Business Essentials, 9E Ronald J Ebert Ricky W Griffin Instructor Manuals

Type:

Instructor Manual

Resource:

Business Essentials

Edition:

9th Edition

Author(s):

Ronald J. Ebert Ricky W. Griffin

Chapter 1: The U.S. Business Environment

Chapter Overview Many students come to an introduction to business class not quite sure what it’s all about. The course has something for everyone, from those who have been in the business world a while to those just getting started. As the book unfolds, you’ll develop an understanding of the foundations of business and will be able to apply what you already know (or what you are starting to learn) about business to many aspects of the course.

This first chapter dives right into the world of business, explaining what business is, what its main goals and functions are, and how the external environments of business affect the success and failure of any organization. The chapter also: • • • •

Describes global economic systems according to the means by which they control the factors of production.

Shows how markets, demand, and supply affect resource distribution in the United States.

Discusses the elements of private enterprise and the degrees of competition in the U.S. economic system.

Explains the importance of the economic environment to business and identifies the factors used to evaluate the performance of an economic system.

Learning Objectives 1. Define the nature of U.S. business and identify its main goals and functions.

2. Describe the external environments of business and discuss how these environments affect the success or failure of any organization.

3. Describe the different types of global economic systems according to the means by which they control the factors of production.

4. Show how markets, demand, and supply affect resource distribution in the United States, identify the elements of private enterprise, and explain the various degrees of competition in the U.S. economic system.

5. Explain the importance of the economic environment to business and identify the factors used to evaluate the performance of an economic system.

.

1-1

Chapter Outline A. The Concept of Business and the Concept of Profit 1. Consumer Choice and Demand 2. Opportunity and Enterprise 3. The Benefits of Business

B. The External Environments of Business 1.

2.

3.

4.

5.

6.

Domestic Business Environment Global Business Environment Technological Environment Political-Legal Environment Sociocultural Environment Economic Environment

C. Economic Systems 1. Factors of Production 2. Types of Economic Systems

D. The Economics of Market Systems 1. Demand and Supply in a Market Economy 2. Private Enterprise and Competition in a Market Economy

E. Economic Indicators 1. Economic Growth, Aggregate Output, and Standard of Living 2. Economic Stability 3. Managing the U.S. Economy

.

1-2

LIST OF IN-CLASS ASSIGNMENTS: AUTHOR’S CHOICE Activity

Description

1. Ice-Breaker: What Do You Know About Business?

Students assess their level of knowledge about business and set their own learning goals for the class.

Students consider how parts of the external environment affect businesses and industries.

Teams of students discuss types of economic systems.

2. Small Group Discussion: Scanning the Environment 3. Up for Debate: Comparing Economic Systems 4. Supplemental Case Study Discussion: Flying into Trouble—the OneWorld Alliance and Antitrust Laws 5. Business Accountability Handout Discussion: The Geography of Jobs

Students read a supplemental case study and discuss how it applies to chapter concepts.

This activity asks students to read a supplemental article and ponder whether outsourcing is a detriment to social responsibility.

Time Limit

Instructor’s Manual Page Reference

20 min.

1-4, 1-15

25 min.

1-5, 1-16

30 min.

1-8, 1-17

30 min.

1-9, 1-18 to 1-19

30 min.

1-10, 1-20 to 1-22

LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE At-Home Activity

Description

Students visit a shopping mall Application Exercise and determine the degree of 9: Visit a Shopping competition stores face in their Mall immediate environment.

Students interview a business Application Exercise owner or senior manager, find 10: Interview a out how demand and supply Manager affect the business, determine which essential factors of production are most important, and judge the impact of economic indicators on the business.

BizSkill

Supply and Demand

.

Deliverable

Completion Time

Instructor’s Manual Page Reference

A brief paper detailing their responses to the activity.

1 to 1.5 hours

1-11, 1-23

1 to 2 hours

1-14, 1-23

A brief paper detailing the outcome of the interview.

Students can test their business skills in this online simulation.

15 min.

1-24

1-3

TEACHING NOTES AND SUGGESTIONS Learning Objective 1: Define the nature of U.S. business and identify its main goals and functions.

The Concept of Business and the Concept of Profit A business is an organization that provides goods and services to earn profits. Profits are the difference between a business’s revenues and expenses.

1. Consumer Choice and Demand: In a capitalistic system like that of the United States, consumers have freedom of choice. In turn, businesses must take into account consumer demand in their pursuit of profits.

2. Opportunity and Enterprise: Unmet consumer demands provide promising opportunities for potential business success.

3. The Benefits of Business: Businesses produce most of the goods and services consumed, employ most working people, create new innovations, and provide opportunities for new businesses to serve as suppliers. Further, businesses contribute to the quality of life and the standard of living.

Use In-Class Activity 1: Ice-Breaker: What Do You Know About Business?

Time Limit: 20 minutes

.

1-4

Learning Objective 2 Describe the external environments of business and discuss how these environments affect the success or failure of any organization.

The External Environments of Business The external environment consists of everything outside an organization’s boundaries that might affect it. Economists examine six major dimensions of the external environment.

1. Domestic Business Environment. The domestic business environment refers to the environment in which a firm conducts its operations and derives its revenues.

2. Global Business Environment. The global business environment refers to the international forces that affect a business; various factors affect the global environment at both the general and immediate levels.

3. Technological Environment. The technological environment generally includes all the ways by which firms create value for their constituents; technology includes human knowledge, work methods, physical equipment, electronics and telecommunications, and various processing systems.

4. Political-Legal Environment. The political-legal environment reflects the relationship between business and government, usually in the form of government regulation of business.

5. Sociocultural Environment. The sociocultural environment includes the customs, mores, values, and demographic characteristics of the society in which an organization functions.

6. Economic Environment. The economic environment refers to relevant conditions that exist in the economic system in which a company operates.

Use In-Class Activity 2: Small Group Discussion: Scanning the Environment Time Limit: 25 minutes

.

1-5

Learning Objective 3: Describe the different types of global economic systems according to the means by which they control the factors of production.

Economic Systems An economic system is a nation’s system for allocating its resources among its individual citizens and organizations.

A. Factors of Production A basic difference between economic systems is the way in which they manage their resources, known as factors of production. Economists focus on five factors of production: 1. Labor: The human resource element in businesses, labor includes the physical and intellectual contributions people make while engaged in economic production.

2. Capital: The financial resources needed to operate an enterprise are known as capital.

3. Entrepreneurs: An entrepreneur is an individual who accepts the risks and opportunities entailed by creating and operating a new business.

4. Physical Resources: The tangible things that organizations use to conduct their business are physical resources.

5. Information Resources: Businesses rely on information resources, such as market forecasts, the specialized knowledge of people, and economic data.

KEY TEACHING TIPS •

The most important factors of production are entrepreneurial skills and informational resources. The more a country can create an environment that promotes entrepreneurship and harnesses knowledge and information, the better of it will be.

•

Remind students that inputs used to produce outputs are also called factors of production; they include physical resources, labor, capital, entrepreneurship, and information resources.

QUICK QUESTIONS •

What are the factors of production used to produce orange juice?

•

Entrepreneurship involves tremendous risk-taking and is a welcome ingredient in a freemarket system. What characteristics of our free-market system encourage risk taking?

.

1-6

B. Types of Economic System Economic systems vary, depending on how the factors of production are managed.

1. Planned Economies: These systems rely on partial or total government control of all or most of the factors of production and allocation decisions. With communism—as currently operating in North Korea—all sources of production are owned and operated by the government.

2. Market Economies: Producers and consumers control production and allocation decisions through supply and demand. The political basis of a market economy is capitalism, which allows the private ownership of the factors of production and encourages entrepreneurship by offering profits as incentives.

3. Mixed Market Economies: This type of economy features characteristics of both planned and market economies; many countries are moving from planned systems to mixed market systems through privatization, which involves the transformation of governmentcontrolled businesses into privately owned enterprises. In the partially planned system called socialism, the government owns and operates selected major industries. The U.S. Government’s bailout of U.S. banks and other financial institutions in 2009 involved the government taking an ownership to keep tabs on how tax dollars (used to bailout the banks and financial institutions) were being used. Critics of government intervention were quick to label the bailout as a move toward socialism.

KEY TEACHING TIPS •

Remind students that a government’s level of control distinguishes capitalism from socialism. If you have foreign students in your class, you may want them to say a bit about the economic system in their native country.

•

Make sure students understand that a mixed market economy is characterized by government ownership of major industries working alongside privately owned industries that smooth out fluctuations in output and unemployment and to stabilize prices.

•

Remind students that an economic system is defined by how it allocates factors of production. In a planned economy, the government owns and controls these factors; in a market economy, producers/consumers buy and sell what they choose.

•

Make sure students understand that a mixed market economy is characterized by government ownership of major industries working alongside privately owned industries

•

Ask students to give their opinions about the government bailout of banks and financial institutions. In addition, you could ask students to research and report on any new stories

.

1-7

concerning the bailout that appear in publications such as the Wall Street Journal. It is never too early to get students to regularly read the business news!

Use In-Class Activity 3: Class Discussion: Up for Debate: Comparing Economic Systems Time Limit: 30 Minutes QUICK QUESTIONS •

Give an example of a country with a planned economy.

•

What makes this economy planned? Give an example of a country with a market economy.

•

How is the economic system different in this country?

•

In retrospect do you think the government bailout of banks and financial institutions was a wise move? Why or, why not?

.

1-8

Learning Objective 4 Show how markets, demand, and supply affect resource distribution in the United States, identify the elements of private enterprise, and explain the various degrees of competition in the U.S. economic system.

The Economics of Market Systems Market systems allow businesses the flexibility to decide what to produce, how much to produce, and what price to charge; customers are a driving force in market systems because they decide what to buy and at what price. Demand and supply are the predominant forces that guide decisions about what to buy and what to sell.

A. Demand and Supply in a Market Economy Billions of exchanges take place every day between businesses and individuals; between businesses; and among individuals, businesses, and governments. Exchanges conducted in one area often affect exchanges elsewhere.

