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Introduction to Business
Review for
Exam #1
Lectures 1 thru 8
Professor Kenneth EA Wendeln
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©2008 KEAW R1
Business: a Definition
 The organized effort of
individuals & organizations
 To produce & sell….
for a profit
 Goods and services to customers
 That satisfy a society’s needs
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Review for Exam #1
R1-2
Fundamental
Business Resources
Business
Human
Resources
Informational
Resources
Material
Resources
Financial
Resources
Goods & Services
Business must effectively combine
all four resources to be successful
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Review for Exam #1
R1-3
Types of Economic Systems
Capitalism
Socialism
Communism
Adam Smith –
Professed aims –
Karl Marx –
Individuals -
Government –
Government –
Market Economy –
Command Economy –
Command Economy –
Mixed Economy –
Visible Socialism –
Communism –
‘laissez faire’ economy where
society’s interest best served
when individuals in that
society are allowed to pursue
own best interest’.
own and operate majority of
businesses that provide goods
and services & have right to
own & sell private property.
businesses & individuals
decide what to produce & buy.
Market determines the
quantity sold and prices.
the US economy is a
‘modified capitalist’ or
‘free enterprise’ system
with some government
participation.
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equitable distribution of
income, elimination of
poverty, distribution of social
services based on need,
eliminate economic waste.
owns & controls key
industries. Private
ownership of smaller
businesses may be permitted.
government decides what
will be produced, how it will
be produced, who gets what
is produced and the price.
is present in many democratic
governments, the most
notable with a high degree of
socialism include Sweden,
Finland and India.
Review for Exam #1
‘classless society’, where
individuals contribute based
on their capabilities and
receive benefits based on
their needs.
owns almost all of the
economic resources. Practice
a strictly controlled type of
socialism.
where emphasis is placed on
production of goods that the
government needs rather
than on products consumers
might want.
has dwindled with breakup of
the Soviet Union & economic
reforms in China. North
Korea & Cuba are the best
remaining examples.
R1-4
Key Features of the U.S.
‘Free Enterprise’ System
System of business in which the individuals
are free to decide what to produce, how to
produce it and what to sell it for.
 Consumers’ freedom of choice – to allocate their own
resources and spend their own money as they please
 Private ownership of land and real property – by
individuals and businesses as governed by laws & covenants
 Competition – among businesses for the consumers’ dollars
 Supply & Demand – determined by consumer demand,
availability, prices and market forces
 Circular Flow – of money for labor, resources & capital in
exchange for goods & services
 Business Cycles – driven by economic growth & contraction
$$ Profit Motive $$
For reinvestment & reward to investors
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Review for Exam #1
R1-5
Circular Flow of Resources
in ‘Free Enterprise’ System
Taxes
Services
Consumer
Spending
Goods &
Services
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Resources
US & Local
Governments
Products
Households
Consumers
Govt Spend
Income
Govt Spend
Resource
markets
Resources
Labor &
Capital
Product
markets
Review for Exam #1
Resources
Labor &
Capital
Wages
Rent &
Interest
Taxes
Services
Businesses
Sales
Revenue
Goods &
Services
R1-6
Types of Competition
Competition - the rivalry among businesses
for sales to potential customers
 Pure Competition – many buyers & many sellers
 Buyers and sellers must accept going price
 Monopolistic Competition – many buyers &
relatively large number of sellers
 Businesses compete with product differentiation
 Oligopoly – market or industry with few sellers
 Each seller has considerable price control
 Monopoly – market or industry with only one seller
 Business with monopoly has complete control over price
 Natural monopoly – requiring huge capital investment
 Legal monopoly – with a patent, copyright or trademark ©
™
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R1-7
Principle of a Nation’s
‘Comparative Advantage’
Nations engage in international trade – because they
own resources that enable a nation to produce some
goods better & more efficiently than other nations
In the past, primary sources of comparative
advantage were better access to:
 Lower cost Labor Markets
 Financial Markets
 Technology
 Natural Resources
 Geographic Areas
With ‘Globalization’ these sources of advantage are
becoming less important
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Review for Exam #1
R1-8
Artificial Restrictions on
International Trade
Tariff Barriers


Import duty (or tariff) – tax that is levied on products
entering the country. Raises the price.
Dumping – exportation of large quantities of products
at a price lower than same product in home market.
 Drives down the price.
Non-tariff Barriers





