Chapter 1: Introducing The Contemporary Business World

The Idea of Business and Profit

● Business managers pay attention to different issues like corporate strategy, brand
strategy, business-government relations, international business opportunities, mergers,
marketing strategy, etc.
● Business: ​an organization that produces or sells goods or services in an effort to make a
profit
○ They produce most of the goods and people we employ in Canada
○ Taxes they pay help support governments at all levels
● Profit​: is what remains after a business’s expense have been subtracted from its revenue
○ Profit equation
■ Profit= Revenues- Expenses
● Not-for-profit organizations​: ​provides goods and services to customers but doesn’t want
to make a profit while doing so. May be funded by gov’t grants or sale of goods and
services
○ Examples: Charities, educational institutions, hospitals, labour unions and
government agencies

Economic Systems Around the World

● Economic System​: how a nation’s resource’s is allocate amongst its citizens
○ Economic systems differ in terms of who owns and controls these resources,
known as the “factors of production”
● Factors of Production​: ​basic resources that a country’s business use to produce goods
and service; needs to exist for businesses to function
○ Labour:​ the people who work for the company
○ Capital:​ ​ the funds needed to start a business and keep it operating and going
○ Entrepreneurs​: people who accept the opportunities and risks involved in creating
operating businesses; motivating energy to push a country forward
○ Natural Resources: ​physical resources such as land, water, mineral deposits and
trees
○ Information​: specialized knowledge and expertise of people who work in
businesses as well as information that is found in market forecasts and various
other forms of economic data
■ Who, what, where, when, how
● Command Economy: economic system in which government controls all or most factors
of production and makes all or most production decisions
○ Two most basic forms of command economies are communism and socialism
■ Communism: is a system in which the gov’t owns and operates all
sources of production; gov’t controls every layer of society
 ● Individuals contribute according to their abilities and receive
economic benefits according to their needs
● Pros: good gov’t may lead to quick decision making, evaluation of
resources and manufacturing based on that as well as better
welfare programs due to higher taxation and strive towards
equality for their people
■ Socialism: ​the government owns and operates only selected major
industries; less extreme than communism but state controls factors of
production
● Smaller business are privately owned but a large portion of
business and people work for the gov’t
● Cons: Positions usually filled on basis of political considerations
rather than ability and public welfare results in high taxes, riots or
anger due to choices
● Market Economy: economic system in which individuals control all or most factors of
production and make all or most production decisions
○ Market: an exchange process between buyer and sellers of a particular service or
good
○ In a market economy, business to consumer (B2C) and business to business
(B2B) exchanges take place without much government involvement
● Input market:​ firms buy resources that they need in the production of goods and services
● Output market: firms supply goods and services in response to demand on the part of
the consumers
○ Workers being able to afford what they buy

● Capitalism​: an economic system in which markets decide what, when and whom to
produce; as known as market economy or free market
● Mixed Market economy​: both a mix of command economy and market economy; what
most nations have
 ○ Pros: innovation or entrepreneurship encouraged; free choice for the consumer
○ Weaknesses: capital may be hard to get, monopolies, less gov’t services
● Privatization​: the transfer of business from the government to the private sector
● Nationalization​: converting private companies to gov’t owned companies
● Deregulation​: reduction in the number of laws affecting business and in powers of gov’t
enforcing agencies

Interactions Between Business and Government

● Governments as a customer: buying thousands of products and services from business
firms
○ Example: helicopters, water treatment plants, computers, office supplies
● Gov’t as a competitor​: competes with business through crown corporations
○ Example: BC Liquor stores v.s privately owned liquor stores
● Gov’t as regulator: fed. and prov. Gov’ts regulate many aspects of business through
admin boards, tribunals and commissions
○ How much say and influence should gov’t influencers have?
○ The reasons for regulating business activity include protecting competition,
protecting consumers, achieving social goals and protecting the environment
● Competition Act​: prohibits a variety of business practices that lessen competition
○ Gov’t regulates business activity to ensure that healthy competition exist within
business firms
● Gov’t works to protect consumers through acts and programs
○ Examples: Tobacco Act (prohibits cigarette advertising on billboards and in
stores), Consumer Packaging and Labelling Act (stipulates labelling requirements
for products)
● Gov’t provides essential services: Social goals promote the wellbeing of canadian
society and include things like universal access to health care, safe workplaces,
employment insurance and decent pensions
○ Decisions of foreign gov’ts as they pursue their own social goals can also affect
Canadian businesses
● Gov’t protects the environment through legislation
● Gov’t is a taxation agency
○ Revenue taxes are levied by gov’t to provide revenue to fund various services
and programs
○ Regressive revenue taxes are levied at the same rate regardless of a person’s
income
○ Progressive revenue taxes are levied at a higher rate on high income earners
and low rate on low income taxpayers
○ Restrictive taxes are levied partially for the revenue they provide but also
because legislative bodies believed the substances should be controlled
● Federal, provincial and municipal gov’t offer ​incentive programs that attempt to stimulate
economic development
 ● Canadian business program provides information on gov’t programs, services and
regulations to improve start-up and survival rates of small and medium sized businesses
● Public private partnerships (P3s) the gov’t pays a private sector company to build,
finance and operate organizations like hospitals and transit lines
● Lobbyists is a person hired by a company or industry to represent a company's interests
with gov’t officials
● Lobbying act​: Lobbyists are required to register with the commissioner of Lobbying so
individuals are clear with their lobbying activity
● Trade associations is an organization dedicated to promoting the interests and assisting
the members of particular industry

The Canadian Market Economy

● Market​ is the exchange process between buyers and sellers
● Demand​ is willingness and ability of buyers to purchase a product or service
○ Law of demand ​states that buyers will purchase more of a product as its price
drops
● Supply​ is the willingness and ability of producers to offer a good or service for sale
○ Law of supply​ states that producers will offer more for sale as the price lowers
● Demand and supply schedule is the assessment of relationships between different levels
of demand and supply at different price levels
● Demand curve​ shows how many products will be demanded at different prices
● Supply curve​ shows how many pizzas will be supplied at different prices
● Market price or ​Equilibrium price ​the price at which the quantity of goods demanded and
the quantity of goods supplied are equal
● Surplus​ ​a situation in which the quantity of supplied exceeds the quantity of demanded
● Shortage​ is when the quantity demanded will be greater than the quantity supplied

Private Enterprise and Competition

● Private enterprise is a economic system characterized by private property rights,
freedom of choice, profits and competition; market economies depend on this
○ Private property rights: ownership of resources used to create wealth in the
hands of individuals
○ Freedom of choice: you can choose who to employ, what to buy and producers
can chose who to hire and what to make
○ Profits: anticipated profits lead some to try entrepreneurship and influence which
goods and services to produce
○ Competition: forces businesses to make products better or cheaper and
motivates others to start businesses
● Perfect competition all firms are small and the number of firms is large and the products
are also all the same; no firms is powerful enough to influence price
○ Example: Canadian agriculture, corner stores, gas, coffee shops, grocery stores,
hair salon, dentists
 ○ Price impact: consumers tend to choose the lowest price
● Monopolistic competition fewer sellers but many buyers; businesses may be large or
small; product differentiation may give sellers some control over prices
○ Example: A Sears shirt may be a lot cheaper than a Ralph Lauren Polo despite
looking very similar
○ Price impact: no “exact’ substitutes (ex: different brands) so firm has some
control
● Oligopoly is when an industry has a handful of very large sellers’ fierce competition
because the actions of one firm can affect the sales of all firms; rather than compete on
$ compete on advertising; hard to enter due to needed lots of capital investment
○ Example: Cereal market, phone providers,car manufacturers
○ Price impact: seen as similar; “market price” emerges find their own equilibrium
price and they keep their prices all around the same
● Monopoly ​industry or market has only one producer; unique product; gov’t regulations
that prevent firms from taking advantage of the consumer
○ Example: BC Hydro
○ Price Impact: Firm has ultimate control over price
● Natural monopolies due to high cost of conducting business in industry deters
competition
● Supply management ​domestic production of commodities are subject to quotas; foreign
competitors are subjected to high tariffs to protect the commodity

Sample Midterm Question:

Your cousin, who has always liked technology, is considering buying a small store that sells and
repairs personal computers. The existing owner has had it for about ten years. She has asked
your opinion about the business. The business is located in a small strip mall that is a little run
down. Over the years the business has accumulated a fairly significant inventory of desktop
parts (such as power supplies, memory and disks) and the owner wants to sell the business for
the original purchase price of the inventory plus one quarter of last years revenue. Using the
ideas discussed in this class provide your cousin with an opinion.

Chapter 2: The Environment of Business

● External environment ​consists of everything outside an organization; opportunities and

threats outside the business
○ political-legal, social cultural, technological, economic, global environment,
business environment, emerging challenges and opportunities
● Organizational boundary​ ​separates the organization from its environment
○ Example:(Simple) You are crossing the boundary into the business and when
you go back onto the sidewalk you cross the boundary back into the environment
○ More complex: distributors of soft drinks may enter the store and shelf and
merchandise their products
● Organizations have multiple environments (political, social cultural, tech, economic,
global environment, legal)
○ Current economic conditions affect the performance of almost every business
○ Example: A local grocery store would be influenced not only by an increase in
unemployment in its area but also by the pricing and other marketing of
competitors
○ Example: Bauer needs to watch out for companies like Reebok and Easton and
their competitive actions; stay ahead of the technological race; impacted by
unexpected issues like hockey lockout
● PEST format of the external environment
○ Political legal
■ Conditions reflecting the relationship between business and gov’t
○ Economic
■ Conditions of the economic system in which an organization operates
○ Social cultural
■ Conditions including custom values, attitudes, demographic
characteristics of the society in which an organization functions
○ Technological
■ Conditions of technological improvements/innovation; fueled by R&D
● The major elements of the external environment:
○ Economic conditions
■ The ​economic environment refers to the conditions of the economic
system in which an organization operates
● Has recently been characterized by low growth, fair steady
unemployment rates and low inflation
○ Despite low inflation, rising costs have put economic
pressure on businesses in many sectors
■ Example: Restaurants and grocery stores have
increased prices or reduced package sizes to
survive; stores aimed at low-cost interest like
Dollarama and Costco are thriving
■ The measure of a growing economy is the ​aggregate output​: the total
quantity of goods and services produced by an economic system during a
given period
● An increase in the aggregate output is economic growth
○ If the output grows quicker than the population two things
follow: output per capita (the quantity of good and services
per person) goes up and the system provides relatively
more of the goods and services that people want
■ To people in this economy they see an increase to
a higher standard of living
■ Business cycle is the growth and contraction pattern of short term up and
downs of the economy
 ● Has four phrases: peak, recession, trough, recovery
○ Recession
■ Two quarters when the economy shrinks
■ Starts just after the peak of the business cycle is
reached and ends when the trough is reached
○ Depression
■ Trough extends two or more years
○ Periods of expansion and contraction can vary from
several months to several years

■ Gross domestic product ​(GDP) refers to the total value of all goods and
services produced within a given period by a national economy through
domestic factors of production
● If GDP rises a nation experiences economic growth
● A key measure of economic growth but is flawed
■ Gross national product (GNP) which refers to the total value of all goods
and services produced by a national economy regardless where the
factors of production are located
● Example: Bombardier is a Canadian company but manufacturing
occurs in Kansas, Mexico, Ireland and Morocco is included in
Canada’s GNP but not GDP because the output is not produced in
Canada
■ GDP is the preferred method of calculating national income and output
● The real growth rate of GDP (the GDP adjusted for inflation and
changes in the value of the country's currency) is what counts
■ GDP per capita​ ​means GDP per person
● The figure is got by dividing total GDP by total population of a
country
○ Better at measuring the economic well-being of the
average person
■ Real GDP​ ​means GDP that has been adjusted
 ● Example: In 2015 a pizza costs $10 and 1000 are made so the
GDP is $10 000; In 2016 a pizza costs $11 and 1000 are made so
the GDP is $11 000; the economy has not grown as aggregate
output is the same; ​nominal GDP is the GDP measured in current
dollars
■ Purchasing Power Parity ​is the principle that exchange rates are set so
that the prices of similar products in different countries are about the
same
● Gives a better sense of what people can actually buy; standards of
living
■ Productivity ​is the measure of economic growth that compares how much
a system produces with the resources needed to produce it; changes in
factors of production
● Example: a natural resource runs out
■ Balance of Trade ​is the economic value of all the products that a country
exports minus the economic value of its imported products
● Canada usually has a positive balance of trade and it is a creditor
nation rather than a debtor nation but right now we are in a trade
deficit
● Generally a trade deficit negatively impacts economic growth =
less money to invest into the economy
■ National debt​ ​is the amount of money the gov’t owes its creditors
● Gov’t has revenues (taxes) and expenses (military spending,
social programs)
● Less money available for private borrowing and investment
● Gov’t spends more money on interest payments = less money to
invest into the economy/ companies/ people/ infrastructure
■ Budget deficits​ are spending more money each year than what it takes in
● The budget will balance itself
● This affects economic growth as it takes away supply of loanable
money that could go to investment and increasing productivity
■ Economic stability is a condition in which the amount of money available
in an economic system and the quantity of goods and services produced
are growing in the same rate
■ Inflation​ i​s the widespread price increase throughout an economic system
● People have more money to spend but the same quantity of
products available for them to buy; consumers compete to buy the
products and prices go up; high prices causes less purchasing
power
● Consumer Price Index (CPI) ​measures changes in the cost of the
basket of goods and services a typical family buys
■ Deflation is evident when the amount of money injected into an economic
system lags behind increases in actual output
 ● Prices may drop because productivity is increasing and discounts
are given to consumers (good) or consumers have a bad level of
debt can can’t buy much (bad)
■ Unemployment​ ​is the level of joblessness among people seeking work
● Frictional unemployment: people are out of work while looking for
a new job
● Seasonal unemployment: people are out of work bc the seasonal
nature of their jobs
● Cyclical unemployment: a downturn in business cycle means less
jobs
● Structural unemployment: people don’t have jobs because they
lack the skills needed to perform available jobs
○ When there is a shortage of labour businesses increase
wages which eats into profit margins and leads to an
increase of the price of the products, as a result
consumers buy less and the workforces are reduced
■ Fiscal policies​ involve the collection and spending of gov’t revenues
● Example: when growth rate is decreasing, tax cuts will stimulate
economic growth
■ Monetary policies focus on controlling the size of the nation’s money
supply
● Bank of Canada influences the ability and willingness of banks
throughout the country to lend the money
○ Higher interest rates means money is more expensive to
borrow and reduces spending
■ This is called tight monetary policy
○ Lower interest rates make money less expensive borrow
and increases spending
■ This is called easy monetary policy
○ Technology
■ Generally includes all the ways firms create value for their constituents
■ Research and development (R&D) provides new ideas for products,
services and processes
● Basic/pure R&D involves improving knowledge in an area without
a primary focus on whether any discoveries that might occur are
immediately marketable; knowledge
● Applied R&D focuses specifically on how technological innovation
can be put to use in the making of a product or service that can be
sold in the marketplace; commercial
■ Technology is the basis of competition for some companies especially
when they want to lead in their area for their industry
 ■ Technology transfer refers to the process of getting new technology out of
the lab and into the marketplace where it can generate profits for the
company
● Efficient transfer means an increase of business success
○ Political-legal considerations
■ Political-legal environment ​reflects the relationship between business and
gov’t including regulation of business
● At times policy can be very advantageous to businesses
● During times of anti-business sentiment companies may find their
competitive activities restricted
● Gov’t mandates
● Political stability is important for multinational firms
○ They want to set up shop in countries that have trade
relationships that are well defined and stable
● A new mayor or premier can affect small firms that do business in
a single location and are subject to zoning restrictions, property
and school taxes, etc.
○ Social issues
■ Social cultural environment includes customs, values, attitudes and
demographic characteristics of the society in which a company operates
■ Preferences and tastes vary across national boundaries and over time
● Example: Gucci a few years ago is not as valuable as it is today; it
has a strong market in Asia but virtually no market in Kenya
○ Global environment
○ Issues of ethical and social responsibility
■ Keeping up in today’s fast paced business market is putting a strain of
traditional methods for auditing, financial reporting and time-honoured
standards for professional ethics
○ Business environment itself
■ Businesses aggressively try to differentiate themselves there has been a
trend towards high quality products, planned obsolescence and product
life cycles measured in weeks or months = consumer expectations of
instant gratification
■ Final consumers and business customers want high quality goods and
services may be customized for low prices and quick delivery
■ Sales offices, service providers and production facilities are shifting
geographically as new markets emerge
■ Employees want flexible working hours and opportunities to work at home
■ Shareholders also add pressure for productivity increases, growth in
market share and larger profits
■ The public wants honesty, fair competition and respect for the
environment
■ The most important issues facing Canadian businesses are
 ● Value of the Canadian dollar
● A skilled labour shortage
● The environment
■ Michael Porter’s five forces model