1. The Laws of Demand and Supply: Demand is the willingness and ability of buyers to purchase a product; supply is the willingness and ability of producers to offer a good or service for sale. The law of demand states that buyers will purchase more of a product as its price drops; the law of supply states that producers will offer more of a product for sale as its price increases. a. The Demand and Supply Schedule: The demand and supply schedule indicates how much of a product will be sold at various prices. Generally speaking, the more consumers are willing to pay for a good, the more producers are likely to divert resources to make more of the good. Conversely, as the price at which consumers are willing to pay for a produce falls, production becomes less profitable and producers cut back on production to divert resources to more profitable areas. b. Demand and Supply Curves: A demand curve shows how many products will be demanded at different prices; a supply curve shows how many products will be supplied at various prices. The point at which the curves intersect is the market price (or equilibrium price). c. Surpluses and Shortages: With a surplus, the quantity supplied exceeds the quantity demanded; quantity demanded exceeds quantity supplied with a shortage.

Use In-Class Activity 4: Supplemental Case Study Discussion: Flying into Trouble—the OneWorld Alliance and Antitrust Laws Time Limit: 30 minutes QUICK QUESTION What is equilibrium price? What happens if incomes rise and demand increases? What happens if producers have a surplus and supply increases?

.

1-9

B. Private Enterprise and Competition in a Market Economy Individuals pursue their own interests with minimal government restriction in a private enterprise system; such a system requires: • • • •

Private property rights—the ability of individuals to own factors of production Freedom of choice—the ability to choose where to work and what to buy Profits—the ability to take risk to earn profit, and Competition—the ability to compete for customers and scarce resources.

Competition occurs when two or more businesses vie for the same resources or customers.

1. Degrees of Competition. Economists have identified four degrees of competition in a private enterprise system: a. Perfect Competition. Many small firms exist in an industry; no single firm is powerful enough to influence price. b. Monopolistic Competition. Few sellers, but many buyers exist, so buyers focus on numerous differentiation strategies, such as brand names, design, and advertising. c. Oligopoly. An industry has only a handful of sellers; market entry is difficult because large capital investment is needed. d. Monopoly. An industry or market has only one producer; that producer enjoys complete control over price.

KEY TEACHING TIPS •

Remind students that perfect competition is characterized by (a) many buyers, (b) many sellers, and (c) buyers and sellers who accept a going price.

•

Remind students that monopolistic competition is characterized by (a) many buyers, (b) many sellers, and (c) products that are differentiated.

•

Reinforce that oligopoly is characterized by (a) many buyers, (b) few sellers, (c) products that are quite similar, and (d) a change in price by one seller often meaning a change in price by all sellers.

•

Remind students that a monopoly is characterized by (a) many buyers, (b) only one seller, and (c) prices being set by the one seller.

Use In-Class Activity 5: Business Accountability Handout Discussion: The Geography of Jobs Time Limit: 30 Minutes

.

1-10

QUICK QUESTIONS •

Which level of competition best describes the market in each of the following scenarios? o Your local Pizza Hut (monopolistic competition) o A local farmer selling apples for applesauce (perfect competition) o Cell phone service (oligopoly) o Gap jeans (monopolistic competition)

HOMEWORK Visit a Shopping Mall!

Now is a good time to assign Application Exercise 9 from the end-of-chapter materials as homework. This assignment asks students to visit a local shopping mall and determine the degree of competition stores in the mall face in their immediate environment.

For the complete assignment instructions, see page 26 of the textbook.

At-Home Completion Time: 1 to 1.5 hours

.

1-11

Learning Objective 5 Explain the importance of the economic environment to business and identify the factors used to evaluate the performance of an economic system.

Economic Indicators A. Economic Indicators These statistics show whether an economic system is strengthening, weakening, or remaining stable.

1. Economic Growth, Aggregate Output, and Standard of Living. Aggregate output is the total quantity of goods and services produced by an economic system during a given period. Simply put, an increase in aggregate output is growth. Standard of living refers to the total quantity and quality of goods and services that can be purchased with the currency used in an economic system; standard of living increases when the quantity of goods and services increases, and the economic system provides more of the goods and services people want. The business cycle is the pattern of short-term expansions and contractions in an economy and one important use of economic measures is to help governments and businesses understand where in the business cycle they currently are.

2. Gross Domestic Product (GDP): The GDP is the total value of all goods and services produced within a given period through domestic factors of production; GDP is a measurement of aggregate output. Gross national product (GNP) refers to the total value of all goods and services produced by a national economy within a given period regardless of where the factors of production are located. a. Real Growth Rate: Real growth depends on output increasing at a faster rate than population; the real growth rate of the U.S. economic system seems quite healthy and the U.S. standard of living should be increasing. b. GDP per Capita: GDP per capita means GDP per person. GDP divided by total population equals GDP per capita. c. Real GDP: Real GDP means that GDP has been adjusted to account for changes in currency values and price changes. d. Purchasing Power Parity: 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.

3. Productivity: Productivity compares how much a system produces with the resources needed to produce it; increases in productivity yield increases in the standard of living. a. Balance of Trade: A country’s balance of trade is the economic value of all the products that it exports minus the economic value of its imported products. A positive balance results when the value of a country’s exports is greater than its imports; that

.

1-12

is, more money is flowing into the country as a result of exporting. A negative balance results when a country imports more than it exports. b. National Debt: A country’s national debt is the amount of money that is owed to creditors.

B. Economic Stability Stability results when the amount of money available in an economic system and the quantity of goods and services produced in it are growing at about the same rate.

1. Inflation: Inflation occurs when widespread price increases plague an economic system; the amount of money in the economic system exceeds the amount of actual output.

Inflation can be measured by the consumer price index (CPI), which weighs prices of typical products purchased by consumers living in urban areas. Inflation rate equals Change in price index/Initial price index 100.

2. Unemployment. Unemployment is the level of joblessness among people actively seeking work in an economic system; when unemployment is high, a surplus of available workers exists. Unemployment is sometimes a symptom of a recession, when aggregate output declines, or of a depression, a prolonged and deep recession. For example, during downturns in the business cycle people in different sectors may lose their jobs at the same time. As a result, overall income and spending may decline to the extent that businesses begin to implement cost saving measures—including reduction in force (downsizing), leading to more unemployment 3. Recession and Depression. Aggregate output is measured to determine whether an economy is going through a recession. Governments and economists define a recession as a period during which aggregate output, as measured by real GDP, declines. The U.S. economy went into recession in 2008 and many commentators do not believe the economy will begin to recover until 2010.

C. Managing the U.S. Economy The government manages the U.S. economic system through both fiscal and monetary policies. Fiscal policies manage the collection and spending of revenues; tax increases can function as fiscal policies. Monetary policies focus on controlling the size of the nation’s money supply; the government can influence banks to lend money and can influence the supply of money by manipulating interest rates. Stabilization policy is made up of both fiscal and monetary policies; the goal is to smooth KEY TEACHING TIPS •

Make sure that students understand that gross domestic product includes only the value of products produced within a nation’s borders; the figure includes the value of products produced by both domestic and foreign companies within those borders.

.

1-13

•

Reinforce that gross national product includes the value of products produced by a country regardless of where they are produced; this figure does not include the value of products produced within the country by a foreign company.

•

Emphasize that the government regulates the money supply and interest rates through monetary policy; the government influences money supply via taxation and spending through fiscal policy.

•

Make sure students understand that inflation occurs when overall price levels go up because too much money is floating around; as a result, purchasing power declines.

VIDEO: BancFirst Run Time: 6:48 Now is a good point to play the video that accompanies this chapter as it describes the impact of the external environment on a business, identifies factors that influence supply and demand curves, and discusses the impact of the business cycle. Incorporate Discussion Questions found on page 28 of the text.

HOMEWORK Interview a Business Owner Now is a good time to assign Application Exercise 10 from the end-of-chapter materials in the textbook. This assignment asks students to interview a business owner or senior manager and ask them how demand and supply affect their business, what essential factors of production are most central to the firm’s operations, and how fluctuations in economic indicators affect their business.

For the complete assignment instructions, see page 26 of the textbook.

At-Home Completion Time: 1–2 hours

.

1-14

IN-CLASS ACTIVITIES In-Class Activity 1: Ice-Breaker—What Do You Know About Business?

Activity Overview: This activity helps students assess their level of knowledge about business and set their own learning goals for the class.

Time Limit: 20 minutes What to Do: 1. Ask each student to take out a piece of paper and divide it into two columns. In the first column, students should write the most important four or five things they currently know about business, and in the second column, the four or five things they would like to learn.

Tell them that if they are having difficulty coming up with items to list, they should take a look at the table of contents in the text. It will give them some clues so that this task doesn’t frustrate them. (5 minutes) 2. Divide students into groups of three to five people and ask them to share their lists with each other. As they listen, they can delete or add anything that seems relevant. (5 minutes) 3. Ask them to switch groups, so that they are with all new people, and repeat the process of sharing their lists. (5 minutes) 4. Ask students to switch to a third group of all new people. With this group, the goal is to synthesize their lists into one big idea of what they know, and one big idea of what they want to learn. (5 minutes) Don’t Forget: This activity allows students to get to know each other as well as set expectations for the course.

The underlying agenda is to get them talking to each other, setting the stage for active participation throughout the class.

Wrap-Up: Wrap up the discussion by having each group report back to the class. You may want to record their responses and post them in the room for reference as you move through the course.

.

1-15

In-Class Activity 2: Small Group Discussion: Scanning the Environment Activity Overview: This activity asks students to consider how various parts of the external environment affect businesses and industries.

Time Limit: 25 minutes What to Do: 1. For larger groups, divide the class into four-member groups; for smaller groups, divide the class into two-member groups.

2. Assign each group a specific industry (for example: automotive, airline, fast food, computer, apparel, or restaurant).

3. Ask each group to consider what variables from the technological, political-legal, sociocultural, and economic environments affect their assigned industry. (15 minutes) 4. Ask a spokesperson from each group to share their input. (10 minutes) Don’t Forget: Remind students that external environmental elements can change dramatically, affecting specific industries differently over time.

