BUSINESS EXAM 3

small business
is independent (that is, not part of a larger business) and has relatively little influence in its market.Most U.S. businesses employ fewer than 20 people, and most U.S. workers are employed by small firms. The contribution of small business can be measured through its impact on job creation, innovation, and its importance to big business
Job Creation
Small businesses are an important source of new jobs; in recent years, small businesses have accounted for 40 percent of all new jobs in the high-technology sectors of the economy alone.
Innovation
Small business supplies 55 percent of all innovations that reach the U.S. marketplace. Most products made by big businesses are sold to consumers by small ones.
Popular Areas of Small-Business Enterprise
services 50%, retailing 13%, construction 15%, wholesaling 6%, finance and insurance 7%, manufacturing 4%, transportation 3%, other 7%
Entrepreneurs
are people who assume the risk of business ownership. known for their Resourcefulness, A concern for customer relations, A desire for autonomy, The ability to handle ambiguity, A desire for risk-taking, A need for personal freedom, The opportunity for creative expression
Entrepreneurship
is the process of seeking business opportunities under conditions of risk
Crafting a Business Plan
A business plan summarizes business strategy for the new venture and shows how it will be implemented (setting goals and objectives, sales forecasting, financial planning
Starting the Small Business
Small-business people begin by understanding the true nature of their businesses (buying an existing business, franchising, starting from scratch
Financing the Small Business
Many sources for business financing are available. Personal resources account for more than two-thirds of all money invested; smaller portions of funding come from banks, independent investors, and government loans. (Venture Capital companies,SBA Financial Programs, Other SBA Programs like Small Business Development Center (SBDC))
Trends in Small-Business Start-Ups
Several factors account for the thousands of new business start-ups in the United States each year. (electric commerce, Crossovers from Big Business, Opportunities for Minorities and Women, Global Opportunities, Better Survival Rates for Businesses
Reasons for Failure
Four general factors contribute to small-business failure:
1. Managerial incompetence or inexperience
2. Neglect
3. Weak control systems
4. Insufficient capital
Reasons for Success
Four general factors contribute to small-business success:
1. Hard work, drive, and dedication
2. Market demand for the products or services being produced
3. Managerial competence
4. Luck
Noncorporate Business Ownerships
Sole proprietorships, partnerships, and cooperatives
Sole Proprietorships
A sole proprietorship is owned and usually operated by one person; about 73 percent of all U.S. businesses are sole proprietorships.
Advantages of Sole Proprietorships: Freedom, ease in forming, low start-up costs, and tax benefits are the advantages of this form of ownership.
Disadvantages of Sole Proprietorships: Unlimited liability, lack of continuity, and a possible lack of resources from the single individual are the major drawbacks of this form of organization
Partnerships
A general partnership, the most common type, is a sole proprietorship multiplied
by the number of partner-owners. Partners may invest unequal sums of money. In most cases, partners share the profits equally or in proportion to their investment in the partnership.
Advantages of Partnerships: The ability to grow with the addition of new talent and money, few legal requirements, and tax advantages are benefits of this form of ownership.
Disadvantages of Partnerships: Unlimited liability in that each partner may be liable for the debts incurred in the name of the partnership, lack of continuity, difficulty of transferring ownership, and little or no guidance for conflict resolution are the major drawbacks of this form of ownership.
Cooperatives
Cooperatives combine the freedom of sole proprietorships with the financial power
of corporations. These groups of sole proprietorships or partnerships agree to work
together for their common benefit.
Corporations
Both large and small corporations account for 20 percent of all businesses, but generate about 90 percent of all sales revenues in the United States
The Corporate Entity
Characteristics of corporations include legal status as separate entities, property rights and obligations, and indefinite life spans. Corporations may sue and be sued; buy, hold, and sell property; make and sell products to consumers; commit crimes, and be tried and punished for them.
Advantages of Incorporation. These include limited liability, continuity, and the ability to raise money.
Disadvantages of Incorporation. Difficulty in ease of transferring ownership, control, and cost are drawbacks of incorporation. In addition, double taxation plagues a corporation, because a regular corporation must pay income taxes on profits and stockholders must pay taxes on income returned by their investments.