●
● Rivalry among existing competitors varies across industries
○ Can be seen in price competition, elaborate advertising
campaigns and increased emphasis on customer service
● Threat of potential entrants worries companies about big changes
they could make
○ If it easy for a competitor to enter, competition will likely be
intense and the industry will not be attractive
○ Organizations try to create barriers for competition
○ Can be lowered if there are barriers to entry
○ They may redivide the market share
● When there are only a few buyers and many suppliers, buyers
have a great deal of bargaining power
○ Are buyers able to negotiate with those in the competitive
market?
○ Bargaining power is high if its easy for buyers to switch
● Substitute products make an industry more competitive
○ How easy is it for consumers to switch products?
○ How willing are people to switch to substitutes and level of
switching costs
● The amount of bargaining power suppliers have in relation to
buyers helps determine how competitive industry is
○ Few suppliers have greater bargaining power
○ Number of suppliers is influenced by the number of
substitute products available
● Competitive rivalry
○ When rivalry is intense companies will be very competitive
with tactics
 ○ Rivalry can be lowered if you find a less competitive
position in the marketplace
○ Emerging challenges and opportunities
■ Businesses today focus on core competencies which is the skills and
resources with they compete best and create the most value for owners
■ Outsourcing is the strategy of paying suppliers and distributors to perform
certain business processes or to provide needed materials or services
■ Social media is becoming a way to connect with consumers; most
organizations are careful about their online presence because they want it
to be natural
● Viral marketing predates the social media craze and prominence
comes from email forwards; works because people increasingly
rely on social media for information they used to get from radio
and newspapers and because the customer becomes a participant
in the process by spreading the word
■ A process is any activity that adds value to some input transforming it into
and output for a customer ( external or internal)
■ Business process management means moving away from organizing
around departments and moving towards organizing around process
oriented team structures that cut old departmental boundaries
● Acquisition​ is one firm buying another
● Merger​ is a consolidation of two firms and a more collaborative arrangement
○ Horizontal merger is when companies are in the same industry
○ Vertical merger is when the merger is a supplier or customer to the other
○ Conglomerate merger is unrelated businesses
● Friendly takeover is the acquired company welcomes the acquisitions because it needs
cash or sees the benefits
● Hostile takeover is acquiring the company buy buying enough of the other company’s
stock to take control even though the other company is opposed to takeover
● Poison pill ​is a defence tactic management adopts to make a firm less attractive to an
actual or potential hostile suitor takeover attempt
● Divestiture occurs when a company sells part of its existing business operations to
another company
● Spinoff ​is when a company sets up one or more independent business because it is
more value as a separate company
● Corporations sometimes owned by the employees who work for them
○ This usually takes form in ​employee stock ownership plan or ESOPs
■ Done to increase motivation or fight hostile takeover
■ ¾ of companies with ESOPs have experienced improvement in both
sales and profits
● Strategic alliance or joint venture involves two or more enterprises working together to
research, develop, manufacture and market a product
○ Helps spread risk of a project
 ○ Get some value and expertise for their strategic partner
● Subsidiary corporation is one that is owned by another corporation
● Company that owns the subsidiary is called the parent corporation

Chapter 3: Conducting Business Ethically and Responsibly

● Ethics ​are beliefs about what is right and wrong or good and bad
○ Unethical behaviour is behaviour that individual beliefs and social norms define
as wrong and good
○ A given behaviour may be ethical and legal (ex: providing high-quality products to
consumers)
○ Ethical and illegal (ex: breaking the law in totalitarian regime in order to carry out
humanitarian efforts)
○ Unethical and legal (ex: playing low wages to foreign workers)
○ Unethical and illegal (ex: lying in companies financial record to make their profits
look better)
● Business ethics ​is a term often used to refer to ethical or unethical behaviours by a
manager or employee of a business
● Managerial ethics are the standards of behaviour that guide individual managers in their
work
○ Behaviour towards employees​: issues involving hiring and firing, wages and
working conditions and privacy
○ Behaviour towards the organization​: respect to employee behaviour towards
employers
■ Conflict of interest occurs when an activity benefits an employee at the
expense of the employer
○ Behaviour towards other economic agents​: disputes in the relationship between a
company and its customers, competitors, stockholders, suppliers, dealers and
unions
■ Price gouging is charging unreasonably high prices
● We can determine if behaviour is ethical or unethical by
○ 1​. Gathering the relevant and factual information
○ 2.​ Determine the most appropriate moral values
■ Utility: does a particular act optimize what is best for those who are
affected by it?
■ Rights:​ Does it respect the rights of individuals involved?
■ Justice:​ Is it consistent with what we regard to be fair?
■ Caring: ​Is it consistent with people’s responsibilities to each other?
○ 3. Make ethical judgement based on rightness or wrongness of the proposed
activity or policy
● Newspaper test​: never do anything that you wouldn’t want to see on the front page of the
New York Times
● People typically do unethical behaviour because
 ○ Pressure: the employee has a problem that can’t be solved through legitimate
means
○ Opportunity: the employee uses his or her position in the organization to solve
the problem
○ Rationalization: the employee sees him or herself as basically an ethical person
caught up in an unfortunate situation
● To reduce unethical behaviour, organizations should
○ demonstrate top management commitment to ethical standards
■ Ethical sourcing which means monitoring factories that produce its
products to make sure that those factories are providing good working
conditions for their employees
● Many Canadian and U.S. firms are adding a position of ethic
director or ethics officer
○ adopt written codes of ethics and
■ For a code of ethics to be effective there must be a control system and
consistent enforcement when unethical behaviour occurs
○ provide ethic training to employees
■ Business schools are important players in the debate about ethics as they
sensitize students to academic integrity issues like plagiarism and
cheating and how this harms students and the education system
■ Conducting workshops or training for managers and employees to
understand the importance of ethical decision making
● Corporate social responsibility refers to the way in which a business tries to balance
commitments to important individuals and groups in its external environment
○ Example: Mountain equipment Co-Op is an organization with social responsibility
and does not try to maximize shareholder wealth at the expense of their social
and environmental goals
● Fair trade movement is a movement designed to help workers in developing countries
receive fair payments for their work
● Organizational stakeholders are individuals and groups that are directly affected by the
practices of an organization and therefore has a stake in its performance
● Social Return on Investment (SROI) has been developed which helps companies
understand, manage and communicate the social value of their activities for
stakeholders
● Most companies that want to be socially responsible focus on
○ 1​. Customers
○ 2.​ Employees
○ 3​. Investors
○ 4​. Suppliers
○ 5.​ Communities
■ Also, more companies start to care about the environment as well
● Managerial capitalism is that a company’s only responsibility is to make as much money
for its shareholder as long as it doesn't break any laws
● Consumerism ​is the movement dedicated to protecting the rights of consumers in their
dealings with businesses; consumers have
○ The right to safe products
■ Although this is not always honoured as 20 people died in 2088 from
eating contaminated meat
○ The right to be informed about all the relevant aspects of a product
■ Ingredients on food
○ The right to be heard
■ Procter & Gamble put toll-free number on many of its products that
consumers can call if they have questions
○ The right to choose what they buy
■ Access to free and open competition between companies
○ The right to be educated about purchases
■ Prescription drugs now come with detailed info on dosage, possible side
effects and potential interactions with other medication
○ The right to courteous service
■ Consumers and voice bad service through many means
● Collusion among companies is getting together to fix prices
● Truth in advertising has been regulated in Canada for awhile but is now reaching out
more to international markets
○ Ex: Chinese gov’t investigating if a conditioner can make your hair 10x stronger
● Advertising of counterfeit brands is a problem in many different product lines
○ Ex: Fake cancer drugs being sold online due to the high prices for the drug
regularly
● Stealth advertising is getting unknown passerbyers subjected to individual representing
a company undercover to spread word about a product
○ Ex: models posing at a tourist site with a camera to advertise to unsuspecting
tourists
● Morally objectionable advertising offends the average person’s sense of what is
reasonable
○ Ex: Victoria Secret models in underwear
● Socially responsible companies hire and promote new workers without regard to race,
sex and other irrelevant factors, provide safe and non-bullying workplace, do not tolerate
abusive managers who sexually harass and promote work-life balance and protects
mental health and pays a living wage
○ Progressive companies go beyond the legal requirements, hiring and training so
called hardcore unemployed (people with little education and training and history
of unemployment)
● Whistleblowers ​is an individual who calls attention to an unethical, illegal or socially
irresponsible practice on the part of a business or organization
○ Some argue that they should be paid as they face harassment and defamation
from their companies when they report misconduct
 ○ Others argue they shouldn’t as it may cause whistleblowers to make
questionable charges for their financial gain
● Financial mismanagement can take many forms
○ Improper financial management
■ Examples: executives making bad financial decisions, paying executives
outlandish salaries and bonuses, sending them to extravagant retreats or
resorts
○ Misrepresentation of finances
■ Examples: managers misrepresenting finances and a company’s financial
condition such as wasting investor money on yachts
○ Cheque Kiting
■ Writing a cheque from one account, depositing into a second account and
then immediately spending money from the second account while the
money from the first account is still in transit. A cheque from the second
account can also be used to replenish the money in the first account and
process repeats.
○ Insider trading
■ Using confidential information to gain from the purchase or sale of a stock
is called ​insider trading
■ Traders use information not available to the general investor by ethier
buying stock just before its price goes up or selling stock just before it
goes down
● Businesses that are socially responsible take care when managing their relationship with
their suppliers
○ Some firms with good relationships allow suppliers to view their records so they
can best determine the needs of the company
○ Others with bad relationships with place pressure to lower prices and drop them if
they won’t meet the price
● Businesses demonstrate socially responsible behaviour in their local community by
contributing to local programs
○ Many corporations also donate money and time to different causes
○ International business must also address their responsibility in areas such as
wages, working conditions, environmental protection across different countries
● Pollution is injecting harmful substances into the environment is an important business
challenge
○ Air pollution is when a combination of factors lower air quality
■ The rapid industrialization of developing countries has led to concerns
about air pollution
■ The UN has promoted a “cap and trade” system in which companies of
industrialized nations can buy carbon credits which allows them to pollute
and in doing so they fun clean-air projects in developing countries that
would otherwise be unaffordable
■ Global warming may be occuring due to air pollution
 ■ In difficult economic times the general public is less willing to make
personal sacrifices in order to battle climate change
○ Water pollution
■ Many years business and municipalities dumped waste into rivers,
streams and lakes with little regard for the effects
■ Due to legislation, water quality is improving
○ Land pollution is toxic wastes that are dangerous chemical and or radioactive by
products of manufacturing that are harmful to humans and the environment
■ Recycling which is the reconversion of waste material into useful products
has helped
■ Luckily, plant and animal waste can be recycled to produce energy;
known as biomass
● Companies have varying stances on socially responsible practices
○ Obstructionist stance is that they do little or nothing to help socially or
environmentally
■ When they cross an ethical or legal line, they normally deny and cover up
○ Defensive stance ​will do everything required of it legally but nothing more
■ Ex: would install pollution control equipment by law but not install higher
quality equipment even though it might help with pollution
○ Accommodative stance meets its legal and ethical requirements but goes further
sometimes
■ Ex: may create social programs but solicitors must convince them that
these programs are worthy of funding
○ Proactive stance​ takes to heart the argument in favour of CSR
■ Ex: may set up foundation to provide direct financial support for various
programs
● From the formal level, top management must state strong support for CSR in strategic
planning; a specific executive may be put in charge of a firm's social agenda
○ Social audit ​is an analysis of how a firm is using funds earmarked for social
responsibility goals and how effective these expenditures have been
○ Sustainable development ​is activities that meet current needs but will not put
future generations at a disadvantage when they try to meet their needs
● Informal support in the culture of the organization for CSR is very important at inhibiting
or facilitating socially responsible activities; they have a strong influence of the attitudes
and behaviour
● Small businesses face many ethical and social responsibility issues but may have a
profound and direct effect on their business immediately
○ Most regard financial implications as these firms do not have the same level of
financial flexibility that larger firms have