Wrap-Up: Wrap up the discussion by making sure that students understand that the nature of a specific business within an industry and the types and quantities of products/services produced can influence the impact of external environmental variables.

.

1-16

In-Class Activity 3: Up for Debate: Comparing Economic Systems Activity Overview: This activity gets students talking about how similar and different the U.S. economic system is to other systems.

Time Limit: 30 minutes What to Do: 1. Divide the class into small groups. Ask the groups to assume they have just overheard a classmate say, “The United States is becoming more socialist everyday—with all the government control.” Have each group list reasons why the statement could be true and reasons why the statement could be false. (15 minutes) 2. Reassemble the class and discuss each group’s thoughts. (15 minutes) Don’t Forget: Remind students that a government’s level of control distinguishes capitalism from socialism. If you have foreign students in your class, you may want them to say a bit about the economic system in their native country.

Wrap-Up: Wrap up the discussion by reminding students that the U.S. economic system and a socialist system have many similarities and differences. For example, workers in socialist economies often work fewer hours, have longer vacations, and receive more health, education, and childcare benefits than do workers in capitalist economies. On the other hand, the federal government does control some basic services in the United States as well as various aspects of the market through agencies such as the Food and Drug Administration and the Federal Communication Commission.

.

1-17

In-Class Activity 4: Supplemental Case Study Discussion: Flying into Trouble—the OneWorld Alliance and Antitrust Laws (see following page) Activity Overview: This activity asks students to apply chapter concepts to a case study.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Supplemental Case Study on page 1-19 of this Instructor’s Manual and distribute them to students.

2. Divide students into groups and ask them to read the case and answer the questions in their small groups. (15 minutes) a. Why would large airlines want to join alliances such as OneWorld, Star, or SkyTeam?

What are the potential advantages and disadvantages? b. Why do you think Virgin Atlantic refuses to join an airline alliance? c. So you think the government should have a role in overseeing these alliances? Is it good for competition for the government to keep intervening? d. Does it make sense to have several government departments involved in antitrust regulations?

2. Once students have answered the questions, discuss their answers as a class. As students discuss their answers, make sure they touch on the following points: (15 minutes) a. What role should any government play in regulating an industry? b. If the government prevents expansion of global airline alliances will this force smaller, non-aligned, airlines out of business?

Answers will vary; though there will be much debate about the whether there should be government intervention in business.

.

1-18

HANDOUT: SUPPLEMENTAL CASE STUDY

Flying into Trouble—the OneWorld Alliance and Antitrust Laws Over the last number of years airline alliances have become an increasing reality in international travel. The Star Alliance is currently the largest of these with twenty member airlines including Lufthansa, Continental Airlines, United Airlines, British Midland International, Singapore, Air China, and U.S. Airways. Another significant player is the OneWorld Alliance that has eleven member airlines that includes British Airways, American Airlines, Cathay Pacific Iberian, Finnair, and Royal Jordanian. SkyTeam is the third main grouping and includes Air France, Delta Airlines, and Aeroflot.

The U.S. Department of Justice, however, does not always think these alliances are good for business. In a recent ruling against given members of the OneWorld Alliance including British Airways and American Airlines, the Department of Justice indicated that OneWorld’s third proposal to expand their alliance could result in “competitive harm” on six transatlantic routes.

As a compromise the Department of Justice proposed that OneWorld give up some of its lucrative slots at congested airports including London’s Heathrow Airport.

To make matters more complicated, it is the Department of Transportation, not the Department of Justice that has the final say on airline regulation in the United States. OneWorld points out that the Department of Transportation overruled similar concerns from the Department of Justice to approve a Star Alliance proposal earlier this year. As a result, OneWorld have indicated that they will issue a “robust response” to the Department of Justice recommendations.

In Europe the European Commission has also expressed reservations about the OneWorld proposal. In addition, Virgin Atlantic, which isn’t a member of any alliance, has repeatedly called for the Department of Transportation to reject OneWorld’s anti-competitive application.

Source: Doug Cameron “Justice Department Objects to OneWorld Extension” the Wall Street Journal, December 21, 2009

DISCUSSION QUESTIONS 1. Why would large airlines want to join alliances such as OneWorld, Star, or SkyTeam? What are the potential advantages and disadvantages?

2. Why do you think Virgin Atlantic refuses to join an airline alliance?

3. So you think the government should have a role in overseeing these alliances? Is it good for competition for the government to keep intervening?

4. Does it make sense to have several government departments involved in antitrust regulations?

.

1-19

In-Class Activity 5: Business Accountability Handout Discussion The Geography of Jobs (see following page) Activity Overview: This activity asks students to read a supplemental article and ponder whether outsourcing is a detriment to social responsibility.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the “Business Accountability” article on Page 1-22 of these instructor materials and distribute it to students. Make sure that students are familiar with outsourcing before you divide them into groups.

2. Divide students into three- or four-member groups and ask them to read the handout.

Students should discuss within their groups the pros and cons of (a) outsourcing in order to keep prices down and (b) reducing dependence on outsourcing in order to better fulfill social obligations toward stakeholders. (15 minutes) 3. Reassemble the class and discuss each group’s opinions. (15 minutes) Don’t Forget: This is a case in which there is no simple answer!

Wrap-Up: Wrap up the activity by reminding students that some industries may rely more heavily on outsourcing than others; further, some industries gain higher-quality standards and expertise through outsourcing. Also, remind students of positive trade relationships that evolve through dependence on outsourcing.

.

1-20

HANDOUT: BUSINESS ACCOUNTABILITY

The Geography of Jobs Businesses are accountable to numerous external constituents. Also, managers sometimes have to optimize their decision making when dealing with conflicting interests. Nowhere is this more visible than in the current debate over the continued outsourcing of jobs to foreign employees.

Outsourcing is not a recent phenomenon. For years manufacturers have subcontracted their labor to low-cost factories in developing nations. Nike and Reebok, for instance, outsource the production of all their athletic shoes to factories in Southeast Asia. And many other companies have similar practices. In general, the jobs that have been outsourced have been relatively lowskill in nature. While labor organizations and other observers have long been aware of this practice, business leaders have been able to argue with some conviction that this practice would lead to more high-quality jobs in the United States.

In recent years, a major change in outsourcing has occurred as more companies have started to outsource skilled and/or white-collar jobs to other countries. Companies like Microsoft find that highly skilled software programmers in places like India can perform as well as their U.S. counterparts for about a quarter of the salary costs. Boeing is now having some of its engineering work done abroad. And some experts are beginning to visualize how many other basic services, ranging from income tax preparation to financial analysis to medical records interpretation, can also be exported.

How big is the problem? Experts project that 3.3 million jobs will be exported from the United States by 2015, and that another 14 million jobs have been identified as being “at risk.” Many experts also agree that while outsourcing may be bad for various specific individuals, in the long term it will be good for the country as a whole. And besides, as one CEO argues, “If your competitor is sending jobs overseas, you’re almost forced to do the same.”

That sentiment sums up the debate nicely. On the one hand, if businesses are accountable to their shareholders, they are obligated to keep their costs as low as possible and to remain competitive in their respective marketplaces. From this perspective, then, they should outsource whenever and wherever feasible. On the other hand, to the extent that businesses have a social obligation and an obligation to their current workers, they must take into account the social and human cost of displacing U.S. workers. So which side is right? This is a case in which there is no simple answer, and what is right or wrong is in the eye of the beholder.

DISCUSSION QUESTIONS 1. What are the pros and cons of outsourcing in order to keep prices down?

2. What are the pros and cons of reducing dependence on outsourcing in order to better fulfill social obligations toward stakeholders?

.

1-21

ANSWERS FOR END OF CHAPTER ACTIVITIES (Starting on Page 26 of textbook) QUESTIONS FOR REVIEW 1. The five factors of production are labor, capital, entrepreneurs, physical resources, and information resources. All five factors are crucial; however, their relative importance depends on the product and industry. In the software development business, for example, labor and information resources are especially important, but the business couldn’t survive without capital and physical resources (computers), and it wouldn’t have been launched without an entrepreneur.

2. The curve that describes the range of possible prices that a buyer will pay for a range of quantities demanded by a buyer is the demand curve. The curve that describes the range of price that a seller can charge for a range of quantities supplied by the seller is called the supply curve. The point where the demand curve and the supply curve intersect is the point at which the intentions of buyers and sellers coincide. The price at this point is the equilibrium price.

3. GDP measures the total value of all goods and services produced in a year by a nation’s economy through domestic factors of production. Real GDP is GDP adjusted for inflation.

Both measure annual performance of a given economy.

4. Inflation is both good and bad because it can lead to a spiral of rising wages chasing rising prices, which decreases the standard of living. It is good because at moderate levels, it can signal the beginning of a period of economic growth. Monetary policy, particularly the ability to adjust interest rates, is government’s most powerful tool to control inflation.

QUESTIONS FOR ANALYSIS 5. The failure of communism has led to an increase in the number of mixed and market economies. Answers will vary as to what causes a resurgence of planned economies, but factors might include a failure of capitalism to effectively distribute society’s resources, or an unbearable level of crime and corruption.

6

Answers will vary; however, the Pokémon craze provides an example of a shortage followed by a surplus. A few years ago, Pokémon trading cards were selling for 10 to 20 times their list price. Later, Pokémon cards were selling for less than half price as stores attempted to clear out their inventory. Any clearance sale illustrates the concept of surplus driving down prices. The classic example of a shortage is scalpers selling event tickets at inflated prices. In both cases, the market eventually determines a price at which all the supply can be sold.

7. Answers will vary, but all students should include prices paid for consumer goods and the availability of desirable jobs. Managers are affected by inflation because it tends to drive up wages and by unemployment because it affects their ability to find workers. Also, both inflation and unemployment affect consumer and industrial demand, which play a key role in

.

1-22

management.

8. A nation’s economic growth can be measured through its aggregate output, resulting standard of living, GDP, and productivity. Economic stability, on the other hand, refers to the condition in which the amount of money available in an economic system and the quantity of goods and services produced in it are growing at the same rate.

