no more than 12-18 months ahead.
e. Goals should be challenging yet achievable.
f. Contributions should be meaningful, visible, and measurable.
Week 3: Getting organized (organization theory)
Claims: The major conclusion that the author is trying to persuade you to accept.
Types of claims
• Uncontested claims
– Consistent with experiences and observations
– Facts that are independent of interpretation
– Agreement among experts
– Technical or mathematical claims
• Contestable claims
– The validity (truth) of the claim can be questioned.
– Must be justified (supported) with evidence.
ADMS 1010. Exploring the functions of business
Section C Shante Amugo Di-mez
Eytan Lasry 218816884
– Forceful rhetoric (“The fact is…”, “There is no doubt” …) does not mean the claim is
uncontested!!
Organization
1a : the act or process of organizing or of being organized
b : the condition or manner of being organized
2a : association, society <charitable organizations>
b : an administrative and functional structure (as a business or a political party); also : the personnel of
such a structure
Characteristics
Social Entities (Made up of people), Goal directed (Pursuing a common goal), Linked to the external
environment (Open systems)
Traditional organizational types
1. Business/for-profit/private sector
2. Government/public sector
3. Non-profit/ngo/civil society
Organizational theory
“…the study of formal social organizations, such as businesses and bureaucracies, and their
interrelationship with the environment in which they operate.”
• Some major topics in OT
– Size
• Big or small?
– Strategy
• Relationship with environment
– Structure
• Reporting relationships, groupings, design
Finding Accuracy Precision
Evidence *Difficult to judge without an *Good evidence is appropriately
independent source of precise
information *General statements are less
*Can use proxies to decide: convincing than quantified
Are there obvious errors? metrics. For example:
Simple grammatical, spelling, Mutual fund XYZ did quite well
citing errors (apply to your own last year, versus
writing!) Mutual fund XYZ made 9.2%
Logical errors more last year
ADMS 1010. Exploring the functions of business
Section C
Eytan Lasry
Sufficiency
*Unlikely that a claim can be
supported by a single piece of
data
*Amount of evidence required
depends on:
Importance of the claim
Potential damage caused if
claim is incorrect
*When evidence is insufficient,
we are guilty of the fallacy of
hasty generalization
Shante Amugo Di-mez
218816884
Representativeness
*The variety in the sources of
information should match the
variety in the population
relevant to the claim
*Single anecdotes (stories),
while compelling, may not
represent the broader
phenomenon
*How to increase precision:
Use numbers (to an appropriate
decimal point – over-precision
can detract from credibility
too!)
Use direct quotations of what
people said
Authority
*We often don’t have first-hand
knowledge so must rely on
others
*Which others? Authority is
increased with:
Special training
Professional credentials
Considerable experience
*Potential missteps:
Fallacy of false appeal to
authority
Fallacy of argumentum ad
populum or the bandwagon
effect

Social responsibility

A brief history of business & sustainability themes

By the late 1960s the term “corporate social responsibility” was being increasingly used by business
leaders. A response to increased social pressure for corporate reform and activist stockholders aiming to
influence corporate goals.

In 1971, Nobel Prize winning, Chicago School economist Milton Friedman, writes his famous rebuttal of
the concept in the New York Times. “There is one and only one social responsibility of business–to use it
resources and engage in activities designed to increase its profits so long as it stays within the rules of
the game, which is to say, engages in open and free competition without deception or fraud."

1970. The Environmental Protection Agency (EPA) is born as the First government department with
specific mandate for the natural environment.

1973. OPEC (Organization of the Petroleum Exporting Countries) initiates an oil embargo, creates a
global energy shock, and Introduces fuel efficiency standards.

• 1984. Ed Freeman authors Strategic Management: A Stakeholder Approach

– Argues that firms will perform better if they focus broadly on stakeholders, versus a
narrow stockholder focus

– Stakeholder = Any group or individual who can affect or is affected by the achievement
of the organization’s objectives
ADMS 1010. Exploring the functions of business
Section C Shante Amugo Di-mez
Eytan Lasry 218816884
• 1987. The WCED (World Commission on Environment and Development) releases report
entitled Our Common Future

Defines Sustainable Development: development that “meets the needs of the present without
compromising the ability of future generations to meet their own needs.

• 1996. The ISO 14000 environmental management system is created

– First major environmental standard for industrial firms

• 1997. John Elkington coins the term “Triple Bottom Line” (TBL)

– TBL = Economic, Social, Environmental performance

– Typically depicted as three-legged stool or Venn-diagram

– Becomes the dominant conception for thinking about business & sustainability.

• 2001. Energy company Enron collapses amidst massive corporate fraud, along with Arthur
Andersen

– Brings renewed focus on business ethics and corporate governance.

• 2008. U.S. housing bubble bursts causing a global financial crisis

– Kicks off “the great recession.”

– Global financial instability continues until….