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Embargo – complete halt to trading of a product.
Often used as a political weapon.
Import quota – limits the amount that may be imported.
Foreign Exchange control – limits amount of foreign
currency that can be purchased. Has effect of limiting
imports.
Currency devaluation – reduction of the value of nation’s
currency. Increases cost of foreign sourced goods.
Bureaucratic ‘Red Tape’ – frustrates trade.
Review for Exam #1
R1-9
Methods of Entering
International Business
Low
High
Degree of Control over Business
Trade
Arrangements
1. Trading
Companies
2. Exporting
&
Importing
3. Counter
Trade
Int’l Contractual
Agreements
4. Foreign Licensing
5. Franchising
International Direct
Investments
8. Joint Ventures
9. Totally Owned Facilities
6. Strategic Alliances
7. Production
Agreements
•
Acquisitions
•
Subsidiaries
•
Overseas Divisions
10.Multinational Companies
Degree of Financial Risk
Low
High
More control usually means more financial risk
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R1-10
Globalization . . .
. . . In Summary
The world is ‘getting smaller’
with increasing int’l trade as:
1. ‘Comparative advantage’ is becoming
less & less important
2. Significant reductions in trade tariffs &
barriers – encouraged by GATT & WTO
3. Expansion of International Economic
Communities – eg NAFTA, EU . . .
Globalization is a reality today –
International trade has tripled since WWII
& now accounts for 21% of global income
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R1-11
Forms of Business Ownership
In the United States, an owner can select from a
variety of specific forms of business ownership.
The form of ownership that is selected affects:
1.
2.
3.
4.
5.
Legal charter & documents needed
Regulatory & reporting requirements
Financial resources available
Owners’ liability & risk of losses
Taxes - liabilities & benefits


affecting the business
affecting the owners (shareholders, partners, or members)
6. Length of life
7. Transfer of ownership
8. Ease of termination
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General Categories
of Business Ownership
1. Sole Proprietorship
2. Partnership

General Partnership

Limited Partnership

Limited Liability Partnership or ‘LLP’
3. Corporation

‘C’ Conventional Corporation

‘S’ Corporation
4.
-
Limited Liability Company
The different forms have evolved in response
to the specific needs of business people.
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Review for Exam #1
R1-13
Relative Business Ownership
in the US in 2004-2005
Number of Tax Returns
Business Revenues
Corporations
5.1 M
Corporations
20.0%
Partnerships
2.1 M
8.4%
Partnerships
Non-Farm Sole
Proprietorships
18.3 M
71.6%
$2,569 B
$19,308 B
84.4%
11.2%
$1,017 B
4.4%
Source: US Census Bureau, Statistical Abstract of the United States, 2004-05, www.census.gov
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R1-14
‘Informal Forms’ - Summary
Sole Proprietorships & Partnerships
Forms
of
Ownership
IRS
Income &
FICA Taxes
Sole Proprietorships
Partnerships
• General
An ‘extension’ of the individual s
involved:
• Easy to form - no legal charter required
• UNLIMITED personal liability for the business
• Single taxation at personal tax rates
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R1-15
‘Formal Forms’ of Partnerships
Limited & Limited Liability Partnerships
Forms
of
Ownership
IRS
Income &
FICA Taxes
STATE
Legal
Charters
http://www.in.gov/sos...
Sole Proprietorships
Partnerships
• General
• Limited
• ‘LLP’
• Limited Partnerships &
Limited Liability Partnerships (LLP’s)
offer some ‘limited’ liability
• Must have a ‘legal charter’ with the state
• Single Taxation at personal tax rates
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R1-16
Entities Governing
Forms of Business Ownership
Forms
of
Ownership
IRS
Income &
FICA Taxes
STATE
Legal
Charters
SEC
Securities
Regulations
Sole Proprietorships
Partnerships
• General
http://www.IN.gov/sos/
• Limited
• ‘LLP’
Limited Liability Companies
• Multi-member
• Single-member
Corporations
http://www.sec.gov/
• Publicly
• ‘C’ Corps
Traded
• ‘S’ Corps
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R1-17
Types of
Corporations
1. ‘C’ Corporations


‘Conventional’ or ‘C’ Corp
Results in double taxation


‘C’ Corp pays corporate income taxes
‘C’ Corp pays dividends to shareholders who may also be taxed on those dividends
2. ‘S’ Corporations