APPLICATION EXERCISES 9. Visit a Local Shopping Mall: Answers will vary, but students should focus on the criteria for competition discussed in the chapter. For example, businesses with direct competitors operate within monopolistic competition; products are often differentiated by style, color, quality levels, and brand names. If only a few sellers of a product exist, as in an oligopoly, products will be quite similar, and a change in price by one seller will mean a change in price by all sellers.

10. Interview a Business Owner: Answers will vary, but students should recognize that demand and supply affect every business in some way. Typical factors of production cited in this answer include capital, labor, physical resources, information resources, and entrepreneurship. Economic indicators affect businesses differently at different times, depending on whether they are manufacturers or retailers. Ultimately, price increases in an industry will affect the buying power of consumers, which will affect how much is produced and purchased.

BUILDING YOUR BUSINESS SKILLS FOLLOW-UP QUESTIONS 1. Suppliers who provide extras, such as e-mail, Web pages, chat rooms, instant messaging, news, weather, travel directions, shopping networks, and so on will be able to pump up demand. In order to provide these additional services, suppliers will need to invest in the necessary technology, equipment, and staff. They would do well to focus their spending on those extras that would create loyalty, making it more difficult for consumers to change services based on price alone.

2. No, not when competition is based on speed of delivery, quality of goods or services, wide selection, personalized service, premium image, or some other nonmonetary factor.

3. It may be difficult to speculate. Answers will vary; however, if services offered are differentiated in ways suggested, monopolistic competition will likely prevail.

EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE— QUESTIONS TO ADDRESS 1. Because prescription drugs are essentially the same regardless of the supplier, the market has determined an equilibrium price at which supply and demand are equal. Competition keeps the price in check. One of the pharmacies could raise its prices only if it offered additional services that differentiated its products enough that consumers were willing to pay extra.

However, the owner of the competing pharmacy needs to keep in mind that if he raises prices

.

1-23

too high, other suppliers will find a way into the market.

2. The success of our economic system is based on competition and choice. By engaging in collusion, the pharmacy owners are inhibiting the fair operation of the market. This is especially ugly, given that for many people, prescription drugs are crucial to achieving or maintaining health. By colluding, the pharmacy owners would be forcing the weakest residents of the town to pay exorbitant prices, at least in the short term.

3. Answers will vary, but students should at least acknowledge the ethical issues. For example, engaging in collusion inhibits the fair operation of the market. One competitor is dealing unfairly with another, and the innocent consumers are paying for it.

EXERCISING YOUR ETHICS: TEAM EXERCISE Based on an analysis of the situation and the various factors, the team members will have different perspectives on the three options. The students will probably focus on supply and demand, the external business environment, competition, etc., and which option generates the most profit and stability based on their situation.

ACTIVITIES ON MYBIZLAB - INSTRUCTOR TIPS BIZSKILL: Supply and Demand Brief Synopsis/Objectives: In this BizSkill, students play the role of the owner of a small startup company, Moondogs Coffee, who has plans to set up coffee kiosks across college campuses in the U.S. This calls for some tough decisions. Can the students make the right moves and survive in the land of Starbucks?

At the end of this exercise, students should be able to answer the following questions: 1. How do the concepts of supply and demand affect businesses?

2. How are graphs used to describe changing supply and demand?

3. What is an equilibrium price?

4. What factors affect supply?

5. What factors affect demand?

How to Best Use This BizSkill: A great way to use this BizSkill is to assign it as homework before your first lecture on the chapter. Ask students to print out their feedback page, and then have them do the BizSkill again at the end of the week to see whether their scores have improved.

.

1-24

Chapter 2: Business Ethics and Social Responsibility

Chapter Overview Just because others see something as ethical, doesn’t mean you will agree. There is not always a yes/no, right/wrong, black/white answer to everything. We all develop a personal code of ethics that we carry over into our jobs. Sometimes we decide what is ethical based on what is acceptable to others—even though the behavior may be unethical.

This chapter presents a discussion of business ethics, the role of a formal code of ethics, as well as business approaches to social responsibility. The chapter also discusses how the concept of social responsibility applies both to environmental issues and to a firm’s relationships with customers, employees, and investors, and how issues of social responsibility and ethics affect small business.

Learning Objectives 1. Explain how individuals develop their personal codes of ethics and why ethics are important in the workplace.

2. Distinguish social responsibility from ethics, identify organizational stakeholders, and characterize social consciousness today.

3. Show how the concept of social responsibility applies both to environmental issues and to a firm’s relationships with customers, employees, and investors.

4. Identify four general approaches to social responsibility, and describe the four steps that a firm must take to implement a social responsibility program.

5. Explain how issues of social responsibility and ethics affect small business.

.

2-1

Chapter Outline A. Ethics in the Workplace 1.

2.

3.

4.

Individual Ethics Business and Management Ethics Assessing Ethical Behavior Company Practices and Business Ethics

B. Social Responsibility 1. The Stakeholder Model of Responsibility 2. Contemporary Social Consciousness

C. Areas of Social Responsibility 1. Responsibility toward the Environment 2. Responsibility toward the Customers 3. Responsibility toward the Employees 4. Responsibility toward the Investors

D. Implementing Social Responsibility Programs 1. Approaches to Social Responsibility 2. Managing Social Responsibility Programs

E. Social Responsibility and the Small Business

.

2-2

LIST OF IN-CLASS ACTIVITIES: AUTHOR’S CHOICE Activity

Description

1. Ice-Breaker: What’s Ethical in Business?

2. Class Discussion: Ethical Judgment Making 3. Up for Debate: Can Ethics Be Taught?

4. Chapter Case Discussion: Bottled Water—Money Down the Drain?

Students share their views on business ethics.

Students discuss how ethical norms affect ethical judgments.

Students discuss varying opinions on ethics training as a class.

Small groups address the case discussion questions at the end of the chapter.

Time Limit

Instructor’s Manual Page Reference

20 min.

2-5, 2-13

15 min.

2-5, 2-14

30 min.

2-7, 2-15

30 min.

2-9, 2-16 to 2-17

LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE At-Home Activity

Description

Deliverable

Application Exercise 9: Social Responsibility

Students think about prioritizing various groups of stakeholders toward which an organization acts socially responsible.

Students identify and describe at least three companies that take a defensive stance, an accommodative stance, and a proactive stance to social responsibility using various media options.

A list of stakeholders and a discussion on their prioritization.

Application Exercise 10: Identifying Approaches to Social Responsibility

BizSkill

Ethics and Social Responsibility

.

Completion Time

Instructor’s Manual Page Reference

30 min.

2-7, 2-19

A brief paper detailing the research findings.

Students can test their business skills in this online simulation.

1 hour

2-12, 2-19

15 min.

2-12 , 2-20

2-3

TEACHING NOTES AND SUGGESTIONS Learning Objective 1 Explain how individuals develop their personal codes of ethics and why ethics are important in the workplace.

Ethics in the Workplace Ethics are beliefs about wrong and right or bad and good; ethical behavior conforms to individual beliefs and social norms about what is right and good. Business ethics refers to ethical or unethical behaviors by employees in the context of their jobs.

A. Individual Ethics Ethics are based on individual beliefs and social concepts; thus, they vary by person, situation, and culture.

1. Ambiguity, the Law, and the Real World. Societies adopt formal laws that reflect ethical standards; however, real-world situations are sometimes difficult to interpret.

2 Individual Values and Codes. Individuals’ personal codes of ethics are determined by a combination of factors.

B. Business and Managerial Ethics Managerial ethics are the standards of behavior that guide individual managers in their work.

1. Behavior toward Employees. This category covers hiring and firing, wages and working conditions, and privacy and respect.

2. Behavior toward the Organization. Conflict of interest, confidentiality, and honesty are ethical issues. A conflict of interest occurs when an activity may benefit the individual to the detriment of the organization. Many organizations have policies that forbid buyers and other personnel from accepting gifts from suppliers or customers thus avoiding even the appearance of bribery.

3. Behavior toward Other Economic Agents. Ethics also comes into play in the relationship between the firm and a number of primary agents of interests, such as customers, suppliers, competitors, stockholders, dealers, and unions. In 2009, Bernard Madoff’s Ponzi scheme (investment scam) cost hundreds of clients their life savings as he led them to believe that their investments were safe.

C. Assessing Ethical Behavior 1. A similar process that is often recommended when making ethical decisions is for the person to (1) gather relevant information, (2) analyze the facts to determine the most appropriate moral values, and (3) make an ethical decision based on the rightness or wrongness of the proposed activity or policy. Although ethical judgments are not always

.

2-4

easy to make or even always agreed upon, this process does at least give a good starting point for an ethical decision making process.

Ethical norms include: 1.

2.

3.

4.

Utility: Does a particular act optimize the benefits to those who are affected by it?

Rights: Does it respect the rights of all individuals involved?

Justice: Is it consistent with what’s fair?

Caring: Is it consistent with people’s responsibilities to each other?

D. Company Practices and Business Ethics Many companies set up codes of conduct and develop clear ethical positions on how the firm and its employees will conduct business.

1. Adopting Written Codes. Almost all major corporations have written codes of ethics.

2. Instituting Ethics Programs. Ethical responses can be learned through experience; companies must take the responsibility for educating employees. More and more companies, like Boeing and ExxonMobil, require managers to go through regular ethics training to remind them of the importance of ethical decision making and to update them on current laws and regulations.

KEY TEACHING TIP Remind students that individual ethics vary by person, situation, and culture. What is acceptable and unacceptable is broad enough that people may develop varying behaviors without violating general standards.

QUICK QUESTIONS •

What people and experiences have helped shape your individual code of ethics?

•

What are some examples of conflicts of interest?

Use In-Class Activity 1: Ice-Breaker: What’s Ethical in Business?

Time Limit: 20 minutes Use In-Class Activity 2: Class Discussion: Ethical Judgment Making Time Limit: 15 minutes

.