Types of Corporations
Stock is held by only a few people and is not available for sale to the public in a closely held (or PRIVATE) corporation. When shares are publicly issued, the firm becomes a publicly held (or PUBLIC) corporation. The S CORPORATION is a hybrid of a private corporation and partnership. In a LIMITED LIABILITY CORPORATION, owners are taxed like partners, with each paying personal taxes only. PROFESSIONAL CORPORATIONS are most likely comprised of doctors, lawyers, accountants, or other professionals. A MULTINATIONAL (or transnational) CORPORATIONS spans national boundaries
Managing a Corporation
Once the corporate entity comes into existence, it must be managed by people who understand the principles of corporate governance.
Corporate Governance. Defined by the firm’s bylaws, corporate governance involves stockholders, the board of directors, and corporate officers.
Stockholders
Stockholders are the owners of a corporation. Corporations sell shares, called stock, to investors who then become stockholders, or shareholders. Profits are distributed among stockholders in the form of dividends, and corporate managers serve at stockholders’ discretion.
Board of directors
The board of directors is the governing body of the corporation.
Officers
Appointed by the board of directors, officers oversee the day-to-day operations of the corporation. The chief executive officer, or CEO, oversees overall operations
Joint Ventures and Strategic Alliances
In a strategic alliance, two or more organizations collaborate on a project for mutual gain
when partners share ownership of what is essentially a new enterprise, it is called a joint venture.
Employee Stock Ownership Plans
ESOPs allow employees to own a significant share of the corporation through trusts established on their behalf.
Institutional Ownership
Institutional investors include mutual funds and pensions that buy enormous blocks of stock.
Mergers, Acquisitions, Divestitures, and Spin-Offs
A merger occurs when two firms combine to create a new company; in an acquisition, one firm buys another outright. A divestiture occurs when a firm sells off unrelated and/or underperforming businesses. When a firm sells part of itself to raise capital, the strategy is known as a spin-off
The Management Process
All corporations depend on effective management; the principles of management apply to all kinds of organizations.
Management is the process of planning, organizing, leading, and controlling an organi¬zation’s financial, physical, human, and information resources to achieve its goals.
Planning
Determining what the organization needs to do and how best to get it done requires planning. Planning begins with determining the firm’s goals, followed by development of a comprehensive strategy for achieving those goals, and designing tactical and operational plans for implementing the strategy
Organizing
Organizing involves the arranging of a firm’s resources into a coherent structure. Organization charts help everyone understand roles and reporting relationships, key parts of the organizing function.
Leading
When leading, a manager works to guide and motivate employees to meet the firm’s objectives.
Controlling
Controlling is the process of monitoring a firm’s performance to make sure that it is meeting its goals.
Types of Managers
Although all managers plan, organize, lead, and control, not all managers have the same degree of responsibility for these activities. Thus, it is helpful to classify managers according to levels and areas of responsibility.
Levels of Management
The three basic levels of management are top, middle, and first-line managers.
Top Managers
This level is responsible for the firm’s overall performance and effectiveness. Top managers set general policies and formulate strategies, approve all significant decisions, and represent the company in dealing with stockholders, the board of directors, other businesses, and government. Common titles for top managers include President, Vice President, Treasurer, Chief Executive Officer (CEO), and Chief Financial Officer (CFO).
Middle Managers
This level is responsible for implementing the strategies, policies, and decisions made by top managers. Titles such as Plant Manager, Operations Manager, and Division Manager designate middle-management slots.
First-Line Managers
Duties of managers at this level depend on the job, though first-line managers spend most of their time supervising the employees who report to them. Those who hold such titles as Supervisor, Office Manager, Project Manager, and Group Leader are first-line managers.
Human Resource Managers
These managers hire and train employees, evaluate performance, and determine compensation.
Operations Managers
These managers are responsible for the production system in which a firm produces goods and/or services, inventory and inventory control, and quality control
Marketing Managers
These managers are responsible for the development, pricing, promotion, and distribution of goods and services
Information Managers
These managers design and implement systems to gather, organize, and distribute information.
Financial Managers
These managers are responsible for the firm’s accounting functions and financial resources.
Other Managers
Some firms employ various types of specialized managers, such as public relations managers.
Technical Skills
Technical skills are the skills needed to perform specialized tasks. These skills are developed through a combination of education and experience. Technical skills are especially important for first-line managers who spend most of their time with the day-to-day operations of the production system.
Human Relations Skills
Absolutely necessary for managerial success, human relations skills are skills in understanding and getting along with people. These skills are important at all management levels.
Conceptual Skills
Especially prevalent among top managers, conceptual skills involve the ability to diagnose and analyze different situations and to see beyond the present situation.