A tax elective (subchapter ‘S’) for a conventional
corporation that may be taxed once as a passthrough to each of the shareholders
A corporation may apply to IRS for ‘S’ tax status if
certain criteria are met:
1.
2.
3.
4.
5.
6.
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No more than 100 stockholders allowed
All stockholders must agree to the ‘S’ election
Must be a domestic corporation
Only one class of stock allowed
Stockholders must be individuals, estates & certain trusts
No nonresident alien stockholders
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Hierarchy of
Corporate Structure
Incorporators
1. Corporate Charter
2. Articles of
Incorporation
3. Organizational
Meeting
4. Elect the initial
Board of Directors
Owners/Stockholders
(elect Board of Directors)
Board of Directors
(hire the Officers)
Officers
(set corporate
objectives &
select Managers)
Managers
(supervise Employees/Associates)
Employees/Associates
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Limited Liability Company
LLC’s are unincorporated legal entities created
under state law – providing the benefits of both
liability protection & single pass-thru taxation.
 Relatively new business form – all 50 states and
District of Columbia now have laws authorizing the
formation and operation of LLCs within their borders.
 LLCs offer owners liability protection – intent of
state laws is to allow the formation of entities that are
legally more similar to corporations than partnerships.
 LLC owners are referred to as ‘members’ – rather
than shareholders or partners.
 Earning (& losses) allocated to the members –
taxed as a corporation, partnership, or sole proprietorship.
LLCs are NOT corporations & NOT partnerships
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R1-20
Types of
Limited Liability Companies
1. Single-member LLCs


Recognized on most states, including Indiana
Pass through taxation - same as sole proprietor



Recognized in all states
Limited liability for all LLC members
Can be treated either as a Partnership or a
Corporation for federal income tax purposes
2. Multi-member LLCs
 Member-managed LLCs


LLC statute and operating agreement determine
voting rights
Any member has authority to legally bind the LLC
in the ordinary course of business
 Manager-managed LLCs

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Non-manager LLC members have very limited
management rights similar to stockholders
Review for Exam #1
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Summary & Comparison
Forms of Business Ownership
Sole
Best
Neutral
Worst
Proprietorships
Partnerships
General
Corporations
Limited
& LLP
‘S’ Corp
Conventional
LLCs
‘C’ Corp
1
2
3
4
5
Business
Formation
none
Partnership
Agreement
State
State
State
State
Regulations,
none
none
State
State
State
& SEC
State
Liability –
Risk of Loss
Unlimited
personal
Unlimited
personal
Unlimited
& Limited
Limited to
investment
Limited to
investment
Limited to
investment
Access to Fin’l
Resources
Personal
debt
Partners
+ debt
Partners
+ debt
Debt &
equity
Debt &
equity
Debt &
equity
Income
Taxation
Income
once
Income
once
Income
once
Income
once
Corp
Income +
Dividends
6
Continuity of
Business Life
Death of
sole
proprietor
Death/
withdrawal
of a partner
Death/
withdrawal
of G partner
Perpetual
life or
Agreement
Perpetual
life or
Agreement
Based on
agreement
7
8
Ease of Transfer
of Ownership
Limited –
asset sale
Partners’
Agreement
Partners’
Agreement
Stock sale,
restrictions
Stock sale
Limited
Management &
Responsibilities
Proprietor
manages
All Partners
manage
GP manages
Hired
mgmt
Hired mgmt
Hired or
self- mgmt
Reporting, Secrecy
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Review for Exam #1
Choice of
Taxation
Method
R1-22
Evolution of a Business
Call Tracy
for
Tennis Lessons
Sole
Proprietorship
for simplicity
ö Tracy’s ö
Tennis Pro Shop
and Lessons
Multi-member
LLC or
‘S’ Corp
for investors &
single taxation
Single Member
LLC for limited
liability
ö Tracy ö ™
Tennis Center
and
Pro Shop
‘C’ Corp
for IPO &
stock trading
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ö Tracy ö ™
Entertainment
and
Tennis Centers
Review for Exam #1
R1-23
Small Business
and Trends
One that is independently owned & operated
for profit – and is not dominant in its field