Milton Friedman’s major claims

Only people can have responsibilities. Corporations are artificial legal structures and cannot have social
or moral responsibilities. Corporate executives (agents) are employees of the shareholders (principals).
Executives must act in the interest of shareholders and make as much money as possible. As individuals,
CEOs can choose to spend their money however they want (i.e., on social causes). As agents, CSR
expenditures equate to spending someone else's money.

The disparate view of business-society-nature

• Business as a distinct entity, separate from society and nature

• Business as the most important system

• Consistent with Friedman’s perspective & the traditional business view

The intertwined view of business-society-nature

• The dominant conception of CSR/sustainability

– Google images search: CSR

– Google images search: Sustainability

• Implications:
ADMS 1010. Exploring the functions of business
Section C Shante Amugo Di-mez
Eytan Lasry 218816884
– Doing Well by Doing Good

• Social & environmental initiatives make more $$

– Win-Win-Win

• Create simultaneous value in all dimensions.

The embedded view of business-society-nature

 Business is the most dependent system:

Without nature and society, business can’t exist

 Finite systems have limits

Week 5: Questions of value

Economics

“…the social science that studies the processes that govern the production, distribution and
consumption of goods and services in an exchange economy.

Foundations of economic thought

• Moral philosophy (Ethics)

• Political economy

• 1776. Adam Smith, a Scottish philosopher, authors Wealth of Nations

– Considered the founding text of modern economics.

Wealth of nations: some key concepts

• Division of labor:

“This great increase of the quantity of work which, in consequence of the division of labor, the same
number of people are capable of performing, is owing to three different circumstances; first, to the
increase of dexterity in every particular workman; secondly, to the saving of the time which is
commonly lost in passing from one species of work to another; and lastly, to the invention of a great
number of machines which facilitate and abridge labor, and enable one man to do the work of
many.”

• Factors of production:

– Land, labor, and capital

• Self-interest:

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but
from their regard to their own interest. We address ourselves, not to their humanity, but to their self-
love, and never talk to them of our own necessities, but of their advantages.”
ADMS 1010. Exploring the functions of business
Section C Shante Amugo Di-mez
Eytan Lasry 218816884
• Invisible hand:

“…by directing that industry in such a manner as its produce may be of the greatest value, he intends
only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end
which was no part of his intention. …. By pursuing his own interest, he frequently promotes that of the
society more effectually than when he really intends to promote it...”

Marginalist” revolutionaries: The fathers of neoclassical economics

• 19th c. Jevons, Menger, Walras ‘discover’ the theory of marginal utility.

– Marginal = The margin or edge of units produced (i.e., 1 additional unit)

– Marginal utility = Increase/decrease in value brought about by an increase in

consumption

– Diminishing marginal return: Each additional unit is of less value (think pieces of cake)

• Reinvented economics as a mathematical project

– Rooted in physics.

– ‘Mathematical formalism’ gave economics much greater legitimacy.

– Required several strong assumptions…

“What economists do is make simplified assumptions about our world, build imaginary economies based
on those assumptions -- otherwise known as models -- and use them to draw practical lessons.” -
Jonathan Schlefer in the Assumptions Economists Make

Neoclassical economics: Thinking critically.

• Unrealistic Assumptions:

– Rational or ‘Bounded Rationality’

• Overdependence on Complex Mathematical Models

– Can models based on unrealistic assumptions accurately predict reality?

Assumptions of Neoclassical economics

Homo economicus: Assumptions of the economic human

• A conceptual model used in neoclassical economic theories.

• Behavioral assumptions:

– Self-interested utility-maximizer:

• Decisions are made only to benefit oneself (i.e., without consideration of others
– remember Smith’s butcher and baker)
ADMS 1010. Exploring the functions of business
Section C Shante Amugo Di-mez
Eytan Lasry 218816884
• Utility = Value; typically equated to money

– Rational:

• Preferences are known and stable across decisions.

– Independent:

• Agents act independently and have access to complete and perfect information
to decide.

Perfect competition: Assumptions of the ‘ideal’ market

• Perfectly competitive market:

– A theoretical ideal type used as a baseline to contrast other market structures

(monopoly, oligopoly, etc.)

– No participant is large enough to have market power (price-taker rather than price-
setter)

• Assumptions:

– Large numbers of buyers and sellers

– No barriers of entry and exit

– Perfect factor mobility (Resources can move without cost)

– Perfect information (Everybody knows everything)

– Zero transaction costs

– Profit maximization

– Homogenous products

– Non-increasing returns to scale

– Property rights

– Rational buyers

– No externalities

Behavioural economics

Heuristics and Biases

 The Representativeness heuristic is when commonality between objects of similar appearance

is assumed (stereotyping). While often very useful in everyday life, it can also result in neglect of
relevant base rates and other errors like:

– The clustering illusion (e.g. lottery numbers)

ADMS 1010. Exploring the functions of business
Section C Shante Amugo Di-mez
Eytan Lasry 218816884
– The conjunction fallacy:

• Linda is 31 years old, single, outspoken, and very bright. She majored
in philosophy. As a student, she was deeply concerned with issues of
discrimination and social justice, and also participated in anti-nuclear
demonstrations.

• Which is more likely?

• Linda is a bank teller.