Decision-Making Skills
Decision-making skills include the ability to define problems and to select the best course of action. These skills involve gathering facts, identifying solutions, evaluating alternatives,
and implementing the chosen alternative.
Time Management Skills
Time management skills involve the productive use of managers’ time. Leading causes of wasted time are paperwork, telephone calls, meetings, and e-mail.
Management Skills for the Twenty-First Century
Competing globally and managing technology are two major challenges facing managers today.
Global Management Skills. Businesses now demand managers who can understand cultural differences and the motives and practices of foreign competitors.
Management and Technology Skills. New forms of technology increase the manager’s need to process, organize, and interpret a plethora of information
Strategic management
is the process of helping an organization maintain an effective alignment with its environment.
Goals
are objectives that a business hopes and plans to achieve
Strategy
is a broad set of organizational plans for implementing the decisions made for achieving organizational goals.
Setting Business Goals
Goals are performance targets—the means by which organizations and their managers measure success or failure at every level.
1. Purpose of goal setting: An organization functions systematically because it
sets goals and plans accordingly. The four main purposes of organizational goal
setting include: (a) providing direction and guidance for managers at all levels;
(b) helping firms allocate resources; (c) helping to define corporate culture; and (d) helping managers assess performance.
2. Kinds of Goals. Every firm has a purpose and a mission. A mission statement is a statement of how the firm will achieve its purpose in the environment in which it operates. In addition, every firm needs long-term goals, which look at five years or more into the future; intermediate goals, which focus on a period of one to five years; and short-term goals, which are set for one year.
Types of Strategy
A company usually considers three types of strategy:
1. Corporate Strategy. The purpose of corporate strategy is to determine the firm’s overall attitude toward growth and the way it will manage its businesses or product lines.
2. Business (or Competitive) Strategy. Business (or competitive) strategy focuses on improving the company’s competitive position.
3. Functional Strategy. With functional strategy, managers in specific areas decide how best to achieve corporate goals by being as productive as possible.
Formulating Strategy
Strategy tends to be wider in scope than planning; strategy describes what an organization intends to do. Strategy formulation involves three basic steps.
1. Step 1: Setting Strategic Goals. Strategic goals are long-term goals derived from the firm’s mission statement.
2. Step 2: Analyzing the Organization and Its Environment: SWOT Analysis. After strategic goals have been established, managers usually attempt to assess both their organization and its environment. A common framework for this assessment is called a SWOT analysis. This process involves assessing organizational strengths and weaknesses (the S and W) and environmental opportunities and threats (the O and T). Environmental analysis involves scanning the external environment for threats and opportunities. Threats include changing consumer tastes, hostile takeovers, and some competitor actions. Organizational analysis involves scanning the internal environment for strengths and weaknesses. Strengths include surplus cash, a dedicated workforce, technical expertise, etc.
3. Step 3: Matching the Organization and Its Environment. This step in strategy formulation involves matching a firm’s strengths and weaknesses to its opportunities and threats. This step is credited as the foundation for successful planning.
Hierarchy of Plans
Plans can be viewed on three levels: strategic, tactical, and operational. Managerial responsibilities are defined at each level. The levels constitute a hierarchy because implementing plans is practical only when there is a logical flow from one level to the next. Usually set by the board of directors and top management, strategic plans focus on steps needed to meet strategic goals. Usually involving upper and middle managers, tactical plans are concerned with implementing certain aspects of the strategic plans; tactical plans are short-range plans. Middle and lower-level managers develop Operational plans, geared toward short-term goals.
Contingency Planning
Contingency planning is planning for change; it identifies ways in which a company will respond to change.
Crisis Management
Crisis management involves an organization’s methods for dealing with emergencies.
Corporate culture
—the shared experiences, stories, beliefs, and norms that characterize an organization—greatly influences management philosophy, style, and behavior and must be understood by management in order to be effectively communicated to others in the organization.
Communicating the Culture
This involves having an understanding of the culture,
transmitting the culture to others in the organization, and maintaining the culture.
Managing Change
This involves analyzing the company’s environment, formulating
a vision of a new company, and setting up appraisal and compensation systems for
employees who enforce the new values.
Organizational structure
is the specification of the jobs to be done within an organization and the ways in which those jobs relate to one another
Organization Charts
Organizational charts are prepared to clarify structure and to show employees where they fit into a firm’s operations. The chain of command represents the hierarchy of who reports to whom in the organization.
Determinants of Organizational Structure
Numerous factors influence the planning and creating of an efficient organizational structure. Managers not only consider the organization’s purpose, mission, and strategy, but also the organization’s size, technology, and environmental changes.