Not large – of the 23 million businesses in the US, only 17,000
employ more than 500 workers – enough to be considered large
High growth – during the past decade, the number of small
businesses in the US has increased nearly 50%
Part-time small business – 5 times growth in recent years and
now account for one-third of all small businesses
Importance in providing jobs – small businesses provide
over 50% of the jobs in the US
Technical Innovation – more than 50% of the major
technological advances of the 20th century originated with
individual inventors and small companies
Small business is very important to the US
economy - and has helped to fuel its growth
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Review for Exam #1
R1-24
Small Business Administration
SBA ‘Smallness’ Guidelines
Service Industries
% of Small Businesses
1. Services
< $2.5m to $22m annual receipts
Distribution Industries
2. Retailing
Service
< $6.5m annual receipts
48%
3. Wholesale Trade
< 100 employees
Production Industries
Distribution
33%
4. Manufacturing
< 500 to 1500 employees
5. General & Heavy Construction
< $31m annual receipts
Production
19%
6. Special Trade Construction
< $13m annual receipts
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Review for Exam #1
R1-25
Pros & Cons
of Small Businesses
Advantages
Disadvantages
1. Flexibility
1. Risk of failure

Ability to adapt to
change
2. Independence

You are your own
boss
3. Service

Closer to the
customer
4. Simplified


Business form
Record keeping
5. Specialization
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
2 out of 3 close their doors
within the first 5 years
2. Limited potential

Based on technical and
business skills of the owner
3. Limited ability to
raise capital

67% begin with <$10,000
4. Little ‘power’


With big customers
With major vendors
Review for Exam #1
R1-26
Characteristics of a
Successful Entrepreneur
1. Vision
2. High energy level
3. Self-confidence
4. Optimism
5. Creativity
6. Tolerance for uncertainty
7. Tolerance for failure
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R1-27
Likelihood of Success
“Statistically, over 70% of
new businesses can be
expected to fail within
their first five years.”
Improve your odds & likelihood of success:
 Good business plan
 Good advice (eg the SBA)
 Franchising
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 Developing a Business Plan
A carefully constructed guide for the person
starting the business . . . . also serves as a
concise document for potential investors.
1. Introduction
2. Executive
Summary
3. Benefits to
Community
4. Company &
Industry
5. Management
Team
6. Operations Plan
7. Labor Force
8. Marketing
Plan
9. Financial
Plan
10. Exit
Strategy
11. Assessment
of Risk
12. Appendix
Alford
Media
Video
For more help from the SBA: http://www.sba.gov/smallbusinessplanner/index.html
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 Small Business Administration
“America’s small business resource”
established in 1953 to ‘aid, counsel, assist
and protect the interests of small business’
 Financial Assistance –



Loans via private lenders guaranteed by the SBA
SBA guaranteed $19.5 billion in loans in 2006
Current maximum is $1 million via lenders, 85% up to $150,000
 Assist with Government Procurement –


Small business ‘set-aside’ programs
Supplementary programs for minority & female owned businesses
 Training and Consulting Assistance –



SCORE – Service Corps of Retired Executives
ACE – Active Corps of Executives
SBI – Small Business Institute
http://www.sba.gov
 Encourage Legislation & Provide Information
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R1-30
 Franchising
An agreement between a Franchisor & a Franchisee,
to market, sell or license products, services or
concepts. Franchisee pays fees to the Franchisor.
Franchisor
Sells franchise to
Franchisee

Gains fast & selective
distribution with minimal
costs

Opportunity to start a
business with limited
capital

Collects upfront and
ongoing fees from the
franchisee

Makes use of proven
concepts & the business
experience of the others

Benefits from the
investments made by a
highly motivated franchisee

Benefits from brand names
and national/local
promotional activities

Retains a great deal of
control over the brand
name, product & service

One-time franchise fees and
continuing royalties can be
a financial burden
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R1-31
Still Operating after
Franchise Success vs
Independent Businesses
Franchises
1 year
Independents
5 years
90%
10 years
Source: US Department
Of Commerce
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0
20
40
Review for Exam #1
60
80
100%
R1-32
The Five-Step
Management Process
Management - is the process of leading and
coordinating people (along with other resources)
to achieve the organization’s goals & objectives.