• Linda is a bank teller and is active in the

feminist movement.

 The Availability heuristic is used when a judgment is based on how easily we can remember or
imagine an event, rather than complete data. The vividness of a recent memory, or the
strikingness of an unusual event, leads one to overestimate the probability of events of that
type occurring. Car crashes do not get as much attention as plane crashes because they occur in
ones and twos. If people died at the same rate but in one horrifying crash a month that killed
3,500 people, then auto safety would be a much higher priority than aircraft safety. As
Transportation Secretary Norman Mineta has said: "If we had 115 people die a day in aviation
crashes, we wouldn't have a plane in the sky."
 The Framing Effect explains how decision making under conditions of risk or uncertainty is very
sensitive to how the choices are framed rather than probable outcomes.
 Loss Aversion (Prospect Theory): Individuals prefer to avoid losses than to make gains so are
risk-seeking when choices are framed as losses and risk-averse when choices are framed as
gains.
“…losses loom larger than gains.” (Kahneman and Tversky, 1979). People are more likely to
choose a 10% chance of losing $20,000 over losing $1,000 for sure (100%).

Neoliberalism
• 20th c. F.A. Hayek & Milton Friedman develop political ideology (called neo-liberalism) based on
presumed interdependency between market relations and democratic freedom.
– i.e., Belief that market freedom and democratic freedom are mutually interdependent.
• Enormously influential in latter half of 20th c.
– Thatcherism in the U.K. & Reaganomics in the U.S.

• Competition:

– the only means of coordination that does not require coercion.

• Money:

– an instrument of freedom; allows people to exercise choice.

• Market:

– the only instrument capable of coordinating activities; a wonderful computer. Free

markets => A better society
ADMS 1010. Exploring the functions of business
Section C Shante Amugo Di-mez
Eytan Lasry 218816884
Progression of economic thought

 PHILOSOPHY(1700s-1800s)
 MATH & MODELLING (1800s-1900s)
 POLITICS & SOCIETY (Late 1900s)
 MEANING OF LIFE (Today)

Branches of economics

MICROECONOMICS (management & corporate MACROECONOMICS (public policy)

strategy) • Deals with the performance, structure,
• Studies behavior of individuals and behavior, and decision-making of an
organization in making decision on the economy (national, regional, and global
allocation of scarce resources. economies)
• Major topics: • Major topics:
– Demand, supply & equilibrium – National income, output, and
– Measurement of elasticities consumption
– Consumer demand theory – Unemployment
– Theory of production – Inflation
– Costs of production – Savings
– Market structures – Investment
– Game theory International trade & finance

Underlying assumptions

• Underlying assumption = Logical link that fills the gap between the evidence and the claim

– What must be true if the claim is to follow from this evidence?

– What general principle might link this particular claim to this particular evidence?

– What beliefs might I expect from this type of person?

– Could someone believe this evidence and still disagree with the claim? Why?

Two types:

• Reality assumptions:

– Beliefs about reality; the way things really are.

– Can change by providing new information.

• Value assumptions:

– Our ideals (goals), our standards of right and wrong (morals/ethics), the way things
ought to be.

– Resistant to change
ADMS 1010. Exploring the functions of business
Section C Shante Amugo Di-mez
Eytan Lasry 218816884
CLAIM EVIDENCE UNDERLYING ASSUMPTION
The new office design Moving from place to place Time spent searching for
undermines productivity is time consuming desk space is disruptive
enough to decrease
productivity

The primary value assumption in modern society is an infinite growth on a finite planet

An alternative view

Happiness Calculus of pains and pleasures vs. tangible measurement of needs and desires ($$)

” Our gross national product... counts air pollution and cigarette advertising and ambulances to clear our
highways of carnage,” (RFK, 1968)
Gross Domestic Product (GDP) vs. Human Development Index (HDI) or Gross National Happiness (GNH)
Easterlin Paradox (1974):
Within a society, rich people tend to be happier than poor people.
But rich societies tend not to be happier than poor societies (or not by much).
As countries get richer, they do not get happier. Life satisfaction does rise with average incomes but only
up to a point. One of Easterlin’s conclusions was that relative income can weigh heavily on people’s
minds.

Week 6: Value measurement and intermediaries

 Intermediary

1. a person who acts as a link between people in order to try to bring about an agreement or
reconciliation; a mediator.

"Intermediaries between lenders and borrowers"

synonyms: mediator, go-between, negotiator, intervenor, intercessor, arbitrator, arbiter, conciliator,

peacemaker.

 Accounting

Accounting or accountancy is the measurement, processing, and communication of financial and

nonfinancial information about economic entities[1][2] such as businesses and corporations.
Accounting, which has been called the "language of business",[3] measures the results of an
organization's economic activities and conveys this information to a variety of users, including investors,
creditors, management, and regulators.[4] Practitioners of accounting are known as accountants. The
terms "accounting" and "financial reporting" are often used as synonyms.
ADMS 1010. Exploring the functions of business
Section C Shante Amugo Di-mez
Eytan Lasry 218816884