2-5

Learning Objective 2: Distinguish social responsibility from ethics, identify organizational stakeholders, and characterize social consciousness today.

Social Responsibility Social responsibility refers to the overall way in which a business itself tries to balance its commitments to relevant groups and individuals in its social environment.

A. The Stakeholder Model of Responsibility Most companies strive to be ethically responsible to five main groups: 1. Customers. Critical factors include charging fair prices, honoring warranties, and standing behind product quality.

2. Employees. Treating workers fairly, making them a part of the team, and respecting their dignity promote a company’s reputation.

3. Investors. Managers must follow proper accounting procedures, provide appropriate information to shareholders, and manage the organization to protect shareholder investments.

4. Suppliers. Partnership arrangements with suppliers can enhance market image and firm reputation.

5. Local and International Communities. Contributing to local and global programs has a positive impact on the community.

B. Contemporary Social Consciousness Views toward social responsibility continue to evolve as managers work to meet the needs of various stakeholders in their business practices.

1. The concept of social responsibility has been developing since the days of John D. Rockefeller, J. P. Morgan and Cornelius Vanderbilt.

2. Unfortunately, the recent spate of corporate scandals colors the public’s perception of business in negative hues.

KEY TEACHING TIP Remind students that actions deemed unethical in the United States may be ethical in other countries, and vice versa. For example, in some countries outside of the United States, bribing is acceptable and even expected in business.

.

2-6

QUICK QUESTION •

How can companies benefit from adopting a written code of ethics?

Use In-Class Activity 3: Up for Debate: Can Ethics Be Taught?

Time Limit: 20 minutes VIDEO: JONES SODA: SOCIAL RESPONSIBILITY Run Time: 3:55 This is a good point to show this video; it introduces topics covered in this chapter, such as the definition of social responsibility, the stakeholder model of social responsibility, and various other areas of this topic. Incorporate Discussion Questions found on page 56 of the text.

HOMEWORK Social Responsibility Now is a good time to assign Application Exercises 9 from the end-of-chapter materials as homework. This assignment asks students to think about prioritizing various groups of stakeholders toward which an organization acts socially responsible.

For the complete assignment instructions, see page 54 of the textbook.

At-Home Completion Time: 30 minutes

Key Teaching Tip for Online Classes The End of Chapter, Building Your Business Skills. To Lie or Not to Lie: That Is the Question is a good online assignment. Have students post their responses in Step 1 to the class discussion board. For Step 3 have students work as small virtual teams to draft a corporate code of ethics.

Let their fellow classmates critique and post comments.

For the complete assignment instructions, see page 54 of the textbook.

At-Home Completion Time: 30 minutes for individual assignments and 45 minutes for group project.

.

2-7

Learning Objective 3: Show how the concept of social responsibility applies both to environmental issues and to a firm’s relationships with customers, employees, and investors.

Areas of Social Responsibility A. Responsibility toward the Environment 1. Air Pollution: Under new laws, many companies must install special devices to limit pollutants they expel into the air.

2. Water Pollution: Increased awareness of chemical and waste dumping and the resulting dangers has led to improved water quality in many areas of the country.

3. Land Pollution: Proper toxic waste disposal and recycling programs are allowing companies to help restore land quality and to prevent further contamination.

4. Green Marketing: Businesses are increasingly recognizing that looking after the environment is good marketing. As a result, businesses are now concerned with a number of environmental factors: a.

Production Processes: The most ethical thing a business can do is use scarce and valuable resources well. Businesses often invest in new production technologies so that resources are used more efficiently.

b. Product Modification: Products can be modified to make them more environmentally friendly. One example is of a business that only uses wood from sustainable managed forests. c. Carbon Offsets: Many companies are committed to offsetting the CO2 produced by their products by buying carbon offsets. Consumers now also have the opportunity to buy carbon offsets for the air travel that they take. d. Packaging Reduction: Reducing and reusing materials is another important strategy for green marketing. For many years, The Body Shop has been a leader in this area of marketing. e. Sustainability: Using materials that are sustainable is also a strong marketing tool of many companies. Whole Foods Market is committed to using agricultural products that are sustainable.

Unfortunately, not all the green claims made by some companies are legitimate and some companies promote a green image in their advertising to increase sales without making any real changes to their operations. This is known as greenwashing. In 2008 the U.S. Federal Trade Commission (FTC) began a series of hearings to determine the veracity of many green marketing claims and a tightening of regulations on green marketing claims

.

2-8

is likely. Green marketing claims often include statements about production processes, product modifications, carbon offsets, packaging reduction, and sustainability.

B. Responsibility toward Customers 1. Consumer Rights: Consumerism is social activism dedicated to protecting the rights of consumers in their dealings with businesses.

2. Unfair Pricing: Collusion occurs when two or more firms agree to collaborate on wrongful acts, such as price fixing; price gouging occurs when firms respond to increased demand with steep price increases.

3. Ethics in Advertising: Consumers deserve to be given product information that is truthful and can be proven, as well as information that is not morally objectionable.

C. Responsibility toward Employees 1. Legal and Social Commitments: Recruiting, hiring, training, promoting, and compensating are the basis for social responsibility toward employees; a whistle-blower is an employee who discovers and tries to end a company’s unethical, illegal, or irresponsible actions by publicizing them. Most organizations now have whistleblower policies to protect whistleblowers from retaliation.

D. Responsibility toward Investors 1. Improper Financial Management: Insider trading occurs when someone uses confidential information to benefit from the purchase or sale of stocks. Misrepresentation of finances is where unethical managers project profits that they do not expect to get or hide losses and expenses incurred to boost paper profits.

QUICK QUESTIONS •

What are some examples of what companies do to act in a socially responsible way toward customers? Toward employees?

•

What are some ways in which organizations act in a socially responsible way toward the environment?

Use In-Class Activity 4: Chapter Case Discussion: Bottled Water—Money Down the Drain?

Time Limit: 30 minutes

.

2-9

Learning Objective 4: Identify four general approaches to social responsibility, and describe the four steps that a firm must take to implement a social responsibility program.

Implementing Social Responsibility Programs A. Approaches to Social Responsibility 1. Obstructionist Stance: Organizations do as little as possible to solve social or environmental problems.

2. Defensive Stance: Organizations will do everything that is required of them legally but nothing more.

3. Accommodative Stance: The organization meets its legal and ethical requirements but will also go further in certain cases.

4. Proactive Stance: Firms that adopt this approach take to heart the arguments in favor of social responsibility.

KEY TEACHING TIPS •

Make sure that students understand that firms taking the obstructionist stance usually do as little as possible to solve social or environmental problems. If possible, list some examples of firms that take such a stance.

•

Remind students that firms taking an accommodative stance meet their legal and ethical requirements and may also go further in certain cases.

•

Many corporate acts of social responsibility have been court-ordered. The use of biodegradable packaging, for example, may not be the choice of individual companies but rather mandated by the government as a means to protect the environment.

•

Remind students that contemporary social consciousness varies, depending on how turbulent the social, political, and economic times are.

B. Managing Social Responsibility Programs 1. Managers must take steps to foster social responsibility. Such steps include: • • • •

Making social responsibility a factor in strategic planning.

Developing a plan detailing the level of management support.

Putting one executive in charge of the agenda.

Conducting occasional social audits.

.

2-10

KEY TEACHING TIP Make sure students understand that social responsibility programs must be initiated and supported by top management; ultimately, a social responsibility program involves everyone in the organization.

VIDEO: Jones Soda Run Time: 3:55 Now is a good point to play the video that accompanies this chapter as it connects well to this Learning Objective and the previous ones as well. Incorporate Discussion Questions found on page 56 of the text.

.

2-11

Learning Objective 5 Explain how issues of social responsibility and ethics affect small business.

A. Social Responsibility and the Small Business 1. Many big-business responses to ethical and social responsibility issues apply to small businesses; differences are primarily differences of scale.

B. Social Responsibility and the Small Business 1. Small business owners are faced by the same ethical dilemmas as the large companies that we more frequently read about. It is important that small companies develop ethical policies and procedures like their larger counterparts. Small businesses can often get advice from trade organizations or state governments to help them develop ethical codes of practices.

HOMEWORK Identifying Approaches to Social Responsibility Now is a good time to assign Application Exercise 10. from the end-of-chapter materials in the textbook. The assignment asks students to use newspapers, magazines, and other references to identify three companies that take a defensive stance to social responsibility, three that take an accommodative stance, and three that take a proactive stance.

For the complete assignment instructions, see page 54 of the textbook.

At-Home Completion Time: 1 hour

KEY TEACHING TIP Reinforce that small-business responses to social responsibility are similar to big-business responses—the only difference is scale.

BIZSKILL: ETHICS & SOCIAL RESPONSIBILITY Today’s generation of students likes to learn by doing. In order to facilitate this, we offer a series of online simulations to help students implement the ideas presented in the chapter into a business setting. See page 2-20 of this Instructor’s Manual for Instructor Tips.

.

2-12

IN-CLASS ACTIVITIES In-Class Activity 1: Ice-Breaker What’s Ethical in Business?

Activity Overview: This exercise asks students to share their views on business ethics.

Time Limit: 20 minutes What to Do: 1. Ask students to identify examples of recent ethical business practices. Examples: Donating a percentage of profits to charity and community causes (Ben & Jerry’s donates 7.5 percent of pretax profits and Levi Strauss donates 2.4 percent of pretax profits to a variety of causes), encouraging employees to volunteer using paid work time (Walt Disney’s VoluntEARS program), and recycling (McDonald’s has an environmental protection program). (10 minutes) 2. Ask students to identify examples of recent unethical business practices. Examples: Forwarding “marketing research” results to salespeople, marketing R-rated movies to kids, and deliberately selling cigarettes or alcohol to minors. (10 minutes) Don’t Forget: You might want to come prepared with numerous recent, local examples of ethical and unethical business practices to share with students.

Wrap-Up: Wrap up the discussion by encouraging students to think about whether these kinds of business practices are consistent with an organization’s responsibility to maximize profits, for example, which typically sparks a lively debate.

.