Planning
• Strategic
•
•
•
•
Tactical
Operational
Contingency
Goal Setting


Organizing
• Resources
• Activities
• Structure
• Chain of
Command

Directing
Controlling
• Motivating
• Delegating
• Prioritizing
• Measuring
• Corrective
action
• Leading
• Set standards
 Review and modify
Managements’ Focus – ‘Getting the Job Done’
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R1-33

Planning
Planning – establishing the organization’s
mission, goals & objectives and developing
strategies & plans to achieve them
 Strategic planning – the fundamental longer-
term strategies and key GOALS of the organization
 Tactical planning – specific action-oriented
OBJECTIVES related to specific functions &
departments
 Operational planning – very short-term (weekly
& daily) plans, BUDGETS & performance expectations
 Contingency planning – ‘WHAT-IF’ plans that
address possible ‘downside & upside’ economic &
business scenarios
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R1-34

The Organizing Process
 Defining the Jobs

Major FUNCTIONS and related TASKS

Organize into WORK ASSIGNMENTS
 Departmentalization


Group jobs into manageable units - ‘DEPARTMENTS’ or ‘SECTIONS’
Form by major FUNCTION, PRODUCT, LOCATION, hybrid or matrix
 Delegation

Distribute RESPONSIBILITY & AUTHORITY within the organization
 Span of management


WIDE or NARROW – number of subordinates reporting to each manager
ORGANIZATIONAL HEIGHT – layers or levels of management
 Chain of command


LINE positions – with direct authority
STAFF positions – support positions
Organiz
ations
Video
Organizing resources, activities and structure
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R1-35
Corporate Organization
Levels of Management
Board of Directors
Hires the officers.
CENTRALIZED
ORGANIZATION
Management
systematically works to
concentrate authority at
the UPPER levels of the
organization
Officers
& Top
Management
Set corporate goals
& select managers.
Top
Mgm't
Video
Middle Management
Middle
Mgm't
Video
Implements strategy, develops
tactical & operational plans & objectives.
Supervises first-line managers.
DECENTRALIZED
ORGANIZATION
Management
consciously
attempts to
spread authority
widely in the
LOWER levels
of the
organization
Delegation
First-Line Management
Coordinates & supervises activities of
employees/associates.
Employees/Associates
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R1-36
Span of Management
1
President
President
3
Flat Organization
- W i d e S p a n Many direct reports
4
5
Tall Organization
-Narrow SpanFew direct reports
‘Organizational Height’ refers to the number of
layers or levels of management in an organization
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R1-37
Directing
Leading & Motivating …

Effective managers possess certain skills …
… and are able to use these skills in a
number of managerial roles.
Management SKILLS
1. Technical Skills -
1. Decision Roles -
• Knows the skills needed
to accomplish a job or
specialized activity
2. Conceptual Skills –
• Ability to think in
abstract ‘holistic’ terms
• Vision – the ‘big picture’
3. Interpersonal Skills • Lead & motivate - deal
effectively with people
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Managerial ROLES
• Effective management
decision making and
delegation
2. Information Roles –
• Gathering information
• Disseminating and
providing information
3. Interpersonal Roles • Communicating &
dealing with people
Review for Exam #1
R1-38
Leadership Styles and Traits
Subordinate-centered
leadership
Boss-centered
leadership
Area of FREEDOM for subordinates
Use of AUTHORITY by manager
Manager
MAKES
the
decision &
announces
it
Manager
‘SELLS’
the
Decision
Manager
PRESENTS
decision
& invites
questions
Autocratic
Bureaucratic
Manager
presents
‘TENTATIVE’
decision –
but subject
to change
based on input
from
subordinates
Manager
presents
problem,
gets
SUGGESTIONS,
and
makes
the final
decision
Participative
Democratic
Manager
permits
SUBORDINATES
to function
within
the LIMITS or
GUIDELINES
defined
by superior
Free rein
Laissez-faire
No single leadership trait is effective in all situations.
Use a style most appropriate to situation & employees.
Adapted from HBR, How to Choose a Leadership Pattern, 6/73
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R1-39
Steps in the
Delegation Process
To be successful in an organization, a
manager must learn to delegate.
No one person can do everything alone.
Manager
1.
Assign Responsibility
The DUTY to do a job or perform a task.
2.
Grant Authority
The POWER to accomplish an assigned job or task.
3.
Assign accountability
The OBLIGATION of a worker to accomplish an assigned job or task.
Worker
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R1-40

The Control Function
Controlling - is the process of evaluating and
regulating ongoing activities to ensure that
goals & objectives are set & achieved.

Setting
Goals &
Objectives


Measuring
Actual
Performance
Taking
Corrective
Action
Evaluating performance to Goals & Objectives
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R1-41

Review & Modify
Review & modify the steps in the process periodically (usually annually) … or when shortfalls
or key economic or competitive events occur.