Chapter 4: Entrepreneurship, Small Business and New Venture Creation

● Defining small business is difficult as there are many different measures
 ○ Some include number of people employed, revenue, size of investment required
or ownership structure
■ Statistics Canada has two different sources for info on small business:
The business register (which tracks business) and the labour force survey
(which tracks individuals)
● To be on the register you must have one paid employee, have
annual sales of $30 000 or more or be incorporated; to be
considered small you must have less than 100 employees for a
goods producing business and 50 if it is a service producing
business
● Labour survey forces uses info to make estimates about
unemployment and employment; people are considered
self-employed if they are working owners of an incorporated or
unincorporated business or work for themselves but don’t have a
business (like musicians) or work without pay in a family business
● For the textbook, ​small business is an owner-managed business with fewer than 100
employees
○ 98.2% of business in Canada are small businesses
■ Source of innovation and new tech
● Small businesses have a decreasing survival rate over 5 years, typically around 50% last
past 5 years
● Three common criteria to decide when a firm comes into existence
○ When it was formed
○ Whether it was incorporated
○ Whether it sold goods and/or services
● A business is considered new if it becomes operational within the past 12 months,
adopts any main organizational forms or sells good or services
● New venture ​is a recently formed commercial organization that provides good/or
services for sale
● Entrepreneurship is the process of identifying an opportunity in the marketplaces and
accessing the resources needed to capitalize on it
● Entrepreneurs​ are the people who recognize and seize said opportunities
● People who show entrepreneurial spirit within a new or existing firm are called
intrapreneurs
● A key difference between intrapreneurs and entrepreneurs is that intrapreneurs typically
don't have to concern themselves with getting the resources needed to bring the new
product to market since big companies already have the resources
● In Canada 98.2% of businesses are small (less than 100 employees) and more than half
of those have less than 5 employees; medium sized businesses (100-499) make up
1.6% and large businesses represent 0.2
● Private sector is the part of the economy consisting of companies and organizations not
owned or controlled by gov’t
○ 11 569 400 work in the private sector
● Women who run businesses from home are called “mompreneurs”
● Entrepreneurial process is influenced by PEST
● Three key elements in the entrepreneurial process and how they interact is
○ The entrepreneur
○ The opportunity
○ And resources
● Entrepreneurs must
○ Identify an opportunity
■ Involves generating ideas for new and improved products, processes or
services, screening those ideas and developing the best one
● You must abandon traditional assumptions about how things work
and how they ought to be, seeing what others do not
■ Entrepreneurs usually come up with an idea of a company in the sector
they work in as they are familiar with the product, service, customers,
suppliers, market needs and competitors
■ Ideas need to be screened to weed out dead end ventures; ideas need to:
● Be a product or service that creates or adds value for the
customer is one that solves a significant problem or meets a
significant need in new or different ways
● A competitive advantage exists when potential customers see the
product or service as better than that of the competitors and can
maintain competition
● They must have enough customers willing to buy the product;
market demand is strong enough
○ Sales forecast is an estimate of how much a product or
service will be purchased by prospective customers over a
specific period (usually one year)
○ Financial viability involves preparing financial forecasts,
2-3 year projects of a ventures future and performance
● Have low exit costs and can be shut down without much loss of
time, money or reputation
● N​ew ventures use on or more of three main entry strategies
○ Introduce a whole new product or service; from scratch
○ Introduce a service or product that competes with exist offerings; buy existing
○ Or they franchise
■ Franchise is an agreement in which the buyer purchases the rights to sell
a product or service of the seller
● Buy existing business
○ Pros:
■ Leverage pre existing value
■ Knowledge and expertises→ proven
■ Owning established components
■ Pre-existing relationship with suppliers and consumers
 ○ Cons:
■ Bad reputation
■ Status of business or may not be in good shape
■ Leadership and employee conflict
■ Debt (could also be a plus as you can buy the company for cheap
■ Expectations that family members of a family owned business may have
in regard to leadership
● Franchising
○ Pros
■ Established process/values
■ Reputation pre-existing
■ Financial support
■ Expertise of a current company
○ Cons
■ Franchising agreements outline the duties and responsibilities of each
party
● Lengthy and complicated agreements ---> sued if followed
incorrectly
■ Percentage of revenue is taken away and initial pay out for rights to
operate can be very costly
■ Expensive to start up
■ Bureaucratic measures that may be inflexible
○ Things to consider before you franchise: (costs)
■ Franchise sale price
■ Expenses before business opens
■ Training expenses
■ Operational expenses for the first 6 months
■ Personal financial needs for the first 6 months
■ Emergency needs
● Starting a business
○ Pros
■ You can be your own boss
■ Security in job
■ You hire the talent that you want
○ Cons
■ Time consuming
● A business plan is a document that describes the entrepreneur's proposed business
venture, explains why it is an opportunity and outlines its marketing plan, operational and
financial details and managers skills and ability
○ Access resources:
■ entrepreneurs typically acquire various resources needed to make the
venture a reality by ​bootstrapping which means doing more with less;
using people’s resources whenever they can; can also refer to acquisition
 of other types of resources such as people, space, equipment, materials,
loaned or provided by customers or suppliers
■ There are two main types of financing
● Debt which allows for more control; money comes from
○ Financial institutions which usually involves getting a
personal loan by borrowing against your house or cash
value of life insurance policy
○ Suppliers who provide goods or service with an agreement
to bill later, known as a trade credit
● Equity which is usually more accessible and appropriate; money
comes from
○ Personal savings
○ Love money, meaning money from friends, relatives or
business associates
○ Private investors which can include informal capital called
angels; usually these people are well off
○ Venture capitalists
● Collateral refers to items (assets) owned by the business (like
buildings or equipment) or by the individual (house or car) than the
borrower uses to secure a loan or credit
■ Business development Bank of Canada has a mandate to help develop
Canadian businesses with a particular focus on small and medium sized
companies
● Provides financing, venture capital and consulting strategies
■ Incubators are facilities that support small businesses during their early
growth phrase by providing basic services, office space, legal advice and
more
■ The internet provides access to how to write a business plan and info on
gov’t grants
● When ownership is shared decisions must be made regarding how much each
shareholder will own, at what cost and under what conditions
○ Deciding ownership involves considering
■ Size and scope of the venture
■ Personal competencies
○ Most teams tend to be formed in one of two ways
■ One person has an idea dn then several associates join the team for the
first few years of operation
■ An entire team is formed at the outset based on factors like shared idea,
friendship or experience
○ Ideal team consists of ppl with complementary skills covering key areas of
business (marketing, finance, production)
● Entrepreneurs need to decide if the fit is right before they start a venture, they consider
○ Entrepreneur-opportunity fit
 ■ Something they want to do
● Must be interested in and have the right skills and abilities
■ Opportunity-resources fit
● Resources needed to capitalize on the opportunity can be
acquired
■ Entrepreneur-resources fit
● Resource requirements of the venture have been determined, the
entrepreneur needs to assess whether he or she had the capacity
to meet those requirements
● Sole proprietorships
○ Owned and operated by one person
○ Considered and extension of a person not a separate legal entity
○ Pros:
■ Freedom
■ Simple
■ Low start-up costs
■ Tax benefits
○ Cons:
■ Responsible for any debt incurred also known as ​unlimited liability
■ Lack of continuity (doesn’t continue after someone retires or passes
away)
■ Difficult to raise money
■ Reliance on one individual
● Partnerships
○ A business with 2 or more owners who share the operation of the firm and the
financial responsibility for the firm's debts
■ General partners​: active,manage firm, unlimited liability
■ Limited partners​: not active, liability is limited to the amount invested in
the partnership, can’t manage day to day
○ Pros
■ Larger talent pool
■ Larger money pool
■ Ease of formation
■ Tax benefits
○ Cons
■ Unlimited liability
■ Lack of continuity
■ Ownership transfer difficult
■ Potential conflict
● Corporations
○ A business that is a separate legal entity, liable for its own debts, and whose
owner’s liability is limited to their investments
■ Shareholders​:investors who buy shares of ownership (stocks)
 ■ Board of directors​: governing body of a corporation
● Inside directors: employees of the company and have
responsibility for the cooperation
○ Usually top managers, presidents and executive vice
presidents
● Outside directors: are not employees of the cooperation
○ May be accountants, university officials attorneys,
executives from other firms
■ CEO​: responsible for the firm’s overall performance
■ Public corporation:​ stocks are widely held; available to public
● New companies usually start as private as no one would buy stock
of a company they don’t know about
○ To go public they have and ​initial public offering (IPO) in
which it offers shares for sale
○ Private equity firms buy publicly companies and take them
to private
○ Income trust structure allows corporations to avoid paying
corporate income tax if they distributed all or most of their
earnings to investors
■ Private corporation​: held by a few people; generally not for sale
○ Pros
■ Limited liability
■ Continuity
■ Professional management
■ Easier to raise money
○ Disadvantages
■ Start-up costs
■ Double taxation
● Corporation is taxed and shareholders are taxed
■ Regulation
■ stockholder revolts
● Cooperatives
○ Organized and owned and controlled by users of its product/services
○ An organization formed to benefit its owners in the form of reduced prices and
the distribution of surpluses
○ Each member has a vote
○ Pros
■ Limited liability
■ Control is shared
■ Oporational adavnatages
○ Cons
■ No incentive for members to invest
 ■ Democratic voting and patronage dividend may not be attractive to
entrepreneurs
● The Entrepreneurial process
○ 1. Idea generation
■ Ideas from your everyday life
■ Gaps in the market
■ New discoveries
○ 2. Screening
■ Does it create value? Meet a need?
■ Does it have a competitive advantage?
■ Marketable?
■ Financially viable?
■ Low exit costs?
■ Result: weeds out “dead-end” ideas
○ 3. Develop the opportunity
■ Main entry strategies
● New product
● Competitive offering with a twist
● Franchise
■ Create a business plan (pg 81/pg 117 in the textbook)
○ 4. Secure the resources
■ Finances people
● Formation of a cooperation
○ Two main ways
■ Federal incorporation under the Canada Business Corporation Act
● Used if going to operate in more than one province
■ Provincial incorporation under any of the provincial corporation acts
● Intend to carry business in only one province
○ Corporations much attach the word “Limited” (Ltd), “incorporated” (Inc.) or
“Corporation” (corp.) to the company name to indicate clearly to the customers
and suppliers that the owners have limited liability for corporate debts
■ Advantages of incorporation
● Limited liability
○ Liability of investors is limited to their personal investment
in corporation and in the event of failure, the courts may
seize corporation's assets and sell them to pay debts but
the courts cannot touch the investor’s personal
possessions
● Continuity
● Can raise money by selling ​stock​ or ownership in a cooperation
■ Disadvantage
● Costly
● Need legal help meeting gov’t regulations
 ● Double taxation
○ Cooperation must pay income taxes on its profits and then
shareholders must also pay personal income taxes on its
profits and then shareholders must also pay personal
income taxes on the ​dividends ​they get from the
corporation
■
● Reasons small businesses succeed
○ 1. Hard work, drive and dedication
■ Small business owners must be committed to succeed and be willing to
put in the time and effort to make it happen
○ 2. Market demand for the product or service
■ Careful analysis of market conditions canhelp small bsuiness people
assses probable reception of their products
○ 3.Managerial competence
■ People understand how to run a business
● Takes courses, experiences, uses expertise of others
○ 4. Luck
● Reasons small businesses fail
○ 1. Managerial incompetence or inexperience
■ Some entrepreneurs overestimate their own skill or thinks that hard work
alone ensures success
○ 2. Neglect
■ Some entrepreneurs try to launch ventures in their spare time while
others only devote limited time to the company
○ 3. Weak control systems
■ Effective control systems keep a business on track and alert managers of
potential problems
○ 4. Insufficient capital
■ Some entrepreneurs are overly optimistic about how soon they will start to
learn profits
●

Harvard Business Review- Innovation: The Classic Traps

Traps Description Recommendations

Strategy mistakes -rejecting too small Widen search and broaden

opportunities scope
-assuming only new
product count (ignoring
new services or processes)
-too many product
 extensions

Process mistakes -static processes that don’t Add flexibility to planning

fit and control systems
-discouraging managers
from making changes

Structure mistakes -siloing fledgling and Tighten human

established enterprises connections
-create classes of
innovators vs. managers

Skill mistakes -allowing innovators to Select innovation leader

quickly rotate out of keys with strong interpersonal
-assuming innovative skills
teams should be lead by
the best technical people