2-13

In-Class Activity 2: Class Discussion Ethical Judgment Making Activity Overview: This activity asks students to consider ethical norms when making an ethical judgment.

Time Limit: 15 minutes What to Do: 1. Ask students to review the ethical norms outlined in the textbook: utility, rights, justice, and caring. (5 minutes) 2. Ask students to think of an ethical situation in which these norms did or did not prevail, sharing whatever they can with the class. (10 minutes) 3. During the spring semester, if your college/university has a Dr. Martin Luther King Observance, you can encourage your students to attend. At the next class period, ask students to discuss Dr. King’s civil rights activities and how it changed ethical judgment making in the United States. The discussion can cover historical changes in norms, society’s response to the changes, and the impact on individuals’ decisions.

Don’t Forget: You might want to come to class with examples of an ethical situation illustrating each of the norms. This exercise can also be assigned as homework.

Wrap-Up: Wrap up the discussion by reminding students that with utility, considering what is fair to all relevant parties involved is often based on perception.

.

2-14

In-Class Activity 3: Up for Debate: Can Ethics Be Taught?

Activity Overview: This activity asks students to share their opinions on ethics training.

Time Limit: 20 minutes What to Do: 1. As a class, ask students to consider whether ethics can be taught. Is ethics training valuable or does ethical behavior stem more from how we are raised?

2. For those students who believe that ethics can be taught and that ethics training is valuable, allow 10 minutes for discussion.

3. For those students who believe that ethical behavior comes more from how we are raised and that ethics training really does not affect our ethical behavior in the long run, allow 10 minutes for discussion.

Don’t Forget: As students are supporting or refuting the benefits of ethics training, be sure to have them cite specific examples to back up their opinions.

Wrap-Up: Wrap up the discussion by reminding students that companies sometimes issue written codes of ethics to ensure their ethical norms are upheld. The effectiveness of such codes of ethics often sparks lively debate as well.

.

2-15

In-Class Activity 4: Chapter Case Discussion: Bottled Water—Money Down the Drain?

Activity Overview: For a quick review, consider breaking your class into small groups to address the case discussion questions at the end of Bottled Water—Money Down the Drain? Handout. (See pages 2-8 and 217) Time Limit: 20 minutes What to Do: 1. Divide students into groups and ask them to read the chapter case. Ask each group to prepare and present a press release on behalf of a bottled water company to respond to the criticisms being leveled against bottled water. (20 minutes) 2. After the groups have presented, reassemble the class and discuss how green issues are affecting businesses. (10 minutes) Don’t Forget: To ask students if they drink bottled water and whether the negative publicity will impact their purchasing decisions.

Wrap-Up: Wrap up the discussion by reminding students to always look for the other side of the argument.

Often only one side of the argument is presented and a good manager will seek out the counter arguments before rushing to make a decision.

.

2-16

HANDOUT: BUSINESS ACCOUNTABILITY

Bottled Water—Money Down the Drain?

Bottled water is everywhere! And, up until 2007 consumption was rapidly growing in the $11 billion industry. In fact, per capita consumption grew from less than two gallons per year to 29 gallons in 2007. However, according to the Beverage Marketing Corporate, a New York research and consulting firm, sales declined by 3.2 percent since 2007 and the decline has not been halted.

Bottled water companies are still trying to determine what has caused this drop in sales but there might be several causes. The first is the recession. Tap water is far cheaper and consumers may be pulling back on expenses. Single serving bottled water costs up to 2000 times more than tap water. In fact, we pay more than three times as much for bottled water than gasoline—almost $12 per gallon!

Second, there are some health concerns. According to the Natural Resources Defense Council up to 70 percent of bottled water is not regulated by the Food and Drug Administration because it never crosses state lines. In addition, city water systems must report on water quality. Bottlers successfully killed this requirement for bottled water. So there may be a health cost, too. In 2008 the Environmental Working Group examined ten brands of bottled water and found that some contained mixtures of industrial chemicals that had not been safety tested.

Third, there are environmental concerns. Tap water is a local product that needs no packaging.

Globally, bottled water accounts for as many as 1.5 million tons of plastic waste annually, according to the Sierra Club. Making the plastic in the bottles requires 47 million gallons of oil annually. The anti-bottled water movement has a lot of momentum now, as well. There are web sites like TakeBackTheTap.org, InsidetheBottle.org, storyofstuff.org, and ThinkOutsideTheBottle.org that encourage consumers to stop drinking bottled water. Only about 20 percent of plastic water bottles get recycled. The rest end up in landfill or even worse, end up floating in big garbage patches in the Pacific Ocean. Publicity does not get much worse than this.

•

Imagine that you work in the public relations department of one of these bottled water companies. How might you respond to these criticisms? What is the other side of the story?

•

How are environmental issues affecting your purchasing choices?

•

Think of a product that you regularly purchase and consider how it might be made more environmentally friendly. Perhaps you could reduce packaging, reduce transportation costs, or change the manufacturing process. What could you do?

Source: Michael Santo, “Drought in Bottled Water Sales has Industry Mystified.” Huliq.com, posted December 18, 2009.

.

2-17

ANSWERS FOR END OF CHAPTER ACTIVITIES (Starting on Page 54 of the text) QUESTIONS FOR REVIEW 1. Students should address the circumstances of each issue: legal implications, personal codes of ethics, and the effect of the decision on others. They should also refer to the four ethical considerations discussed in the chapter (utility, rights, justice, caring).

2. Stakeholders include customers, employees, investors, suppliers, and the firm’s local communities. Most businesses should be concerned with all stakeholder groups, although areas of emphasis may differ for individual businesses.

3. The major areas include the environment, customers, employees, and investors.

4. The four basic approaches to social responsibility are: • Obstructionist: Does as little as possible to promote social responsibility.

• Defensive: Meets minimal legal requirements regarding social responsibility.

• Accommodative: Exceeds minimum requirements only by special request.

• Proactive: Actively seeks opportunities to contribute to the social environment.

5. Answers will vary, but potential resolutions will probably range from raising the employer’s awareness, to becoming a whistle-blower, to leaving the company.

QUESTIONS FOR ANALYSIS 6. Answers will vary, but students should comment that wrongdoing, which directly affects them as an individual will likely prompt them to blow the whistle quickly. Wrongdoing that indirectly affects them or another department or division may tend to be ignored longer and least likely prompt the individual to blow the whistle.

7. Answers will vary, but many students will recognize the importance of balancing the attention given to each of the areas. Some companies, such as retailers, will affect the environment little; in these instances, students will likely recognize responsibility toward the customer as being the most important. On the other hand, many students will recognize that manufacturers need to pay particular attention to the environment in the implementation of their production processes.

8. Students should note that small businesses face the same issues as large businesses, simply on a smaller scale.

.

2-18

APPLICATION EXERCISES 9. Students should note that members of the administration will compose one group of stakeholders. Faculty and staff will compose another. Students and peers will compose a third group. The local community/public will compose a fourth group. Most students will prioritize according to the amount of contact they have with each of the groups.

10. Students should remember that a defensive stance is one in which companies do everything that is required of them legally, but nothing more. Companies taking an accommodative stance meet their legal and ethical requirements, but also go further in certain cases.

Companies taking a proactive stance will go over and beyond what is required of them in meeting the needs of stakeholders.

ANSWERS TO BUILDING YOUR BUSINESS SKILLS FOLLOW-UP QUESTIONS 1. Answers will vary, but students may consider such factors as the person’s sense of right and wrong, desire for gain at any cost, and culture as possible factors.

2. Answers will vary, but most students will cite examples that reflect combinations of contradictory ideas.

3. Answers will vary, but students should recognize that top-management’s support and example are most important.

4. Students’ answers will depend on who might be harmed in the lies. Students should recognize that inflating sales and revenue data on official company statements to increase stock value potentially harms stakeholders and the reputation of the company more than merely telling someone on the phone that the boss is “in a meeting” when he or she is not.

Students should also note the legal issues when responding to the ethical dilemmas.

ANSWERS TO EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE QUESTIONS TO ADDRESS 1. Answers will vary, but students may notice that defending social responsibility yields personal PR benefits. This also happens on a larger scale to companies that promote social responsibility.

2. Answers will vary, but many students will likely accept that businesses should act in socially responsible ways as long as such actions are in compliance with the law and meet the needs of stakeholders.

.

2-19

3. Answers will vary, but students should note that, unlike business, the primary purpose of these kinds of organizations is to promote the greater social well-being.

ANSWERS TO EXERCISING YOUR ETHICS: TEAM EXERCISE The students should discuss the various groups to whom they are responsible: the stockholders, employees, the suppliers, the suppliers’ employees, etc. This exercise should also generate a lot of discussion about profits versus ethics and how a company should and could balance the two.

ACTIVITIES ON MYBIZLAB - INSTRUCTOR TIPS BIZSKILL: Ethics & Social Responsibility Instructor Tips

Available at: mybizlab.com

Brief Synopsis/Objectives: In this BizSkill, students play the role of a sales rep at TechLink, a company that sells specialized software to hospitals. They’re asked to try to win a $10,000 bonus by securing the most sales, all the while in competition with an unethical competitor.

At the end of the BizSkill, students should be able to answer the following questions: 1. How does having clearly defined personal ethics help you in the business world?

2. What do you do if your professional life comes into conflict with your personal ethics?

How to Best Use This BizSkill: A great way to use this BizSkill is to assign it as homework before your first lecture on the chapter. Ask students to print out their feedback page, and then have them do the BizSkill again at the end of the week to see whether their scores have improved.

.

2-20

Chapter 3: Entrepreneurship, New Ventures, and Business Ownership Chapter Overview Have you ever wanted to be your own boss? Think of going to work when you want to. Think of how it would be to call your own shots. Although it’s not easy, starting your own business can be rewarding. The U.S. economic system welcomes entrepreneurship and offers various forms of business ownership. This chapter discusses small business, its importance to the U.S. economy, and the popular areas of small business. It looks at: • • • • • •

Key characteristics of entrepreneurial personalities and activities Business plans Start-up decisions made by small businesses Sources of financial aid available Trends in small business start-ups Key reasons for success and failure among small businesses

Finally, the chapter discusses different forms of business ownership and the advantages and disadvantages of each, as well as the basic issues involved in managing a corporation and special issues related to corporate ownership.