The Building Blocks of Organizational Structure
The first step in developing the structure of any business involves three activities: specialization, departmentalization, and establishing the decision-making hierarchy.
Specialization
Job specialization, a natural part of an organization’s growth, is the process of identifying the specific jobs that need to be done and designating the people who will perform them. Job specialization may even involve breaking jobs into small components prior to assigning them to individuals.
Specialization and Growth. In a very small organization, the owner may perform every job. As the firm grows, however, so does the need to specialize jobs so that others can perform them.
Departmentalization
Departmentalization is the grouping of similar or related jobs into logical units. Departmentalization allows the firm to treat each department as a profit center— a separate company unit responsible for its own costs and profits. Several types of departmentalization exist:
1. Product Departmentalization. Organizations are divided according to the products or services being produced.
2. Process Departmentalization. Organizations are divided according to production processes used to create a good or service.
3. Functional Departmentalization. Organizations are divided according to a group’s functions or activities. Examples include a firm’s production, marketing, human resource, accounting, and finance departments.
4. Customer Departmentalization. This grouping of jobs simplifies shopping by providing identifiable store segments.
5. Geographic Departmentalization. Organizations are divided according to the areas of the country or world that they serve.
6. Multiple Forms of Departmentalization. Larger companies tend to adopt different types of departmentalization for various levels
Distributing Authority: Centralization and Decentralization
Some managers make the conscious decision to retain as much decision-making authority as possible at the higher levels of the organizational structure; others decide to push authority as far down the hierarchy as possible.
1. Centralized Organizations. In a centralized organization, authority is held by upper-level management.
2. Decentralized Organizations. In a decentralized organization, authority is delegated to lower levels of management.
3. Tall and Flat Organizations. Tall organizations are multi-tiered, characterized by many layers of employees; flat organizations have few layers of employees.
4. Span of Control. A manager’s span of control is the number of people managed by one supervisor; many factors can lead to a wide or narrow span of control.
The Delegation Process
Delegation begins when responsibility is granted to a subordinate from a supervisor. Responsibility is the duty to perform an assigned task; authority is the power to make the decisions necessary to complete the task. Accountability is the obligation employees have to their manager for the successful completion of the assigned task.
Three Forms of Authority
Forms of authority result when individuals are delegated authority and responsibility in a firm. Various forms of authority may be found in any given company.
1. Line Authority. This authority flows vertically up and down the chain of command.
2. Staff Authority. This authority is found among departments of advisors and counselors, including specialists, such as lawyers, engineers, accountants, and human resource personnel. These individuals help line departments in making decisions, but do not have the authority to make final decisions.
3. Committee and Team Authority. This is the authority that is granted to committees and teams that play central roles in the firm’s daily operations. Employees are typically empowered to plan and organize their own work and to perform that work with minimal supervision.
Functional Structure
Often used by most small- and medium-sized firms, functional organizations divide job responsibilities by functional areas, such as marketing or finance.
Divisional Structure
Corporate divisions usually operate under this structure as relatively autonomous businesses under the larger corporate umbrella. Divisions are departments that resemble separate businesses in that they produce and market their own products.
Matrix Structure
Sometimes a “combination” structure—one that combines two separate structures—works better than either simpler structure alone. A so-called matrix structure is organized along two dimensions, instead of just one, by combining, for example, a functional and a divisional structure.
International Structure
International organizational structures have been developed in response to the need to manufacture, purchase, and sell in global markets.
Organizational Design in the Twenty-First Century
Among the most popular new forms of organization are team organization, virtual organization, and learning organization.
1. Team Organization. Team organization relies mostly on project-type teams; people float from one project to another as dictated by their skills and the demands of the projects.
2. Virtual Organization. This organization has little or no formal structure; this organization exists only in response to its own needs.
3. Learning Organization. The learning organization works to integrate continuous improvement with continuous employee learning and development
Informal Organization
Frequently, the informal organization—everyday social interactions among employees that transcend formal jobs and job interrelationships—effectively alters a company’s formal structure.
Informal Groups
Informal groups are groups of people who decide to interact among themselves. Informal organization can be just as powerful as formal organization.
Organizational Grapevine
The grapevine or the rumor mill is an informal communication structure in which people communicate through ways that transcend the formal communication processes.
Intrapreneuring
A relatively new concept, intrapreneuring, is encouraged among businesses as a way of enhancing creativity and flexibility in large, bureaucratic structures.