Chapter 5: The Global Context of Business

● The world economy is increasingly big transformed into a single interdependent system
called ​globalization
○ Pros
■ Sharing of ideas; tech
■ Lower cost to consumers
■ Variety of products
○ Cons
■ Complexity of inputs
■ Interdependence of economies
■ Decrease in wages
■ Lack of transparency
■ pollution/environmental
○ Impact
■ International business
■ International trade
■ Major world marketplaces
● Imports​ are products made or grown aboard but sold in canada
● Exports ​products made or grown domestically and shipped abroad
● International trade has become increasingly central to the fortunes of most nations of the
world as well as business
● In the past nations followed strict policies to protect domestic companies, aggressively
encouraging international trade
● Now govts offer incentives to open their own domestic businesses to expand
internationally
 ○ Gov’ts and businesses have simply become more aware of the benefits of
globalization to the countries and their stockholders
○ New technologies have made travel communication and commerce easier, faster
and cheaper
○ There is also competitive pressures, sometimes a firm simply must enter foreign
markets just to keep up with its competitors
● The World Bank uses per-capita-income, average income per person, to make
distinctions among countries
○ High income countries
■ Annual per-capita income must be greater than $12 746 US
■ Ex: japan, canada, us, Israel, kuwait, UAE, mot european countries
○ Upper-middle-income countries
■ Annual per-capita income between $4126-$12745
■ Ex: China, Columbia, Lebanon, Turkey, argentina
○ Low-middle income countries
■ Annual per capita income between $1046-$4125
■ Ex: Ukraine, philippines, Armenia, Vietnam
○ Low income countries/developing countries
■ Less that $1045
■ Ex: Haiti, Afghanistan, Malawi, Bangladesh
● North america economy
○ US dominates
■ Single largest marketplace; most stable economy for decades
■ Growing debt load may become problem
○ US and Canada are each other’s biggest trading partner
○ Mexico is a major manufacturing centre, mostly along border where cheap labour
and low transportation costs exist
● Europe
○ Has EU which increase importance of economy
○ Western Europe has more headquarters of big brands
○ Eastern Europe has gained importance as a marketplace and as a producer
○ Traditional view of Europe has been severely altered by the european union,
common currency and clear divide between Northern europe and southern
europe
● Asia Pacific
○ Strong in automobiles, tech and banking
○ Japan dominates region
○ China has emerged as an important market and now boasts the world’s 2nd
largest economy behind that of the US
● BRIC (Brazil, Russia, India, China) nations are increasingly important in global trade;
they act like a unit hold unofficial summits and discussing common strategies
○ Brazil is strong in commodities and agriculture
○ Russia is strong in energy
 ○ China is a major hub of manufacturing activity
○ India is a strong service provider like call centres
● They invited South Africa to form a group called BRICS 💔🌎
○ Most likely bc it is rich in minerals and a gateway to Africa
○ A meeting was held for BRICS and a $100 billion reserve fund to protect their
currencies and a $50 billion seed-capital plan
● Absolute advantage exist when a country can produce something more efficiently than
any other country (beter productivity using the same or better inputs)
○ Ex: like Saudi oil, Brazil coffee beans, Canadian timber
○ Countries should focus more on producing goods and services that they have an
absolute advantage in and buy products that they do not produce more efficiently
than other nations
● Comparative advantage in goods that it can produce more efficiently or better than other
goods
○ A given country may make computers more efficient than they make automobiles
○ All countries have a comparative advantage in some products but no country has
a comparative advantage in all products
○ Developed countries tend to have a comparative advantage in making high tech
products while developing countries tend to have comparative advantage in
making products with low labour cost
○ Ex: Canada in farming due to availability of land over manufacturing because of
expensive labour and shipping costs
● National competitive advantage a combination of factor conditions; demand conditions;
related and supporting industries; and firm strategies, structures and rivalries
○ Factor conditions are factors of production that we identify in Chap 1
○ Demand conditions reflect a large domestic consumer base that promotes strong
demand for innovative products
○ Related and supporting industries include strong local or regional suppliers and
or industrial customers
○ Strategies, structures and rivalries refer to firms and industries that stress cost
reduction, product quality, higher productivity and innovative new products
○ Ex; japan automobile manufacturing
● International competitiveness refers to the ability of a country to generate more wealth
than its competitors in world markers
● Balance of trade is the difference in value between its total exports and total imports
(negative balance= deficit; more imports than exports)
○ More about physical goods
● A country that exports more than it imports has a favourable balance of trade or a
surplus
● A country that imports more than it exports has an unfavourable balance of trade or a
deficit
● Balance of payments ​is the difference between money flowing into a country and money
flowing out as a result of trade and other transactions (negative balance = more money
flowing out than in)
○ More about financial payments
● Exchange rate ​is the rate at which currency of one nation can be exchanged for another
○ The value of one country’s currency relative to another varies with market
conditions
○ Exchange rates typically fluctuate by very small amounts on a daily basis; more
significant change is in a greater span of time
● Euro​ is a common currency among 18 members of the european union
○ Introduced in 2002
● Companies that conduct international operations must watch exchange rates as they
affect demand and competition internationally
○ When the value of a currency rises (becomes stronger)
■ Harder to export product to foreign markets and easier for foreign
companies to enter local markets
■ More cost efficient for domestic companies to move production operations
to lower cost sites in foreign countries
○ Weaker currency the opposite pattern occurs
■ The balance of trade should improve as domestic companies should
experience a boost in exports
■ Less incentives for foreign companies to ship product into the domestic
market
● When going global a company needs to
○ Gauge international demand
■ Will this be usefully anywhere else?
■ Can’t sell a snowmobile in central america
○ Adapting to customer needs
■ Change a product to meet the special needs and expectations of foreign
customers
■ KFC in china comes with rice and hot soy milk
● A firm must decide on its level of international involvement
● Exporter is a firm that makes a products in one country and then distributes and sells
them in others
○ Low level of involvement
● Importer buys products and foreign markets and the imports them for resale in its home
country
○ Canada ranks first among the G8 countries in proportion of its production
exported
○ Low level involvement
● International firm ​conducts a significant portion of its business abroad
○ An international firm may be large and influential in the global economy but
remain basically a domestic firm with international operations
 ○ Conducts business abroad with international operations but remains a domestic
firm and has a focus on its own domestic market
○ Medium-high involvement
● Multinational firms​ that designs produces and markets products in many nations
○ They do not think of themselves as having domestic and international divisions
and focus on planning towards global markets
○ Location of HQ is irrelevant
○ High involvement
● Independent agent ​is a foreign individual or organization that agrees to represent an
exporter’s interest in foreign markets
○ Act as sales representatives
○ Sell the exporter’s products, collect payments and ensure customers are satisfied
● Licensing arrangements give individuals or companies in foreign countries the exclusive
rights to manufacture or market their products in that area
○ In return, the exporter typically receives an ongoing fee called royalties
■ Using a percentage of the license holder’s sales
● Branch offices involves sending some own managers to overseas branches; company
therefore has a more indirect control
○ Customers feel more secure
○ When a business operates branches, plants, subsidiaries in several countries, it
may assign one plane or subsidiary to the responsibility for researching,
developing, manufacturing and marketing one product or line of product known
as world product mandating
● Strategic alliance means that a company finds a partner in foreign country where it would
like to conduct business
○ Each party invest in resources and capital in a new business for mutual benefit
and future profits are divided
● Foreign direct investment (FDI) means buying or establishing tangible assets in another
country
○ Ex: bombardier built a manufacturing facility in Casablanca, Morocco
● Social and cultural differences must be studied when doing business in another country
○ Language can be a barrier
○ Average physical stature of people in different countries can make a difference in
the fit of clothing
○ Average age and demographics also impact product development and marketing
○ Simple cultural difference can require an entire redesign of a product
● Economic differences can be fairly pronounced (gov’t involvement in economy)
○ Demand/ growth in asian luxury markets
○ Gov’ts involved or not involved in the economy
● Quota​ restricts the total number of certain products that can be imported into a country
○ Indirectly raises the price of imports by reducing their supply
● Embargo is a gov’t order forbidding exportation and or importation of a particular product
or even all products of a particular country
● Tariff ​is a tax charged on imported products
● Subsidy is a government payment given to a domestic business to help compete with
foreign firms
● Protectionism ​the practice of protecting domestic business at the expense of free market
competition has advocates and critics
○ Pro
■ protects domestic firms and jobs
■ Help grows domestic business
■ Encourages job growth in domestic industries
■ Protects new industries until they can compete
○ Cons
■ Causes friction between nations
■ Reduces competition
■ Drives up prices
■ Hinder jobs impacted in industries
● Cartels is an association of producers whose purpose is to control the supply and price
of a commodity
● Dumping is selling a product abroad for less than the comparable price charged in the
home country
● General agreement on tariffs and trade ​(GATT) is an international trade agreement to
encourage multilateral reduction or elimination of trade barriers
○ 92 countries signed GATT and not all complied with the rules, US being the worst
offender
○ In 1994 and updated version was signed but still had many unresolved issues
● World Trade Organization ​is an organization ​with 160 members in which they negotiate
trading agreements and resolve disputes abou trade policies and practices
○ Promotes trade by encouraging members to adopt fair trade practises
○ Reduce trade barriers by promoting multilateral negotiations
○ Establish fair procedures for resolving disputes among members
■ WTO is overseeing reductions in importduties
■ Functions as a ruling body but regulations can take years to happen
● The European Union is an agreement among major western european nations to
eliminate or make uniform most trade barriers affecting group members
○ The largest free marketplace in the world and produces nearly ¼ the global
wealth
● North American Free Trade Agreement ​(NAFTA) is an agreement to gradually eliminate
tariffs and other trade barriers among the US, Canada and Mexico
○ Nafta created a much more active north american market
○ Direct foreign investment has increased in Canada
○ U.S. imports from and exports to Mexico have increased
○ Canada has become an exporting powerhouse
○ Trade between the US and Canada rose sharply and Canada enjoys a large
trade surplus with the US.
 ■ Cons of nafta
● Increase border waits
● Manufacturing drain continues
● Plants for cars are being developed in Italy and less in US or
Canada
■ Pros of nafta
● Canada has an increased presence in Mexico
○ Mining, auto parts to banking
● The Trans-Pacific Partnership has 12 member states including: Canada, the U.S.,
Australia, Brunei Darussalam, Chile, Japan, Malaysia, Mexico, New Zealand, Peru,
Singapore, Vietnam
○ Comprehensive agreement that will increase Canada’s foothold in Asia-Pacific
● Canada- European Union Comprehensive Economic Trade Agreement is an agreement
between the EU and Canada
● Mercosur is a free-trade agreement known as Mercosur between Argentina, Brazil,
Uruguay, Paraguay; Venezuela became the fifth member in 2012
○ In its first decade tariffs had been eliminated on 80% of goods traded between
original members

Week 7- Building a Business

Getting from Business Idea to Business Model

● In order for a great idea to succeed, it needs a great business model
● Idea can fail if it is not scaleable or financially sustainable
● Need to find reliable channels to find your customers
● Build an infrastructure that won’t collapse as your business grows
● First, you must find the best business model

Visualizing Your Business Model

● Business model canvas
○ A model to provide visual and broad understanding of a business
○ Once completed, provides a comprehensive understanding of a company and
main factors
○ Describes the rationale of how a business functions
● 9 essential buildings blocks of a business model
○ Customer segments
■ An organization serves one or several customer segments
■ Can we identify key customer segments?
■ Who are our most important customers?
■ For whom are we creating value?
■ Must make a conscious decision about what segments to serve
● Customer groups represent different segments if:
○ Their needs require and justify a distinct offer
 ○ They are reached through different distribution channels
○ They require different types of relationships
○ They have substantially different profitabilities
○ They are willing to pay for different aspects of the offer
■ Some different types of customer segments
● Mass market
○ A large group with similar needs and problems
● Niche market
○ Cater to specific, specialized, customer segments
● Segmented
○ Distinguishes between market segments with slightly
different needs and problems and offers a variety of
services
● Diversified
○ Serves two unrelated customer segments with unrelated
issues and very different needs and problems
● Multi-sided platforms
○ Serves two or more interdependent customer segments
■ Holders vs merchants
■ Example Nike:
● Athletes
● Streetwear
○ Urban athleisure
● General public who want athletic wear
● Kids
● Workers
○ Specific industries need certain clothes
● Teams
○ Value proposition
■ Value of products and services that create value for your customer and
solves problems
■ Why customers turn to one company over another
■ Some VPs may be innovation and represent a new or disruptive offer
■ Values that may be offered
● Newness
○ Satisfies an entirely new set of needs that customers
previously didn’t perceive because there was no similar
offerings
● Performance
○ Improving a product or service performance
● Customization
○ Tailoring products and services to the specific needs of
individual customers or segments
 ● “Getting the job done”
○ Simply helps a customer get certain jobs done
○ Allows companies to focus on running their business/doing
their life
● Design
○ Superior design, especially in fashion and electronics
● Brand/status
○ Find value within a logo or displaying a specific brand
● Price
○ Offering a similar value at a lower price is common way to
satisfy the needs of price sensitive customer segments
● Cost reduction
○ Helping customers reduce costs
● Risk Reduction
○ Reduce risks that a customer many incur when purchasing
products or services
● Accessibility
○ Making products and services available to customers who
lacked access to them
● Convenience/usability
○ Makes things more convenient or easier to use, especially
with technology
■ Example Nike
● Brand recognition
● NIKEiD
● Designing shoe to comfort or for a specific need
● Connects products with technology
● Endorsements celebrities/atheletes
● Nike Collaborations
○ Channels
■ Describe which through what touchpoints you are interacting with
customers and delivering value through communication, distribution and
sales channels
■ Channels serve several functions including
● Raising awareness among customers about a company’s products
and services
● Helping customers evaluate a company’s value proposition
● Allowing customers to purchase specific products and services
● Delivering value proposition to customers
● Providing post-purchase customer support
■ Owned channels
● Channel owns website, retail stores, etc.
■ Partner Channels
 ● Channels through partners like wholesale distribution retail,
partner-owned websites, etc.