Planning
• Strategic
•
•
•
•
Tactical
Operational
Contingency
Goal Setting


Organizing
• Resources
• Activities
• Structure
• Chain of
Command

Directing
Controlling
• Motivating
• Delegating
• Prioritizing
• Measuring
• Corrective
action
• Leading
• Set standards
 Review and modify
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R1-42
Motivation – Maslow’s
Hierarchy of Needs
A NEED is a personal requirement. Maslow’s Hierarchy
provides a useful way of viewing employee motivation.
5.
4.
3.
2.
1.
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Selfactualization
needs
Esteem
needs
The need to grow & develop – and to
become all that we are capable of being
The need for respect, recognition - sense
of our own accomplishment & worth
Social needs
Our requirements for love and
affection & a sense of well-being
Safety needs
The things we require for
physical & emotional security
Physiological needs
The things we need for
survival
Review for Exam #1
R1-43
Dr. Phil’s - Hierarchy of Needs
& Personal Critical Choices
Lower needs must be fulfilled before the next higher
need becomes relevant. External vs internal ‘choices’.
7.
6.
5.
Selfactualization
needs
4.
3.
2.
1.
Spiritual Fulfillment
Vision beyond personal interest
Intellectual Fulfillment The pursuit of knowledge or answers
Self-Expression
Self-Esteem
needs
Love needs
Security needs
‘Uniquely ours’ – mark on the world
‘Self-validation’ – from the inside . . .
. . . or the outside from someone else
Either have it . . .
. . .or driven to find it
Basis for physical & emotional
security acceptance & belonging
Life itself must be protected
Our most basic need
Survival needs
X100
Adapted from: Self Matters by Dr. Phil McGraw
Review for Exam #1
R1-44
Motivation – Vroom’s
Expectancy Theory
Vroom’s theory is based on the idea that motivation
depends on:
1st - how much people want something . . . AND
2nd - on how likely they think they are to get it.
Does the person
want the
outcome ?
No
Not Motivated
X100
Yes
Does the person
think that the
outcome is
likely ?
Yes
Motivated !!!
No
Not Motivated
Review for Exam #1
R1-45
Herzberg’s
Motivation – Hygiene Theory
Hygiene Factors – eliminate job dissatisfaction.
Motivation Factors – increase job satisfaction.
Motivators
• Achievement
• Supervision
•
•
•
•
•
•
•
•
•
•
•
•
Extremely
Satisfied
X100
Hygiene Factors
Recognition
Work itself
Responsibility
Advancement
Growth
Company Policy
Relationships
Working Conditions
Salary
Personal life
Status
Security
Neutral
No Satisfaction – No Dissatisfaction
Review for Exam #1
DisSatisfied
R1-46
Classical
‘Six-Step Action-Oriented’
Decision Making Process
Step
1.
RECOGNIZE the need - to make a decision
Step
2.
LIST - Generate alternatives
Step
3.
RANK - Assess the alternatives
Step
4. SELECT - Choose among the alternatives
Step
5.
Step 6
6..
X100
IMPLEMENT the
chosen alternative
LEARN from feedback & consequences
Review for Exam #1
R1-47
‘Cognitive Biases’
Leading to Systematic Errors
Errors that managers make over and over again
that result in poor decision making - examples:
1. Prior hypothesis bias
Tendency to base decisions on strong prior
beliefs even if evidence shows that those beliefs
are wrong.
2. Representativeness bias
Tendency to generalize inappropriately from a
small sample or from a single vivid event or
episode.
Cognitive
Biases »
Errors
3. Illusion of control
Tendency to overestimate one’s own ability to
control activities and events.
4. Escalating commitment
Tendency to commit additional resources to a
project even if evidence shows that the project is
failing.
X100
Review for Exam #1
Be Aware of
Your Biases !
R1-48
Group Decision Making
Group decision making is usually superior to
individual decision making in many respects:
1.
Group are less likely to fall victim to the cognitive
biases & systematic errors.
2.
Draws on combined skills, competencies and
knowledge of the group.
3.
Ability to process more information and correct each
others’ errors.
4.
Improves ability to generate more feasible
alternatives and make better decisions.
5.
Increases the probability that the decision will be
implemented successfully.
Beware of the perils of ‘Groupthink’:
A pattern of faulty and biased decision making that occurs in groups whose members strive for agreement among themselves - at the
expense of accurately assessing information relevant to a decision.
X100
Review for Exam #1
R1-49
Types of Formal Teams
Management Teams
Consisting mainly of managers
from various functions like
sales & production. Coordinates
work among the other types of
teams.
Quality Circles
In danger of extinctions, this
type, typically made up of
workers & supervisors, meets
intermittently to air workplace
problems & solve quality issues.
Work Teams
Permanent
Project Teams
Virtual Teams
A characteristic of this new type