Learning Objectives 1. Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.

2. Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities.

3. Describe the business plan and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.

4. Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses.

5. Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each.

6. Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership.

.

3-1

Chapter Outline A. What Is a “Small” Business?

1. The Importance of Small Business in the U.S. Economy 2. Popular Areas of Small Business Enterprise B. Entrepreneurship 1. Entrepreneurial Characteristics C. Starting and Operating a New Business 1. Crafting a Business Plan 2. Starting the Small Business 3. Financing the Small Business D. Trends, Successes, and Failures in New Ventures 1. Trends in Small-Business Start-Ups 2. Reasons for Failure 3. Reasons for Success E. Noncorporate Business Ownership 1. Sole Proprietorships 2. Partnerships 3. Cooperatives F. Corporations 1. The Corporate Entity 2. Types of Corporations 3. Managing a Corporation 4. Special Issues in Corporate Ownership

.

3-2

LIST OF IN-CLASS ACTIVITIES: AUTHOR’S CHOICE Time Limit

Instructor’s Manual Page Reference

15 min.

3-5, 3-16

30 min.

3-6, 3-17

20 min.

3-6, 3-18

45 min.

3-8, 3-29

30 min.

3-10, 3-20, 3-21

Students identify the factors that help a company in the software industry become a success.

30 min.

3-10, 3-22

Students discuss issues of corporate governance

30 min.

3-14, 3-23 to 3-25

Activity

Description

1. Ice-Breaker: The Role of Small Business

Students discuss the role of small business in their communities.

Students are divided into groups to discuss ways in which the entrepreneurial spirit has been evident throughout U.S. history, and how entrepreneurship is valuable to an economic system.

2. Up for Debate: The Wide World of Risk 3.Small-Group Discussion: Entrepreneurship and the Growth of Businesses 4. Small-Group Discussion: What’s the Next Big Thing?

5. Supplemental Case Study Discussion: Running with the Gazelles— Entrepreneurship and New Job Creation 6. Small-Group Discussion: How Can We Succeed in the Software Industry?

7. Handout. Business Accountability: Getting on Boards

Groups of students weigh the importance of entrepreneurship in the development of fast- growing businesses.

Groups of students design a new business and identify possible products/services being sold as well as possible customers.

Students read a supplemental case study and discuss how it applies to chapter concepts.

LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE At-Home Activity Application Exercise 9: Interview a Sole Proprietor or General Partner Application Exercise 10: The Fastest Growing Businesses in the USA BizSkill

Description Students interview a sole proprietor or general partner, getting a firsthand look at the reasons why the respective form of ownership was chosen.

Students identify two or three 3 fast growing businesses and identify the role that entrepreneurship had in their success.

Are You an Entrepreneur?

Getting Your Business Off the Ground

.

Deliverable

A brief paper highlighting the interview comments.

Completion Time

Instructor’s Manual Page Reference

1 hour

3-12, 3-27

A short summary of the research.

3-15, 3-27 30 min.

Students can test their business skills in this online simulation.

15 min.

3-15, 3-28

3-3

TEACHING NOTES AND SUGGESTIONS Learning Objective 1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.

What Is a “Small” Business?

A small business is independent (that is, not part of a larger business) and has relatively little influence in its market. The US Department of Commerce and the Small Business Administration (SBA), define the size of a business based on its industry and the number of employees. According to SBA standards, a small business can have as many as 1,500 employees.

A. The Importance of Small Business in the U.S. Economy 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.

1. 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.

2. Innovation. Small business supplies 55 percent of all innovations that reach the U.S. marketplace.

3. Contributions to Big Business. Most products made by big businesses are sold to consumers by small ones.

B. Popular Areas of Small-Business Enterprise Major small-business industry groups include the following: 1. Services. This is the fastest-growing segment of small business.

2. Retailing. Retailers account for 13 percent of all firms with fewer than 20 employees; retail businesses let entrepreneurs focus limited resources on narrow market segments.

3. Construction. About 15 percent of businesses with fewer than 20 employees are involved in construction.

4. Wholesaling. Wholesalers buy products from manufacturers and sell them to retailers; wholesalers are the middlemen. About 6 percent of all firms are in this category 5. Finance and Insurance. These firms account for about 7 percent of all firms with fewer than 20 employees.

6. Manufacturing. More than any other industry, manufacturing lends itself to big business. Still, about 4 percent of firms with fewer than 20 employees are involved in

.

3-4

manufacturing.

7. Transportation. About 3 percent of all companies with fewer than 20 employees are in transportation and related businesses.

8. Other. The remaining 7 percent or so of small businesses with fewer than 20 employees are in other areas, including research and development laboratories and independent media companies.

KEY TEACHING TIP •

The definition of small business is different depending on whom you consult. The textbook defines a small business as one that (a) is independent (not part of a larger business) and (b) has little influence in its market. The U.S. Small Business Administration defines companies with as many as 1,500 employees as “small,” whereas the U.S. Department of Commerce considers a business “small” if it has fewer than 500 employees.

QUICK QUESTION •

In what ways is entrepreneurship an important part of our economic system?

Use In-Class Activity 1: Ice-Breaker: The Role of Small Business Time Limit: 15 minutes

.

3-5

Learning Objective 2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities.

Entrepreneurship Entrepreneurs are people who assume the risk of business ownership. Entrepreneurship is the process of seeking business opportunities under conditions of risk. Many entrepreneurs are driven to launch new businesses by the goal of gaining independence from working for somebody else and securing a financial future for themselves. Many such businesses, however, may not aspire to grow the businesses much beyond their capacity to run them.

A. Entrepreneurial Characteristics Successful entrepreneurs are often distinguished from others through a set of characteristics, including: 1. Resourcefulness.

2. A concern for customer relations.

3. A desire for autonomy.

4. The ability to handle ambiguity.

5. A desire for risk-taking.

6. A need for personal freedom.

7. The opportunity for creative expression.

KEY TEACHING TIPS •

Ask how many students want to launch their own business. (Typically, one-third to onehalf of each class will raise their hands.) Call on these students to share their interests, including type of business and timeframe. You can then use their personal goals to illustrate concepts for each section you teach.

•

Remind students that the odds for success are greater when buying an existing business than building one from scratch. An existing business provides a tested system, trained employees, a recognized name, and established suppliers.

QUICK QUESTIONS •

What are some local examples of businesses that fit into the following small-business industry groups: services, retailing, manufacturing, and transportation?

•

What are some common characteristics shared by all entrepreneurs?

Use In-Class Activity 2: Up for Debate: The Wide World of Risk Time Limit: 30 minutes Use In-Class Activity 3: Small-Group Discussion: Entrepreneurship and the Growth of Businesses Time Limit: 45 minutes

.

3-6

Learning Objective 3: Describe the business plan and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.

Starting and Operating a New Business Entrepreneurs must make a number of decisions when they start their business. They must decide whether to buy an existing business or to start one from scratch. In addition, they must determine sources of financing needed and when to seek advice from others. Another integral part of starting a small business is a well-crafted business plan.

A. Crafting a Business Plan A business plan summarizes business strategy for the new venture and shows how it will be implemented.

1. Setting Goals and Objectives: A business plan should discuss the entrepreneur’s goals and objectives, the strategies used to obtain them, and how these strategies will be implemented.

2. Sales Forecasting: The sales forecast requires that the entrepreneur demonstrate an understanding of the market, the strengths and weaknesses of existing firms, and the means by which the new venture will compete.

3. Financial Planning: This is the entrepreneur’s plan for turning all activities into dollars.

B. Starting the Small Business Small-business people begin by understanding the true nature of their businesses.

1. Buying an Existing Business: Existing businesses have already proven their ability to attract consumers and to establish rapport with lenders, buyers and suppliers, and the community. Most consultants recommend that entrepreneurs buy existing businesses because the odds of success are greater.

2. Franchising: A franchise agreement involves two parties, a franchisee (the local owner) and a franchiser (the parent company). Franchisees benefit from the parent corporations experience and expertise. The franchiser may pick the store location, negotiate the lease, purchase equipment, and supply financing. Startup costs vary quite widely. For example, a McDonald’s franchise costs between $506,000 to $1.6 million. Probably the most expensive franchises are professional sports teams and cost on average $957 million.

3. Starting from Scratch: Risks with this approach are greater than with buying an existing business. However, starting from scratch does allow the entrepreneur to operate without the commitments, policies, errors, etc., of a predecessor.

C.

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

.

3-7

investors, and government loans.

1. Other Sources of Investment: Venture capital companies are groups of investors seeking to profit on companies with growth potential; money is invested in return for partial ownership. Small business investment companies are licensed to borrow money from the SBA and invest it in or loan it to small businesses.

2. SBA Financial Programs: Under the SBA’s 7(a) loans program, small businesses may borrow from commercial lenders with the SBA guaranteeing to repay a maximum of 75 percent of the loan. The SBA’s special purpose loans target businesses with special needs, such as those meeting international demands. For loans under $35,000, the SBA offers a micro-loan program.

3. Other SBA Programs: Aside from its financing role, the SBA offers management counseling programs at virtually no cost. One of the SBA’s management counseling projects is its Small Business Development Center (SBDC) program.

KEY TEACHING TIPS •

Make sure that students understand that, as a general rule, the more resources required, the harder it is to start a new business.

•

Reinforce that although starting a business from scratch is riskier than buying an existing business, the owner is free to choose lenders, suppliers, workers, equipment, and so on, and the business doesn’t suffer from a prior owner’s mistakes.

•

Remind students that personal resources account for over two-thirds of all the money invested in new small businesses; half of that used to purchase existing businesses.

QUICK QUESTIONS

• What is the purpose of a business plan?

•

What are some of the advantages and disadvantages of franchising (to the franchisee)?

•

Where can a person find money to start a new venture?