■
■ Example nike
● Website
● Direct stores
● Partner channels
○ Sport Chek, Foot Locker
● Promotional gear gifted
○ Customer relationships
■ Relationships are established and maintained with each customer
segment
■ What types of relationships does each of our customer segments expect
us to establish and maintain with them?
■ Which ones have we established
■ How costly are they?
■ How are they integrated with the rest of our business model?
■ Customer relationships may be driven by
● Customer acquisition
● Customer retention
● Boosting sales (upselling)
■ Different types of customer relationships
● Personal assistance
○ Based on human interaction, can be assisted by real
customer service representatives
● Dedicated personal assistance
○ Customer service representative is specified to an
individual client
● Self service
○ a company maintains no direct relationship with customer
● Automated services
○ Automated services can recognize individual customers
and their characteristics, and other information related to
orders or transactions. At their best, automated services
can stimulate a personal relationship (e.g. ordering book or
movie recommendation)
 ● Communities
○ Companies maintain online communities that allow users
to exchange knowledge and solve each other’s problem;
can better understand customers
● Co-creation
○ Engage customers with the design of new and innovative
products, may solicit customers to create content
■ Nike example
● Younger consumers may be attracted to a self-service
● Teams and clubs (community)
● Loyalty
● Engagement
● Co-creation
○ Revenue streams
■ Revenue streams result from value propositions successfully offered to
customers
■ A business model can involve two different types of Revenue Streams:
● Transaction revenues resulting from one-time customer payments
● Recurring revenues resulting from ongoing payments to either
deliver a Value Proposition to customers or provide post-purchase
customer support
■ Several ways to generate revenue streams
● Asset sale
○ Sell ownership rights to a physical product
● Usage fee
○ The more a service is used, the more the customer pays
■ Hotels, TV, package delivery service
● Subscription fees
○ Selling a continuous service and access to said service
● Lending/renting/leasing
○ Temporarily allows someone for the exclusive right to use
a particular asset for a fixed period in return for a fee
● Licensing
○ Customers can use protected intellectual property in return
for fees
● Brokerage fees
○ Derives from intermediation services performed on behalf
of two or more parties
● Advertising
○ Revenue stream results for advertising a particular
product, service or brand
■ Example Nike
● Asset sales
 ○ Customers purchase a product
● Through other retailers

■
○ Key resources
■ The assets required to offer and deliver previously described elements…
■ Can be physical, financial, intellectual or human
■ May be owned by the company or leased or acquired from key partners
■ Key resources are categorized as followed
● Physical assets
○ Ex: manufacturing buildings, vehicles, machines, systems,
etc
● Intellectual
○ Brands, copyrights, partnerships, customer databases, etc
● Human
○ Expertise, knowledge, manpower, etc.
● Financial
○ Cash, lines of credit, stock options, etc.
■ Example nike
● Manufacturing
● Investment
● Customer data
● Manpower
○ Needs people to work
○ Key activities
■ By performing key activities
■ Most important things a company must do to make its business model
work
● Production
 ○ Designing, making and delivering a product in quantities
with good quality
● Problem solving
○ Coming up with new solutions to customer problemes
● Platform/network
○ Networks, matchmaking platforms, software, even brands
can function as a platform
■ Example Nike
● Marketing
● Designing new products
● Operations and logistics
● Supply chain management
○ Key partners
■ Some activities are outsourced and some are acquired outside the
enterprise
■ Create alliances to optimize their business models, reduce risk, or
acquire resources
■ We can distinguish between four different types of partnerships:
● Strategic alliances between non-competitors
● Coopetition: strategic partnerships between competitors
● Joint ventures to develop new businesses
● Buyer-supplier relationships to assure reliable supplies
■ Motivations for creating partnerships:
● Optimization and economy of scale
○ Optimization and economy of scale partnerships are
usually formed to reduce costs, and often involve
outsourcing or sharing infrastructure
● Reduction of risk and uncertainty
○ Partnerships can help reduce risk in a competitive
environment characterized by uncertainty
● Acquisition of particular resources and activities
○ Few companies own all the resources or perform all
the activities described by their business models
○ Such partnerships can be motivated by needs to acquire
knowledge, licenses, or access to customers
■ Example Nike
● Sports teams
● Transportation companies
● Logistics
● Outsourcing labour possibly?
● Distributors
● physiologists
○ Cost structure
 ■ The business model elements result in the cost structure
■ Creating and delivering value, maintaining Customer Relationships, and
generating revenue all incur costs
■ Different cost structures
● Cost-driven
○ Focus on minimizing costs wherever possible
● Value driven
○ Instead focus on value of creation instead of cost
implications
● Fixed costs
○ Costs remain the same despite volume of goods and
services produced
● Variable costs
○ Costs vary proportionally with the volume of goods and
services produced
● Economies of scale
○ Cost advantages that a business enjoys as its output
expands
● Economies of scope
○ Cost advantages a business enjoys due to a larger scope
of operations
■ Example nike
● Manufacturing
○ Labour
○ Raw material
● Marketing
● Example of building blocks of discount airline

Prototyping
● Focus on the business model
 ● Don’t fall in love with your first model
● Iterate rapidly and test your models early
Navigating your Environment
● Industry forces
○ Main competitors
○ Dominant competitors
○ Does you model have a competitive edge today?
● Macroeconomic forces
○ How is the global environment functioning?
○ Proving it
● Talk to your customers
○ Lack of interest
○ Costs
● The more you test the more you learn
● The era of the fixed business model is done
○ You need an adaptable business model
Telling your story
● You wrote it like a story so tell it like a story
● Explain what you learn from you testing
○ Admit your failures

HBR- The Core Competence of the Corporation

● Core competencies are the collective learning in the organization, especially how to
coordinate diverse production skills and integrate multiple streams of technologies
○ Harmonizing streams of technology, organization or work and delivery of value
○ Do not diminish with use
○ Advantage, something they learn and develop in
■ Look at what we are really good at and build our brand around that
● Three tests to identify a core competence. A competence should:
○ 1. Provide potential access to a wide variety of markers
○ 2. Contribute significantly to the perceived customer benefits of the end products
○ 3. Be difficult for competitors to imitate
 ●
● What are the strengths/benefits if a business focusing on the Core Competencies rather
than building SBUs?
○ They will be to branch out from their core products and experience new
industries and come up innovative ideas
● Why don’t all businesses focus on building core competencies?
○ They don’t want to be constrained to one area or would rather chase products
that are trending/in demand
■ To build CCs you need time and money
● Why is it important to clarify, build and cultivate core competencies?
○ Makes a business an expert in something, allows your company to survive
through different experiences and environments

Chapter 6: Managing the Business Enterprise

● Managers​ are the people who plan, organize, lead and control the operations of an
organization
○ All business rely on effective managers
● Management​ is the process of planning, organizing, leading and controlling an
enterprise’s financial, physical, human and information resources to achieve the
organization’s goals
○ The planning, organizing, leading and controlling aspects of a manager's job are
interrelated
○ There is a difference between management efficiency and effectiveness
■ Efficiency means achieving the greatest output with a given amount of
input
■ Effectiveness means achieving organizational goals
 ● A manager who focuses on being effective will likely also be
efficient; a manger who may try to be efficient may not be effective
● Planning​ is the process of determining the firm’s goals and developing a strategy for
achieving those goals
○ Step 1: Goals are established for the organization
○ Step 2: Managers identify whether a gap exist between the company’s desired
and actual position
○ Step 3: Managers develop plans to achieve the desired objectives
○ Step 4: The plans have been decided on and implemented
○ Step 5: The effectiveness of the plan is assessed
● Organizing​ involves mobilizing the resources required to complete a particular task
● Leading or directing​ involves the interactions between managers and their subordinates
as they both work to meet the firm’s objectives
○ Effective managers lead in a clear targeted manner and motivate employees to
set challenging goals and work hard to achieve them
○ Employees will respect their leaders, trust them and believe that they will work
together both company and employees will benefit
● Controlling​ is the process of monitoring a firm’s performance to make sure that it is
meeting its goals
○ No single element of the firm’s performance can slip too far before it is noticed
and fixed
○ Managers then measure actual performance each year against standards

○
○ Control can also show where performance is better (or worse) than expected and
can serve as a basis for providing rewarding or reducing costs
● Many management problems can be approached in ways that are rational, logical,
objective and systematic
○ Managers use quantitative models and decision making techniques to arrive at
“correct decisions”
■ Good for routine and well defined issues
 ○ Rely also heavily on interpersonal skills and abstract conceptual thinking
■ A blend of science, at and successful executives recognize the
importance of combining both the science and art of management as they
carry out the functions of management
● Many managers return to school and participate in development programs
○ Some companies have in-house training programs for furthering the education
○ Primary advantage of education is that you can follow a well-developed program
of study and become familiar with current research and thinking on management
○ Over time, individuals exposed to most of the major aspects of the organizations
and can learn from experience
● Managers need to be aware of the expectations that the organizations has for them
○ They will typically work over 40 hours and with no overtime pay
● Lawsuits against employers are partly the result in the way labour laws are written
● Top managers​ are executives who guide the company and are responsible for a firm’s
overall performance and effectiveness and for developing long-range plans for the
company
○ They could be president, vice president, Chief operating officer (COO). chief
executive officer (CEO) and Chief financial officer (CFO)
○ They are responsible to the board of directors and shareholders as far as overall
performance effectiveness
○ They set general policies, formulate strategies, oversee significant decisions,
represent the company in its dealings with other businesses and gov’t
● Middle managers​ still occupy positions of considerable autonomy and importance and
they are responsible for implementing the strategies, policies and decisions made by top
managers
○ They have titles like plant manager, operations managers and division manager
are typical of middle management positions
● First-line managers​ responsible for supervising employees who report to them
○ Titles include supervisor, office manager and group leader
● Human resource managers can be found in most companies; they hire, train, evaluate
performance, decide how they should be compensated and deal with labour union
● Operations managers are responsible for a company’s system for creating goods and
services; this includes production control, inventory control and quality control
● Information managers are responsible for designing and implementing various systems
to gather, process and disseminate information
● Marketing managers include the development, pricing, promotion and distribution of
products and service
○ They are responsible for getting these products and services to buys and are
important to firms producing consumer products
● Financial managers​ plan and oversee its financial resource
○ Levels of financial management may include a vice president for finance (top), a
division controller (middle) and an accounting supervisor (first-line)
● Describing managers’ jobs to referring to functions like planning, organizing, leading and
controlling gives us good general picture of what managers do but it may not give a clear
idea of the specific ideas that managers are involved in
● Henry Mintzberg conducted a study of the work of 5 CEOs and discover
○ They worked an unrelenting pace
○ Their activities were characterized by brevity, variety and fragmentation
○ They preferred live action and emphasized work activities that were current,
specific and well defined
○ They were attracted to verbal media
● Mintzberg also described manager’s jobs in 10 roles (in three general categories)
○ Interpersonal roles
■ Figurehead
● Duties of a ceremonial nature
■ Leader
● Being responsible for the work of the unit
■ Liaison
● Making contact outside the vertical chain of command
○ Informational roles
■ Monitor
● Scanning the environment for relevant information
■ Disseminator
● Passing information to subordinates
■ Spokesperson
● Sending information to people outside the unit
○ Decision making roles
■ Entrepreneur
● Improving the performance of the unit
■ Disturbance handler
● Responsible to high pressure disturbance like a strike
■ Resource allocator
● Deciding who will get what in the unit
■ Negotiator
● Working out agreements on a wide variety of issues, such as the
amount of authority an individual will be given
● Effective managers have
○ Conceptual skills refer to a person’s ability to think in the abstract to diagnose
and analyze various situation and to see beyond the present situation
■ They help managers recognize new market opportunities and threats
○ Human relation skills ​help managers lead, motivate, communicate with and get
along with their subordinates
■ improve their insight into employee needs and company operations
■ Poor human relation skills will cause conflicts and cause valuable
employees to quit or transfer and contribute to poor morale
○ Technical skill​s allow managers to perform specialized tasks
■ They develop the skills through education and experience
○ Time management skills refer to the productive use that managers make of their
time
■ Four leading causes of wasted time: paperwork, telephone, meetings,
email
○ Decision making skills help managers define problems or opportunities and to
select the best course of action; it is critical management skill because affects all
of the functions of management
■ First managers must make both problem decisions (specific problem must
be resolved) and opportunity decisions (no specific problem but an
opportunity present itself)
■ Second,decisions that managers make are either programmed decisions
(made frequently and highly structured) or non-programmed decision
(made infrequently and poorly structured)
■ Third managers make decisions under several different risk conditions; in
the condition of certainty the manager knows what alternatives are
available and what conditions are associated with each alternative