of work team: members talk by
computer, flying in and out as
needed, and take turns as the
leader.
X100
Work teams do just that – the
daily work. Becoming
increasingly popular. When
empowered, the can become
self-managed teams.
Temporary
Review for Exam #1
Problem-solving teams
comprised of knowledge
workers who gather and solve a
specific problem or meet a
specific goal – & then disband.
R1-50
Group Cohesiveness
and Productivity
X100
COHESIVENESS of the Group
Low
High
High
Strong increase
in productivity
Moderate increase
in productivity
Low
ALIGNMENT of Group
& Organizational Goals
Cohesiveness is the degree to which members
are attracted to one another and share the
group’s goals.
Decrease in
productivity
No significant effect
on productivity
Review for Exam #1
R1-51
Conflict and
Group Performance
Low
Level of Conflict
High
High
Level of
Group
Performance
Low
Level of
Conflict
Low or none
Optimal
High
Type of Conflict
Dysfunctional
Functional
Dysfunctional
Group’s Internal
Characteristics
Stagnant, Apathetic
Unresponsive to
change & new ideas
Viable
Self-critical
Innovative
Disruptive
Chaotic
Uncooperative
Low
High
Low
Group
Performance
X100
Review for Exam #1
R1-52
Personnel Law
 Employment-at-Will Doctrine
 Collective Bargaining
(Unions)
 Individuals’ Rights
 Workplace Safety & Security
 Employment Discrimination
X100
Review for Exam #1
R1-53
Employment-at-Will
Doctrine
An employer can hire and fire an
employee . . . . at ANY time . . . .
for ANY reason . . . or NO reason.
An employee can QUIT. . .
at any time . . . without notice.
Basic doctrine may be modified by:
1. Employment contracts
(written & implied)
2. Union contracts
3. Applicable Federal & State
laws and regulations
X100
Review for Exam #1
R1-54
Collective Bargaining
 National Labor Relations Act (1935) –
 Establishes a collective bargaining process & the NLRB
 Labor-Management Relations Act (1947) –
 Also known as the Taft-Hartley Act
 Provides a balance between union
power and management power
 Worker Adjustment and
Retraining Notification (1988) –
 Also known as the WARN Act
 Requires employer to give employees 60 days notice
regarding plant closure or layoff of 50 or more
employees
X100
Review for Exam #1
R1-55
Individuals’ Rights
 Fair Labor Standards Act (1935) –
 Establishes a minimum wage & an overtime pay rate
for employees working more than 40 hours per week
 Equal Pay Act (1963) –
 Specifies that men and women who do
equal jobs must be paid the same wage
 Family and Medical Leave Act (1993) –
 Affects only organizations with 50 or more employees
 Provides up to 12 weeks of leave without pay upon the
birth (or adoption) of an employee’s child
 Or if an employee, employee’s child, spouse or parent
is seriously ill
X100
Review for Exam #1
R1-56
Workplace
Safety & Security
 Occupational Safety and Health Act
(1970) –
 OSHA regulates the degree
to which employees can be
exposed to hazardous substances
 Specifies the safety equipment
that the employer must provide
 Employment Retirement Income
Security Act (1974) –
 ERISA regulates company retirement programs
 Provides a a federal insurance program for retirement
plans that go bankrupt
X100
Review for Exam #1
R1-57
Employment Discrimination
 Title VII of the Civil Rights Act (1964) –
 Outlaws discrimination in employment practices based on
sex, race, color, religion or national origin
 Age Discrimination in Employment Act (1967)
 ADEA outlaws personnel practices that discriminate against
people aged 40 and older
 1986 amendment eliminated a mandatory retirement age
 Americans with Disabilities Act (1990) –
 ADA prohibits discrimination against qualified individuals
with disabilities in all employment practices (job application
procedures, hiring, firing, advancement, compensation,
training and terms of employment)
 Civil Rights Act (1991) –
 Facilitates employees’ suing employers for sexual
discrimination and collecting punitive damages
X100
Review for Exam #1
R1-58
Ethical Behavior
in Organizations
Ethics: is the study of right and wrong –
and of the morality of choices individuals make.
Business Ethics: is the motivating force of
business behavior (often seen as impositions & constraints).
Level of Business Ethical Behavior
Individual
Standards &
Values
+
Social
Factors &
Influences
+
Opportunity
Codes &
Compliance
= Ethical/Unethical Choices in Business
X100
Review for Exam #1
R1-59
Snapshot of an
Ethical Organization
An ethical company:
Treats all stakeholders adequately & fairly
Consistently makes fairness the first priority
Expects individual, rather than vaguely collective,
accountability
Defines objectives & goals that all members value
Portrays a clear vision of integrity, exemplified by
management
Demands & reward integrity at all times & in all situations