■
 ○
● Managers have a variety of non-logical and emotional factors often influence managerial
decision making
○ Organizational politics refer to actions that people take as they try to get what
they want; actions may or may not be beneficial to the organization but they do
influence decision making, particularly if the person taking the action is a
powerful manager
○ Intuition means managers do something because it feels right or they have a
hunch; usually based on years of experience and practice in similar situations;
may actually help managers make an occasional decision w/o going through a
rational sequence of steps
○ Escalation of commitment is when managers make a decision and then remains
committed to its implementation in spite of clear evidence that it was a bad
decision
○ Risk propensity ​refers to much much a manager is willing to gamble when
making decisions
● Strategic management is the process of effectively aligning the organization with its
external environment
● Goals ​are objectives that a business plans to attain
● Strategy is abroad set of organizational plans for implementing the decisions made for
achieving organizational goals
● Purpose of goal setting
○ Goal setting provides direction, udicance and motivation for all managers
○ Goal setting helps firms allocate resources
○ Goal setting helps to define corporate culture
○ Goal setting helps managers assess performance
● Vision (or purpose) is a statement indicating why an organization exists and what kind of
organization it wants to be
● Mission statemen​t a statement of how they will achieve; often includes some statement
about the company’s core value and commitment to ethical behaviour
● Types of goals
○ Long term (5 or more years)
 ○ Intermediate goal (1 to 5 years)
○ Short term goal (1 year or less)
● SMART Goals
○ S- specific
○ M- Measurable
○ A- achievable
○ R- relevant
○ T-time framed
● SMART(ER) goals
○ S- specific
○ M- Measurable
○ A- achievable
○ R- relevant
○ T-time framed
○ E- Evaluated
○ R- re-evaluated
● Strategy formulation is a creation of a broad program of defining and meeting an
organization’s goals; involves three basic steps
○ Setting strategic goals
■ Strategic goals are long-term goals derived directly from the firm’s
mission statement
○ Analyzing the organization and its environment
■ SWOT analysis
● Strengths- internal
● Weakness- internal
● Opportunities- external
● Threats- external
○ Matching the organization and its environment
■ Matching environmental threats and opportunities with corporate
strengths and weaknesses; attempt to leverage its strengths so as to
capitalize on opportunities and counteract threats; attempt to shield its
weaknesses
● Strategic plans reflect decisions about resource allocations, company priorities, and the
steps needed to meet strategic goals, and are usually set by top management
● Tactical plans are shorter-range ones concerned with implementing specific aspects of
the company’s strategic plan; they typically involve upper and middle management
● Operational plans, developed by middle and lower-level managers, set short-term
targets for daily, weekly, or monthly performance
● A corporate-level strategy identifies the various businesses a company will be in and
how they will relate to each other
○ Diversification helps the firm avoid the problem of having all of its eggs in one
basket by spreading risk among several products or markets
 ■ Related diversification means adding new, but related, products or
services to an existing business
■ Conglomerate diversification means diversifying into products or markets
that are not related to the firm’s present businesses
○ Concentration strategy involves focusing the company on one product or product
line that it knows very well.
○ Companies have several growth strategies available to them, including
■ market penetration (boosting sales of present products by more
aggressive selling in the firm’s current markets),
■ geographic expansion (expanding operations in new geographic areas),
■ and product development (developing improved products for current
market)
○ There are two basic integration strategies
■ Horizontal integration means acquiring control of competitors in the same
or similar
■ Vertical integration means owning or controlling the inputs to the firm’s
processes and/or the channels through which the products or services are
distributed
○ Investment reduction means reducing the company’s investment in one or more
of its lines of business
■ Retrenchment, which means the reduction of activity or operations
■ Divestment involves selling or liquidating one or more of a firm’s
businesses
● A business-level (competitive) strategy​ identifies the ways a business will compete in its
chosen line of products or services.
○ A competitive strategy is a plan to establish a profitable and sustainable
competitive position
○ Cost leadership means becoming the low-cost leader in an industry
○ Differentiation strategy tries to be unique in its industry along some dimension
that is valued by buyers
○ A focus strategy means selecting a market segment and serving the customers in
that market niche better than competitors
● Functional strategies identify the basic courses of action each department will pursue so
that it contributes to the business’s overall goals
● Contingency planning ​means identifying in advance changes that might occur that would
affect a business and developing a plan to respond to such changes
● Crisis management means dealing with an emergency that demands an immediate
response. Crisis management plans outline who will be in charge in different kinds of
circumstances, how the organization will respond, and the plans that exist for
assembling and deploying crisis management teams
● Corporate culture​: the shared experiences, stories, beliefs and norms that characterize a
firm
○ Some believe that a cult-like culture is crucial for attracting great employee
 ● Managers must carefully consider the kind of culture they want for their organization,
then work to nourish that culture by communicating with everyone who works there
● Changing an organization’s culture can be difficult, so just because someone recognizes
the need for cultural change does not mean that it will actually be implemented

Chapter 9: Motivating, Satisfying and Leading Employees

● Employee Behaviour is the pattern of actions by the members of an organization that
directly or indirectly influences the organization's effectiveness
● Performance behaviours are those that are directly involved in performing a job
● Organizational citizenship is the other encompassing behaviors that an employee can
help an organization, in a less direct way
● Counterproductive behaviours are those that detract from organizational performance
○ Absenteeism, Sexual and racial harassment, Bullying, Etc
● ​Individual difference ​are physical, psychological and emotional attributes that vary from
one person to another; personality and attitude are the two main categories
● Personality ​is the relatively stable set of psychological attributes that distinguish one
person from another
○ Agreeableness is a person’s ability to get along with others
○ Conscientiousness refers to the number of things a person tries to accomplish
○ Emotionality refers to the degree in which people tend to be positive or negative
in their outlook and behaviour towards others
○ Extraversion refers to a person’s comfort level with relationships
○ Openness reflects how open or rigid a person is in terms of his or her beliefs
● Emotional intelligence refers to the extent in which a person posses social skills, are
self-aware, can manage their emotions, can motivate themselves and can express
empathy for other
● Other personality traits help influence behaviour in organizations
○ Locus of control is the extent in which a person believes that their behaviour has
a real effect on what happens to them
○ Self-efficacy is a person's belief about his or her capabilities to perform a task
○ Authoritarianism is the extent to which a person believes that power and status
differences are appropriate within social systems such as organizations
○ Machiavellianism refers to behaviour designed to gain power and control
○ Self-esteem is the extent in which a person believes that he or she is a
worthwhile and deserving individual
○ Risk propensity is the degree in which a person is willing to take chances and
make risky decisions
● Attitudes reflect our beliefs and feelings baou specific ideas, situations and other people
○ Cognition is the knowledge a person has about someone or something
○ A person’s affect is his or her feelings towards someone or something
○ Intention guides a person’s behaviour
● Two key attitudes of a person’s worth is
 ○ Job satisfaction which reflects the extent in which people have positive attitudes
about their jobs
○ Organizational (job) commitment reflects an individual's identification with the
organization and its mission
● Psychological contract i​s the set or expectations held by an employee concerning what
he or she will contribute to an organization or what the organziationwith provide to the
employee (referred to as inducements)
● Person-job fit refers to the extent to which a person’s contributions and the
organization’s inducements match one another
○ Each person has needs to be met and skills to contribute; organizations should
take advantage of both to fulfill those needs
● Motivation​ means the set of forces that cause people to behave in certain ways
● Classical theory of motivation assumed workers were solely motivated by money; this
approach is known as scientific management
○ Derived from The Principles of Scientific Management (1911) by industrial
engineer Frederick Taylor
● Hawthorne effect ​is the theory that paying attention to employees made workers believe
they were getting special attention and caused their productivity to rise
○ Researchers eventually developed several motivation theories including the
human resource model, hierarchy of need, two factor theory and acquired needs
theory
● Theory X tends to believe that people are naturally lazy and uncooperative and must
therefore be punished or rewarded to be made productive
● Theory Y tends to believe that people are naturally energetic, growth oriented,
self-motivated and interested in being productive
● Maslow’s hierarchy of needs model proposed that people have a number of needs in
attempt to satisfy their work
○ Physiological needs are those concerned with survival
■ In a business this is safe working environment and sufficient salary to
survive
○ Security needs include needs for stability and protection from the unknown
■ This would be pension plans and job security
○ Social needs include the needs for friendship and companionship
■ Friends and work and a supportive company culture
○ Esteem needs are the needs for status, recognition and self-respect
■ Job titles and large offices
○ Self-actualization needs are needs for self-fulfillment
■ Challenge job assignments
● Two factor theory says that jobs satisfaction and dissatisfaction depends on two
separate factors
○ Hygiene factors such as working conditions, quality of supervision, interpersonal
relations, pay and security affects dissatisfaction to no dissatisfaction
 ○ Motivating factors such as recognition, responsibility, advancement and
achievement affects satisfaction to no satisfaction
● David McClelland’s acquired needs theory features three main needs
○ Achievement: have a strong desire to accomplish a goal or task as effectively as
possible
○ Affiliation: focus on human companionship and approval and reassurance from
others, genuinely care about feelings
○ Power: driven by the desire to control their environment
■ People with high power needs can be good managers if (i)seek power in
order to help an organization to perform better (ii) low affiliation needs (iii)
good self-control to avoid excessive use of power
● Expectancy theory suggest that people are motivated to work towards rewards they want
and which they believe they have a reasonable chance or expectancy of obtaining
● Equity theory focuses on social comparisons—people evaluating their treatment by the
organization relative to the treatment of others
○ People evaluate their contributions relative to their compensation and compare to
other employees; their assessments may return feelings of equity or inequity
● Reinforcements means applying or withholding positive or negative consequences in
order to motivate employees to exhibit behaviour the manager wants
○ 1st step is to define the specific behaviours managers want their employees to
exhibit and the ones they want them to eliminate
○ 2nd step is to shape employees by using reinforcement
■ Positive reinforcement: apply consequences when employees exhibit
desired behaviours
■ Punishment: apply negative consequences when employees exhibit
undesirable behaviours
■ Omission: withhold positive consequences
■ Negative reinforcement: withhold negative consequences when
employees exhibit desired behaviours
● Goal-setting theory focuses on setting goals that will motivate employees
○ SMART goals
● Management by objectives involves managers and subordinates in setting goals and
evaluating progress
● Participative management and empowerment involves tapping into worker’s knowledge
about the job, encouraging them to be self-motivated and to make suggestions for
improvements and giving them more authority and responsibility so that they feel they
are a real part of the company’s success
● Quality circle is a group of employees who meet regularly to consider situations for
problems in their work area
● Team management has become increasingly common
○ Problem-solving teams focus on developing solutions to specific problems
■ Usually self-managed and self-sufficient
 ○ Project teams (or venture teams) work on specific projects like developing new
processes, new products or new businesses
● Job enrichment ​means adding one or more motivating factors to a job
○ Combining tasks involves enlarging jobs and increasing their variety to make
employees feel that their work is more meaningful
○ Forming natural work groups involves getting people who do different jobs on the
same project to work together
○ Establishing client relationships and allow employees to interact with customers
● Flextime ​allows people to pick their working hours
● Compressed work week employees work fewer days per week but more hours on the
days they do work
● Telecommuting​ allows people to do all or some of their work away from their office
● Work sharing/job sharing ​benefits both employees and the employer; it allows one or
more people to share one full-time job
● Leadership refers to the processes and behaviours in which managers motivate, inspire
and influence subordinates to work toward certain goals
○ Being a manager does not ensure that a person is a leader
○ A leader may have no formal authority but is effective at taking charge
■ They may lack legitimate power which is power granted through the
formal organizational hierarchy
■ Reward power is the power to give or withhold rewards like salary
increases, bonuses, promotions, praise, and interesting job assignments.
■ Coercive power is the power to force another person to comply by means
of psychological, emotional, or physical threat.
■ Expert power is derived from information or expertise that the manager
possess
■ Referent power is abstract; based on identification, imitation, loyalty and
charisma
○ Leadership is necessary to create and direct change and to help the organization
get through tough times, and management is necessary to achieve coordination
and systematic results and to handle administrative activities during times of
stability and predictability
● Trait approach is based on the leadership approach focused on identifying the essential
traits that distinguish leaders
● Behavioural approach is a leadership approach focused on determining what behaviours
are employed by leaders
○ Task oriented: focuses on how tasks should be performed in order to achieve
important goals
○ Employee-oriented: manager focus on the satisfaction, motivation and well-being
of employees
● 3 main leadership styles:
○ Autocratic style: managers issues orders and expects them to be obeyed without
question
 ○ Democratic style; manager requests input from subordinates before making
decisions but retains financial decision-making power
○ Free-rein style: manager serves as an advisor to subordinates who are given a
lot of discretion when making decisions
● Situational approach to leadership assumes that appropriate leader behaviour varies
from one situation to the next
○ Path-goal theory of leadership is an extension of the expectancy theory
○ Directive leader behaviour lets subordinates know what is expected of them,
gives guidance and direction, and schedules work
○ Supportive leader behaviour is being friendly and approachable, showing
concern for subordinates’ welfare, and treating members as equals.
○ Participative leader behaviour means consulting with subordinates, soliciting
suggestions, and allowing participation in decision making
○ Achievement-oriented behaviour sets challenging goals, expects subordinates to
perform at high levels, encourages subordinates, and shows confidence in
subordinates’ abilities
○ decision tree approach attempts to prescribe a leadership style that is
appropriate in different situations
○ Leader-member exchange (LMX) model focuses on the differential relationships
leaders often establish with different subordinates
■ Ingroup gets special privileges and duties
■ Outgroup receives less time and attention
● Transformational leadership is the set of abilities that allows a leader to recognize the
need for change, to create a vision to guide that change, and to execute the change
effectively
● Transactional leadership involves routine, regimented activities that are necessary
during periods of stability
● Charismatic leadership​ is a type of influence based on the leader’s personal charisma
○ Communicate high expectations about follower performance and express
confidence in their followers; A highly charismatic supervisor will generally be
more successful in influencing a subordinate’s behaviour than a supervisor who
lacks charisma
● leaders were once expected to control situations, direct work, supervise people, closely
monitor performance, make decisions, and structure activities, many leaders today are
being asked to become coaches instead of overseers
● More women are becoming leaders but must studies focus on men XD
● Culture is a broad concept that encompasses both international differences and
diversity-based differences within one culture
○ Cross-cultural factors also play a growing role in organizations as their
workforces become more diverse
● Canadian managers are more subtle and subdued than American managers, more
committed to their companies, less willing to mindlessly follow the latest management
fad, and more open to different cultures because of the multicultural nature of Canada
 ● Canadian managers are very oriented toward fairness, are less likely to protect their own
interests above those of their teams, and put more emphasis on long-term goals rather
than short-term gratification
● Strategic leadership—which focuses on leadership in top management—is a leader’s
ability to understand the complexities of both the organization and its environment in
order to lead change toward enhanced competitiveness
● Business leaders are now being called on to maintain high ethical standards for their
own conduct, to exhibit ethical behaviour, and to hold others in their organizations to the
same standards
● Virtual leadership involves carrying out leadership activities when the leader does not
have regular contact with followers

Chapter 10:

● Service operations are production activities that yield tangible and intangible service
products
● Goods production ​are firms that make tangible products
● Operations includes all the activities involved in making goods and providing services for
customers
● There have been several industrial revolutions
○ The first one occurred in britain in the 1800s
○ The second one in the US in the early 1900s
○ The third one is underway now, based on tech, software and robots
● Products (goods and services) provide customers with ​utility​ (want satisfaction)
○ Products available at a time when consumers want it, production creates time
utility
○ Products available in a place convenient for consumers, productions creates
place utility
○ Making a product that consumers can take pleasure in owning creates
ownership/possession utility
○ Raw materials into finished goods creates form utility
● Operations/production management ​is the systematic direction and control of processes
that transform resources into finished goods and services
○ Operations managers must bring raw materials, equipment and labour together
under a production plan that effectively uses all the resources available in the
production facility
■ As demand for a product increases, managers must schedule and control
work to produce the amount required
■ They must control costs, quality levels, inventory and plant and equipment
and the impact on environment
● Both service and manufacturing operations transform raw materials into finished
productions
 ○ Service operations have either unsatisfied needs or possessions needing care or
alteration
■ The output is not a physical product but people will needs met and
possessions serviced
■ They are more complex than good production in four ways:
● (1) the interaction with consumers
● (2) intangible and unstorable nature of some services
● (3) the customer’s presence in the process
● (4) service quality considerations
○ Manufacturing operations emphasize outcomes in terms of physical goods
● An important satisfier for customers is an intangible value they receive in the form of
pleasure gratification or feeling of safety
● The customer can be present in the operations process
○ As a customer you expect the salon to be conveniently located (place utility), to
be open for business at convenient times (time utility), to provide safe and
comfortable facilities, and to offer quality grooming (form utility) at reasonable
prices (value for money spent)
■ Accordingly the owner plans their business to meet customer needs
● E-commerce introduced a virtual presence as opposed to a physical presence with the
customer
● Service managers know that quality of work and quality of service are not the same thing
○ For example your car could be fixed flawlessly but not be ready for another day
longer
● Operations process is a set of methods and technologies used in the production of
goods or a service
○ Ex: banks use document shredding and data encryption to protect confidential
information
● Goods are either
○ make-to-order (producing custom-designed products for special order)
○ or make-to-stock (producing standard items in large quantities for consumers in
general
● Operations processes in manufacturing firms can be classified on the basis of
○ (1) the kind of transformation technology that is used and
○ (2) whether the operations process combines resources or breaks them into
component parts
● The processes in which manufactures modify goods
○ In chemical processes, raw materials are chemically altered.
○ Fabrication processes mechanically alter the basic shape or form of a product.
○ Assembly processes put together various components
○ In transport processes, goods acquire place utility by being moved from one
location to another
○ Clerical processes transform information
○ analytic process breaks down basic resources into their component parts
 ○ synthetic process, combines a number of raw materials to produce a finished
product such as fertilizer or paint
● High-contact system: system in which the service cannot be provided without the
customer being physically in the system (e.g., transit systems)
● Low-contact system A system in which the service can be provided without the customer
being physically in the system (e.g., lawn-care services)
● Production is a flexible activity that can be moulded into many shapes to give quite
different capabilities for different purposes. The kind of production that is best for a
particular company should be decided from above by the firm’s business strategy
○ operations capability (production capability)—the activity or process that
production must do especially well, with high proficiency
○ operations capability matches up with its business strategy, so that the firm’s
activities—from top to bottom—are focused in a particular direction
● There are five main categories of operations planning:
○ location of a factory, office, or store affects its production costs and flexibility,
sound location planning is crucial
○ The amount of a product a company can produce under normal working
conditions is its ​capacity​; depends on the number of people it employs and the
number and size of its facilities
○ Managers must choose a plant layout:
■ process layout (also called custom-product layout), equipment and
people are grouped according to function;This layout is well suited
to make-to-order shops (or job shops) that specialize in custom
work; very flexible
■ A product layout ​(also called a same-steps or assembly line
layout) is set up to provide one type of service or to make one type
of product in a fixed sequence of production steps; all units go
through the same set of steps; efficient with large production of
units
■ fixed position layou​t is necessary when, because of size, shape,
or other reasons, managers cannot move the service or product to
another production facility
■ Flexible manufacturing system (FMS)​, a single factory can
produce a wide variety of products
● Very expensive some developing countries do movable
factory
■ Soft manufacturing emphasizes computer software and computer
networks instead of production machines
○ In planning production systems and facilities, managers must keep in
mind the firm’s quality goals
○ In designing production systems, managers must clearly identify all
production steps and the specific methods for performing; can then work
to reduce waste, inefficiency, and poor performance by examining
 procedures on a step-by-step basis, an approach sometimes called
methods improvement.
● Detailed description using a diagram called a process flowchart is helpful in
organizing and recording information. The flowchart identifies the sequence of
production activities, movement of materials, and work performed at each stage
of the process
● There are four different kinds of schedules:
○ (1) the master operations schedule (the “game plan” for deciding the
volume of upcoming activities over a period of months),
○ (2) detailed schedules (which show day-to-day activities of production),
○ (3) staff schedules (which identify how many employees will be working
and when)
○ (4) project schedules (which provide coordination for completing
large-scale projects)
● Master production schedule shows which products will be produced, when
production will occur, and what resources will be used
● Staff schedules consider employees’ needs and the company’s efficiency and
costs, including the ebb and flow of demand for production
● Computer-based scheduling, can easily handle multi-shift activities for many
employees, both full- and part-time
○ It accommodates vacation times, holiday adjustments, and daily
adjustments in staffing for unplanned absences and changes in
production schedules
● additional information comes from detailed schedules that show daily work
assignments with start and stop times for assigned jobs at each workstation
● Gantt chart ​diagrams steps to be performed and specifies the time required to
complete each step
● PERT charts break down large projects into steps and specify the time required
to perform each; shows necessary sequence of activities and identifies the critical
path for meeting project goals
● Operations control requires production managers to monitor production
performance by comparing results with detailed plans and schedules
○ Follow-up: checking to ensure that production decisions are being
implemented
○ Materials management and production process control” ensures that
schedules are met and that production goals are fulfilled
● Materials management involves planning, organizing and controlling the flow of
materials; standardization focuses on using standard and uniform components
rather than new or different components
○ Transportation: involves the means of transporting resources to the
company and finished goods to the buyer
○ Warehousing: storage of both incoming materials for production and
finished goods for physical distribution to customers
 ○ Inventory control: includes receiving, storing, handling and counting of
raw materials, partly finished goods and finished goods
○ Supplier selection: finding and choosing suppliers of services and
materials to buy from
○ Purchasing: acquisition of raw materials and services a company needs
to produce its products
● Production Process Control involves various tools for controlling the process:
○ Worker training: ensuring employees have proper human relation skills for
service employees
○ Just in time production systems​: brings together all the needed materials
and parts at the precise moment they are required for each production
stage, and not before
○ Material requirements planning (MRP) uses a ​bill of materials that
specifies the necessary raw materials, the order in which they should be
combined, and the quantity of each ingredient needed to make one
“batch” of the product
● Manufacturing resource planning​, or MRP II, is an advanced version of MRP that
ties together all parts of the organization into the company’s production activities
● Quality control refers to the management of the production process so as to
manufacture goods or supply services that meet specific quality standards
● Quality​ means fitness for use; offering features that consumers want
● Labour productivity ​compares the amount of labour used with the benefits (the
country’s GDP) that results from using that resource.
○ Labour productivity= GDP for the year
Total number of labour hours worked for the year
● Productivity differs across nations because of difference in technologies, human
skills, economic policies, natural resources and traditions
● Canada’s international competitiveness is a concern because we have been
living off our rich diet of natural resources
● Ishikawa developed “fishbone diagrams” (also known as “cause-and-effect
diagrams” or “Ishikawa diagrams”) that help employees figure out the causes of
quality problems in their work areas
● Total quality management (TQM) includes all the activities necessary for getting
high-quality goods and services into the marketplace; no tolerable defects and
employees must maintain high standards
○ Customer focus is the starting point for TQM and includes determining
what they want and making sure the needs are met
● Performance quality​ refers to the features of a product and how well it perform
● Quality reliability ​refers to the consistency or repeatability of performance
● Quality ownership is the idea that quality belongs to each person who creates or
destroys it while performing a job
● Competitive product analysis process by which a company analyzes a
competitor’s products to identify desirable improvements.
 ● Value-added analysis ​the evaluation of all work activities, material flows, and
paperwork to determine the value they add for customers.
● Statistical process control (spc)​ statistical analysis techniques that allow
managers to analyze variations in production data and to detect when
adjustments are needed to create products with high-quality reliability.
● Control chart ​a statistical process control method in which results of test sampling
of a product are plotted on a diagram that reveals when the process is beginning
to depart from normal operating conditions
● Quality/cost studies a method of improving product quality by assessing a firm’s
current quality-related costs and identifying areas with the greatest cost-saving
potential.
● Benchmarking, a company compares its current performance against its own
past performance (internal benchmarking), or against the performance of its
competitors (external benchmarking)
● Quality improvement (QI) teams are groups of employees from various work
areas who meet regularly to define, analyze, and solve common production
problems
● ISO 9000 Certification program attesting to the fact that a factory, a laboratory, or
an office has met the rigorous quality management requirements set by the
International Organization for Standardization
● Business process re-engineering ​is the fundamental rethinking and radical
redesign of business processes to achieve dramatic improvements
● Supply chain (value chain) flow of information, materials, and services that starts
with raw-materials suppliers and continues through other stages in the operations
process until the product reaches the end customer
● Supply-chain management (scm) principle of looking at them chain as a whole to
improve the overall flow through the system

Chapter 13: Pricing, Promoting and Distributing Products

● Marketing is an organizational function and set of processes for creating, communicating
and delivering value to customers, and for managing customer relationships in ways that
benefit the organization and its stakeholder
● Marketing mix:
○ Product: goods, service or idea that is marketing to fill a customer’s needs and
wants
○ Price: the process of determining the best price for which you should sell a
product at
○ Place (distribution): the part of the marketing mix concerned with getting product
from producers to customers
○ Promotion: the aspect of the marketing mix concerned with the most effective
techniques for communicating the products and services
● Revenue= selling price x unit sold
● Mark up= the amount added to an item’s purchase cost to sell it at a profit
 ○ Markup percentage of selling price= ​ markup
Sales prices
○ Markup percentage of cost= ​markup
Cost
● Pricing existing products
○ Pricing above
○ Pricing below
○ Pricing at
● Pricing new products
○ Price skimming
○ Penetration pricing
● Fixed v.s. Dynamic
○ Fixed
○ Dynamic
● Promotion: aspects of the marketing mix concerned with the most effective techniques
for communicating information about and selling a product
● Push vs Pull strategies
● Promotional tools -> create a promotional mix
○ Advertising
■ Any paid, non-personal communication by which an identified sponsor
inform an audience about a product
● Tv, newspaper, radio, magazines, outdoors, online
○ Personal selling
■ Promotional tool in which a salesperson communicates one to one with
potential customers
○ Sales promotions
■ Short-term promotional activities designed to stimulate consumer buying
or cooperation from distributors and other members of the trade
● Short term inducement of value
■ Types
● Coupons
● Contests
● sweepstakes
○ direct/interactive marketing
■ One-on-one non personal selling by non-store retailers and B2B sellers
using direct contact with prospective customers
● Targeted marketing directed at a specific consumer
○ Public relations/publicity
■ Company-influence information directed at building goodwill with the
public or dealing with unfavourable events
● Managing the public’ perception of a company/brand
● Place
 ○ Distribution mix: the combination of distribution channels by which a firm gets t
products to end users
○ Distribution channel: a path that the product follows
○ Distribution intensity: intensive, selective or exclusive
● After product, the second major component of the marketing mix is pricing, which
determines what the customer pays and the seller receives in exchange for a product
● Pricing objectives​ are the goals that sellers hope to achieve in pricing a product for sale
○ Some have profit-maximizing pricing objections while others have market-share
pricing objectives
○ They are influenced by the need to compete in the marketplace by social and
ethical concerns and even corporate image
● Profit maximizing objectives wants to sell the number units that will generate the highest
possible total profits
○ revenue= selling price X units sold
● To obtain buyers some companies initially set low prices to establish a ​market share/
market penetration which is a company’s percentage of the total industry sales for a
specific product type
● Many e-businesses reduce both costs and prices because of the internet’s unique
market capabilities
● Tools are used to figure out how much they will charge for their product
○ Cost oriented pricing considers a firm’s desire to make a profit and its need to
cover production costs
■ Selling price = seller’s cost + profit
○ To calculate the ​markup (the amount added to an item’s purchase cost to sell it at
a profit) companies have to consider other costs such as cost of the store, rent,
wages, manufacturer’s price, insurance, etc. To be profitable the company must
charge enough to cover product and other costs.
■ Markup percentage= ​ markup
Sales prices
○ Variable costs change with the number of units of a product produced and sold
such as raw materials, sales commissions and shipping
○ Fixed costs are costs such as rents, insurance and utilities that must be paid
regardless of number of units produced and sold
○ Breakeven analysis assesses costs versus revenues for various sales volumes
and shows, at any particular selling price and the amount of loss or profit for each
possible volume of sales
○ Breakeven point is the point in which total revenues exactly cover both fixed and
variable costs
■ Breakeven point (in units)= ​total fixed cost
Price- variable cost
○ Zero profitability at the breakeven point can also be seen by using the profit
equation
■ Profit= total revenue- (total fixed cost + total variable cost)
● Options for pricing existing products
○ Pricing above prevailing market prices for similar products to take advantage of
the common assumption that higher price means higher quality
○ Pricing below market price while offering a product of comparable quality to
higher priced competitors
○ Pricing at or near market prices
● Price skimming ​sets an initial high price to cover development costs and generate a
large profit on each item sold, this only works in marketers can convince customers that
a new product is truly different from existing products and there is no foreseeable major
competition on the horizon
● Penetration pricing is setting an initial low price to establish a new product in the market
and seeks creating customer interet and stimulate trial purchases
● At present, fixed pricing is still the most common option for cyber shoppers
● Dynamic pricing uses flexibility between buyers and sellers in setting a price and uses
the web to instantly notify millions of buyers of product availability and price changes
● Reverse auction allows sellers to alter price privately on an individual basis
● Price lining​ offers certain categories at a limited number of prices
● Psychological pricing ​takes advantage of the fact that customers are not completely
rational when making buying decisions
○ Odd-even pricing is based on the theory that customers prefer prices that are not
even stated in even dollar amounts
● Sellers often resort to price reductions to simulate sales known as ​discounts
● Promotion refers to techniques for communicating information about products and is part
of the communication mix - the total message any company sends to a customer about
its products
● Ultimately, sales are used to increase sales but they also increase customer awareness
of their products and make them more knowledgeable about the product features and
persuade customers to prefer their brand over others
● Companies with the ​push strategy will push its product to wholesalers and retailers then
persuade customers to buy it
● Companies with a ​pull strategy appeals directly to the customer who then demands the
product from the retailers who then demands from the wholesalers and so on
○ Advertising pools while personal selling pushes
○ Industrial Products often use push strategy while makers of consumer products
often use pull strategies
○ Large firms typically use both
● ​promotional mix is the combination of tools used to promote a product semicolon there
are five different types; the best combination of these tools depends on many factors;
the most important is the target audience
○ 1. when consumers first recognized the need to make a purchase, marketers
use advertising and publicity which can reach many people quickly to make sure
buyers are actually aware of their products
 ○ 2. a customer searches for information about available of products advertising
and personal selling they are important to educate the consumer
○ 3. personal selling can become vital as consumers compare competing
products; sales representatives are good because they can demonstrate product
quality, features, benefits, and performance in comparison with competitors
products
○ 4. When Buyers are ready to purchase the products, sales promotion can help
give consumers an incentive to buy; Personal selling can help by bringing
products to convenient purchase locations
○ 5. after making the purchases consumers evaluate products and note their
strength and efficiencies at this stage advertising personal sellers can remind
customers that they made wise purchases
● Advertising is paid non-personal communication which an identified sponsor and forms
an audience about a product; ​Advertising media is specific communication devices for
carrying a seller's message to potential customers; the combination of media through
which a company advertises is called a media mix
○ Newspapers offer excellent coverage since each local market has at least one
daily newspaper
■ it offers flexibility as could change day-to-day and believability as it ia
presented next to news items
■ a large percentage of individuals with higher education and income tend
to read the newspaper
■ however this is changing as many newspapers moved to a more digital
strategy
○ National advertising is usually done on TV because it reaches more people than
any other medium
■ Television allows advertisers to combine sight, sound and motion
■ particular TV programs allows advertisers to reach out to certain
audiences
■ Advertising can be very expensive
■ product placement is becoming more popular, which uses brand name
products as part of the actual story line
○ Radio ads are fairly inexpensive and most radio is programmed locally so
advertisers have a high degree of customer selectivity
■ Radio only permits audio presentations and ads are over quickly
■ The radio is also on in the background for most people so they may pay
little attention to the advertisements
○ Magazine advertising allows for excellent reproduction of photographs and
artwork that not only grab the buyer's attention, but also may convince them of
products value
■ Magazines also provide advertisers with plenty of space for detailed
product information
 ■ magazines have a long life and tend to be passing person-to-person
doubling exposure
○ Outdoor Advertising like billboard signs advertisements on public transportation is
relatively inexpensive, places little competition for attention and is subject to high
repeat exposure
■ many Billboards now feature animation and changing images and today's
Billboards are cheaper because it could be digitally printed
■ On the downside outdoor ads can present only limited information and
they have little control over who actually sees the advertisement
○ Online advertising can take the form of search display classifieds email and video
■ Offers advantages such as flexibility feedback reach and capability of
relationship building
■ online advertising has now surpassed TV advertising
■ Advertisers are observing customer behavior and that is easier online
■ ads on other mediums like TV or directing consumers towards internet
advertisements
○ Mobile phone ads are growing in importance
■ Some positives include accessibility, cost, timelines, and the ability to
personalized messages
■ On the negative side the format can be difficult to read and appreciate,
suffers from lack of standardization, and privacy issues
○ Combination of other media makes up the rest of the categories
■ This includes sidewalk handouts, Yellow Pages, flyers, catalogues,
special events, door-to-door communications
● Personal selling​ provides the personal link between the buyer and seller
○ it adds to a firm's credibility because it gives buyer a contact person who will
answer questions and requires a level of trust between the buyer and seller
○ This is the most expensive form of promotion per contact because presentations
are generally made to two or one people at a time
○ Many companies have turned to telemarketing as a cheaper alternative
● Sales promotions are short-term promotional activities designed to stimulate customer
buying or cooperation from distributors, sales agent, or other members of the trade
○ The increase the likelihood that buyers will try products, they also enhance
product recognition and increase purchase size amount
○ Promotions are convenient and accessible but too many can have the consumer
expecting them and wait to make purchases until sales come around
● Coupons entice customers with discounts to encourage new products, lure them away
from competitors or induce them to buy more of a product
● Point of purchase or sell displays at the end of aisles or near checkout counters ease
finding products and eliminate competitors from consideration
● Trade shows allows companies to rent booths to display and demonstrate products to
customers who are interested or ready to buy
● Direct or interactive marketing ​is one-on-one non-personal selling that tries to gets
consumers to make purchases From home at work or by using a mobile device
● Publicity​ is free advertising however, marketers have no control over what is discussed
● Public relations​ is a term that describes companies influenced publicity
○ it attempts to create goodwill between the company and its customers through
public service announcements that enhance the company's image
● Distribution mix are the combination of distribution channels by which a firm gets
products to end users
○ Intermediaries, once called the middle man, help to distribute goods, either by
moving them or by providing information that stimulates their movement from the
sellers to consumers
○ Wholesalers are intermediaries who sell products to other businesses for resale
to final consumers
○ Retailers​ sell products directly to consumers
● Distribution channel is the path a product follows from producer to end-user
○ In a ​direct channel, the product travels from producer to the consumer or
organizational buyer without intermediaries
○ In the next Channel, producers distribute consumer products through retailers
○ Wholesale distribution requires wholesalers to have a large amount of space for
storing and displaying merchandise
○ Sales agents ​including travel agents, generally deal in the related product lines of
a few producers, such as tour companies, to meet the needs of customers
○ Brokers ​in industries such as real estate and stock exchanges, match numerous
sellers and buyers as needed to sell properties, often without knowing in advance
who they will be
● Non-direct distribution is very expensive; the more intermediaries the higher the final
price, however, they provide necessary services that get products efficiently from
producers to users
● Intensive distribution ​occurs when a product is distributed through as many channels and
channel members as possible
● Exclusive distribution Occurs when a manufacturer grants exclusive right to distribute or
sell a product to one wholesaler or retailer in a given geographic area
● Selective distribution is between intensive and exclusive distribution; A company uses
this strategy to select only wholesalers and retailers who will give special attention to the
product in terms of sales efforts display position and so on
● Channel conflict occurs when a member of the distribution channels disagree over the
roles they should play or rewards they should receive
○ One channel member, the channel Captain, is the most powerful and determines
the roles and rewards of other members
● Agents and Brokers do not own their merchandise, they serve as sales and
Merchandising arms for producers or seller's that do not have their own Salesforce
○ They provide services such as shelf display merchandising and advertising layout
○ They remove open, torn, or dirty packages and arrange the products neatly
 ● Direct response retailing is a form of non-store retailing in which firms directly interact
with customers to inform them of products and receive sale orders
● E-intermediaries ​are internet based channel members who perform one or both of two
functions (1) collect information about sellers and present it to consumers or (2) help
deliver products to buyers
● Physical distribution ​refers to activities needed to move products from manufacturer to
customer and includes warehousing and transportation operations
○ It makes goods available when and where customers want them, keeps costs
low, and provide services to satisfy customers
● Warehousing​ is a physical distribution operation concerned with the storage of goods
● The physical movement of a product creates the highest cost many companies face

Marketing Myopia
● Four myths
○ An ever expanding and more affluent population will ensure our growth
○ There is no competitive substitutes for our industry’s major products
○ We can protect ourselves through mass production
○ Technical research and development will ensure our growth

Chapter 15: Financial Decisions and Risk Management

Questions: Answer:

What are the main
responsibilities of Financial
managers?
Objective: to increase the firm’s value and stockholders wealth
High level responsibilities: cash flow management; financial
control; financial planning
Further responsibilities:
1. Determining a firm’s long-term investments
2. Obtaining funds to pay for those investments
3. Conducting the firm’s everyday financial activities
4. Managing the risks that the firms takes

What is cash flow Managing cash inflows (revenues) and outflows (debt and
management? payments
Putting idle funds to work but still have enough fund to operate

What is financial control? The process of checking actual performance against plans to
ensure desired outcome is occurring
Making adjustments and preparing budgets

What is financial planning? Developing a financial plan which is a description of how a

business will reach some financial position it seeks in the
future; includes projections for sources and uses of funds
Using funds to meet both long term and short-term goal
Why do businesses need Short-term (operating) expenditures
money? - Costs for the next year and under
- Accounts payable: unpaid bills
- Accounts receivable: funds tied up by customers who
have bought on credit
- Credit policy: sets up specific payment terms;
sets expected days of payment
- Inventories tie up funds; must be balanced just right
Long-term (capital) expenditures
- Costs for the next year and longer
- Often used for fixed assets
- Not normally sold or converted to cash
- Usually large investments
- Ongoingly ties-up company funds

What is the business 1. Financing (fund the business)

activities cycle? - Long-term
- Issue shares
- Pay dividends
- Borrow money
- Repay loans
- Short-term
- Accounts payable
- Line of credit
2. Investing (grow the business)
- Acquire assets
- Dispose of assets
- Assets can be:
- Land
- -buildings
- machinery/equipment
- Inventory
3. Operating costs (run the business)
- Revenues
- expenses

What are short term funds? Allows firms to cover operational expense and implement
short-term plans

What are some examples of Trade credit, secured short-term loans, unsecured short-term
short terms loans? loans

What is trade credit? Granting of credit by selling a selling firm to a buying firm
➔ open book credit
➔ promissory rate
➔ trade drafo
What is secured short-term
loans?
What is unsecured
short-term loans?
What are the ways of
long-term investing?
What are bonds, hybrids and
equity?
What are some of the
considerations for debt
financing?
What is common stock?
A short-term loan in which the borrower is required to put up
collateral (usually at a low interest rate)
➔ Inventory as collateral
➔ Accounts receivable as collateral
A short-term loan in which the borrower is not required to put
up collateral
➔ Line of credit
➔ Others: commercial papers, revolving credit
agreements
Raising money by borrowing from outside the company
➔ Long term loans
➔ Corporate loans
Raising money by issuing common stock or by retained
earnings
➔ Issuing common stock
➔ Retained earnings
Bonds
➔ Usually 3-10 years
➔ Pay face value at maturity
➔ Interest timing varies
↓
Hybrid- preferred shares
➔ Issue preferred stock to raise money
➔ Stockholders get preferential treatment (receive
dividends first)
➔ Fixed interest payments
➔ No maturity date (most cases)
➔ No voting rights
↑
Equity- issue of common shares (stocks)
➔ Selling an ownership for a % share of the company
➔ Investors hope to share price for appreciation
➔ Market value: current price
➔ Book value: historic selling price
➔ Ease of finding a lender
➔ Interest: rate; fixed vs variable
➔ Repayment terms: timing; amounts
➔ security/collateral
A firm sells ownership rights by issuing shares; investors buy
shares hoping they will appreciate (gain value)
What is market value and Market value: current price of a share on the stock market
market capitalization? (secondary securities market)
Market capitalization: dollar value (market value) of stocks
listed on the stock exchange
# of company’s outstanding shares x market value = ?

How do securities market 1. Corporation gives investors shares and investor A

work? gives the money to fund or expand operations
2. Investor A makes money through
a. Dividends (payment to shareholder) or
b. Selling shares (purchased by investor B)
i. Investor B pays a the current value of
the shares
ii. Done on the secondary securities
market
iii.
*note: company doesn’t gain funds through secondary
securities market, ONLY through the initial transaction.*

Debt v.s. Equity financing Debt

➔ Cheap
➔ Good for companies with predictable profits and
cash-flow patterns
➔ Can be arranged quickly
➔ Large borrowers may have trouble finding lenders
➔ Risker
➔ Can be restrictive
➔ A promise to pay regardless of the probability of the
firm
➔ May not be able to get a large loan
➔ Etc.
Equity
➔ Expensive (paying dividends)
➔ No formal obligations to shareholders
➔ Allows for management flexibility
➔ Etc.

What is capital structure? A mix of a firm’s debt and equity financing

a. Conservative: all equity financing (company has no
obligations
b. Risky: all debt financing (company obligated to repay;
risk of bankruptcy)

What is risk-return Shows the amount of risk and the likely rate of return on
relationship? various financial instruments; looking at the different types of
investors and what they consider

What is securities market?
What is the primary
securities market?
What is the secondary
securities market?
What are some other types
of investments?
What is compound interest?
How can you obtain funding
for your business?
What are the two types of
risk?
What is risk management?
What is the risk management
process?
a. What is the likelihood of success? Or failure? (what is
the risk?)
b. What is the pay-off? (the return)
Stocks, bonds and mutual funds representing secured, or
asset-based, claims by investors aganis issuers
Buying and selling of new shares
*companies receive money*
Buying and selling of existing stocks and bonds
*companies do not receive money*
➔ Ethical funds
➔ Mutual funds
➔ Exchange-traded fund
➔ Hedge fund
➔ Commodities trading (futures contract)
Debt financing (taking a bank loan)
Equity financing (issuing stocks)
Venture capital (outside equity funding provided in return for
part of ownership)
Risk: uncertainty about future events
a. Speculative risk: there is a chance for gain or loss
(financial investments)
b. Pure risk: only have a change of loss (either a
warehouse fire or no fire)
Conserving a firm's financial power or assets by minimizing
the financial effect of accidental losses
1. Identify risks and potential losses
2. Measure the frequency and severity of losses and
their impact
3. Evaluate alternatives and choose the techniques that
will best handle the losses
a. Risk avoidance (ceasing to participate in a risky
activity)
b. Risk control (the use of loss-prevention
techniques to minimize
losses)
c. Risk retention (retaining and dealing with risk)
 d. Risk transfer (transfer risk to another firm)
4. Implement the risk-management program
5. Monitor results