Your role:
If you feel good about the company you should act in harmony with the firm & its values.
If you feel that the organization is wanting in ethics you need to make some choices.
The first choice is to act ethically yourself !!!!
X100
Review for Exam #1
R1-60
Pyramid & Views
of Social Responsibility
Economic Model
Society will benefit
most when business is
left alone to market
products that society
needs – profit focus
Socio-Economic Model
Voluntary
Responsibilities
Business should
emphasize not only
profits, but also the
impact of its decisions on
society
Being a ‘good corporate
citizen’ – Contributing to the
community & quality of life
Ethical Responsibilities
Being ‘ethical’:
Doing what is right, just & fair;
Avoiding harm
Legal Responsibilities
Obeying the law
(society’s codification of right & wrong)
Playing by the ‘rules of the game’
Economic Responsibilities
Being profitable
X100
Review for Exam #1
Source: ‘The Pyramid
of Corporate Social
Responsibility’, Business
Horizons by Carroll, IU
R1-61
General Criteria for
Evaluating Courses of Action
Is the possible course of action:
Legal ?
Ethical ?
Economical ?
Practical ?
X100
Review for Exam #1
R1-62
Deal & Kennedy’s
Corporate ‘Cultural Model’
Corporate culture -
the inner rites, rituals and values of a firm
RISK
FEEDBACK & REWARD
Rapid
Low
Work-Hard, Play-Hard
Tough-Guy ‘Macho’ Culture
•
•
•
•
Stress comes from quantity of work
versus uncertainty
High speed action leads to high speed
recreation
Examples: Software Companies,
Restaurants
Process Culture
•
•
Slow
High
•
•
•
•
Stress comes from high risk & potential
loss/gain of reward
Focus on the present …
rather than the longer term future
Examples: Surgeons, Police, Sports
Bet-the-Company Culture
Low stress, plodding work, comfort &
•
security. Stress comes from internal
politics & stupidity of the system
•
Development of bureaucracies & ways to
maintain the status quo.
Focus on security of the past & the future •
Examples: Banks, Insurance Companies
Stress coming from high risk and delays
before knowing if actions have paid off
The long view is taken, but then much
work is put into making sure things
happen as planned.
Examples: Aircraft Manufacturers,
Oil Companies.
Source: Deal & Kennedy, ‘Corporate Cultures’, 2000 reprinted. ChangingMinds.org
X100
Review for Exam #1
R1-63
Individual Characteristics &
‘Types of Corporate Culture’
High
Networked Culture
Communal Culture
•
•
•
•
Sociability
•
•
•
•
You consider yourself passionate
Strong need to identify with something
bigger than yourself
You enjoy being in teams
Prepared to make sacrifices for the
greater good
Fragmented Culture
Mercenary Culture
•
•
•
•
•
Low
Extrovert energized by relationships
Tolerant of ambiguities & have low needs
for structure
Can spot politics and act to stop negative
politics
Consider yourself easygoing, affable and
loyal to others
Are a reflective & self-contained introvert
Have a high autonomy drive and strong
desire to work independently
Have a strong sense of self
Consider yourself analytical rather than
intuitive
Low
•
•
•
Goal-oriented and have an
obsessive desire to complete tasks
Thrive on competitive energy
Keep ‘relationships’ out of work –
develop them only to achieve your goals
Keep things clear cut and see the world
in black and white
Solidarity - Unity
High
Source: ‘Types of Corporate Culture’ from The Character of the Corporation by Goffee & Jones
X100
Review for Exam #1
R1-64
X100
Review for Exam #1
R1-65