•

What is the main reason that most venture capital companies invest in new businesses?

•

What types of assistance can an entrepreneur expect from the Small Business Administration?

Use In-Class Activity 4: Small-Group Discussion: What’s the Next Big Thing?

Time Limit: 45 minutes

.

3-8

Learning Objective 4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses.

Trends, Successes, and Failures in New Ventures A. Trends in Small-Business Start-Ups Several factors account for the thousands of new business start-ups in the United States each year.

1. Emergence of E-Commerce: The rapid emergence of electronic commerce is the most significant recent trend. Because e-commerce provides new and different ways of doing business it has enabled savvy entrepreneurs to create and expand businesses far easier and quicker than ever before.

2. Crossovers from Big Business: Many businesses are started by individuals who leave positions in large corporations to put their experience to work for themselves.

3. Opportunities for Minorities and Women: The number of businesses started by minorities and women is growing rapidly.

4. Global Opportunities: Many entrepreneurs are finding business opportunities throughout the world.

5. Better Survival Rates: New businesses now have a better chance of survival than ever before; the SBA estimates that at least 40 percent of all new businesses can expect to survive for six years.

B. Reasons for Failure Four general factors contribute to small-business failure: 1.

2.

3.

4.

Managerial incompetence or inexperience Neglect Weak control systems Insufficient capital

C. 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

.

3-9

KEY TEACHING TIPS •

Emphasize to students that electronic commerce is the most significant trend among small-business start-ups. You might want to ask them for examples of recent successful e-commerce start-ups, such as Google.

•

Although starting a new business is risky, make sure you tell students that the smallbusiness failure rate has declined since the 1980s. The SBA estimates that 40 percent of all new start-ups now survive at least six years.

QUICK QUESTION What do people with big-business experience bring to a new venture?

Use In-Class Activity 5: Supplemental Case Study Discussion: Running with the Gazelles— Entrepreneurship and New Job Creation Time Limit: 30 minutes Use In-Class Activity 6: Small-Group Discussion: How Can We Succeed in the Software Industry?

Time Limit: 30 minutes

.

3-10

Learning Objective 5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each.

Noncorporate Business Ownership A. Sole Proprietorships A sole proprietorship is owned and usually operated by one person; about 73 percent of all U.S. businesses are sole proprietorships.

1. Advantages of Sole Proprietorships: Freedom, ease in forming, low start-up costs, and tax benefits are the advantages of this form of ownership.

2. 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.

B. 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.

1. 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.

2. 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.

C. 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.

KEY TEACHING TIPS •

Make sure that students understand the different forms of business ownership. For example, a sole proprietorship is owned and usually operated by one person; 73 percent of all U.S. businesses are sole proprietorships.

.

3-11

•

Students often forget that unlimited liability is a major drawback to a sole proprietorship and a partnership. With unlimited liability, if the business fails to generate enough money, bills must be paid out of the owner’s pocket.

•

Remind students that a general partnership is a sole proprietorship multiplied by the

number of partner-owners.

•

Remind students that a limited partnership allows for limited partners who are liable for debts only to the extent of their investments in the company; a limited partnership must have at least one general partner for liability purposes.

•

Ownership in a corporation is represented through the sale of stock. Remind students that shareholders own the corporation.

QUICK QUESTIONS •

What are some of the advantages and disadvantages of sole proprietorships?

•

What are some of the advantages and disadvantages of partnerships?

VIDEO: WILD PLANET Run Time: 6:52 This is a good point to show this video, as the content links well to the lecture material.

Incorporate Discussion Questions found on page 84 of the text.

HOMEWORK Interview a Sole Proprietor or General Partner Now is a good time to assign Application Exercise 9 from the end-of-chapter materials as homework (see page 82). The assignment asks students to interview the owner/manager of a sole proprietorship or a general partnership and determine why the person chose that form of ownership.

At-Home Completion Time: 60 minutes

.

3-12

Learning Objective 6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership.

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.

A. 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.

1. Advantages of Incorporation. These include limited liability, continuity, and the ability to raise money.

2. 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.

B. 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) corporation spans national boundaries.

C. Managing a Corporation.

Once the corporate entity comes into existence, it must be managed by people who understand the principles of corporate governance.

1. Corporate Governance. Defined by the firm’s bylaws, corporate governance involves stockholders, the board of directors, and corporate officers. a. 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. b. The board of directors is the governing body of the corporation.

.

3-13

c. 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.

D. Special Issues in Corporate Ownership 1. 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.

2. Employee Stock Ownership Plans (ESOPs): ESOPs allow employees to own a significant share of the corporation through trusts established on their behalf.

3. Institutional Ownership: Institutional investors include mutual funds and pensions that buy enormous blocks of stock.

4. 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.

KEY TEACHING TIPS •

Remind students that stock in a publicly held corporation is available for sale to the public, whereas stock in a closely held corporation (private) is not available for sale to the general public.

•

Make sure students understand that stockholders elect the board of directors, who, in turn, hire the officers— including the CEO, president, and vice presidents.

•

Students don’t always understand why companies merge. Discuss with them possible reasons, including an attempt to eliminate redundant costs, increase buying power, eliminate manufacturing over-capacity, and gain access to new expertise and personnel.

QUICK QUESTIONS • •

What is meant by “double taxation”?

How do joint ventures and strategic alliances allow companies to spread risk?

Use In-Class Activity 7: Handout. Business Accountability: Getting on Boards Time Limit: 30 minutes

.

3-14

HOMEWORK The Fastest Growing Businesses in the United States Now is a good time to assign Application Exercise 10 from the end-of-chapter materials in the textbook (page 82). The assignment asks students to identify two or three of the fastest growing businesses in the United States last year and identify the role that entrepreneurship had in their success.

At-Home Completion Time: 30 minutes BIZSKILL: ARE YOU AN ENTREPRENEUR? GETTING YOUR BUSINESS OFF THE GROUND Today’s generation of students likes to learn by doing. In order to facilitate this, we offer a series of online business simulations on MyBizLab to help students implement the ideas presented in the chapter into a business setting. For details on this chapter’s simulation, see page 3-28 of this Instructor’s Manual.

.

3-15

IN-CLASS ACTIVITIES In-Class Activity 1: Ice-Breaker The Role of Small Business Activity Overview: This activity helps students understand the role of small business in their communities.

Time Limit: 15 minutes What to Do: 1. Ask students to list small businesses.

2. Ask students to share how those businesses are important to their towns or communities, whether small businesses in the area complement each other in the products and services they offer, and in what way(s) these businesses help big businesses. (10 minutes).

Don’t Forget: Be sure to review the definition of small business prior to the activity.

Wrap-Up: Bring the discussion to a close by introducing how many small businesses create jobs, launch innovations, and promote big businesses. Remind students that almost all businesses begin small.

.

3-16

In-Class Activity 2: Up for Debate The Wide World of Risk Activity Overview: This activity is designed to get students thinking about the importance of entrepreneurship in the U.S. economy.

Time Limit: 30 minutes What to Do: 1. Divide the class into small groups and have them list various examples of how entrepreneurial spirit has been/is evident throughout this country’s history. How is entrepreneurship valuable to an economic system? In what types of businesses is entrepreneurship especially important? (15 minutes) 2. Reassemble the class and discuss the degree of entrepreneurial spirit evidenced by the group.

In which area(s) of the U.S. economy is entrepreneurship most important? (15 minutes) Don’t Forget: Entrepreneurship is a factor of production and an essential part of a free-market economy. Risktaking promotes heavy competition, which in turn improves quality and maintains market pricing, which is valuable to the U.S. economy.

Wrap-Up: To wrap up the discussion, remind students that exhibiting entrepreneurial spirit indicates a high level of risk-taking, for which Americans are known.

.

3-17

In-Class Activity 3: Small-Group Discussion Entrepreneurship and the Growth of Businesses Activity Overview: This activity asks students to weigh the importance of entrepreneurship in the development of fast-growing businesses; this activity is based on Application Exercise 10 of the end-of-chapter materials ( page 82).

Time Limit: 20 minutes What to Do: 1. Divide the class into small groups and ask each group to identify two or three of the fastestgrowing businesses in the United States. (5 minutes) 2. Ask each group to consider what role entrepreneurship has played in the growth of these firms. (5 minutes) 3. Reassemble the class and ask students to share their results. (10 minutes) Don’t Forget: A number of fast-growing businesses are flourishing in the United States; students can consider assessing some of the more popular, commonly cited businesses like JetBlue, Starbucks, Walmart, Dell, and Southwest Airlines. (If students require a little extra time to research a company, you may want to use this activity as a homework assignment.)

Wrap-Up: Remind students that entrepreneurial success can be driven by many variables. Some entrepreneurs launch a business with the goal of independence, whereas others seek growth and expansion. Still others may not know exactly where they are headed.

.

3-18

In-Class Activity 4: Small-Group Discussion What’s the Next Big Thing?

Activity Overview: This activity is designed to encourage students to be innovative in designing a business.

Time Limit: 45 minutes What to Do: 1. Place students in four-member groups and ask each group to come up with an innovative business idea. Groups should consider the following questions: (30 minutes) • • • • •

What is my product or service?

Who are my customers?

Where are my customers located?

Is my business idea easily copied?

If there are substitutes for my product or service, how can I make my product/service stand out from competitors’ offerings?

2. Reassemble the class and ask each group to share their ideas. (15 minutes) Don’t Forget: Encourage students to be as innovative as possible in completing this activity; some of the seemingly silliest ideas have become multimillion-dollar ventures. If you want them to develop their ideas even more, you may want to assign Step 1 as group homework and then discuss their progress as a class the next time you meet.

Wrap-Up: Bring the activity to a close by taking a class vote on which idea is the best of those presented.

.

3-19

In-Class Activity 5: Supplemental Case Study Discussion Running with the Gazelles—Entrepreneurship and New Job Creation (see following page) Activity Overview: This activity asks students to address how growth within a small business can bring about significant job creation.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Supplemental Case Study (on page 3-22 of this Instructor’s Manual) and distribute them to students.

2. Divide students into groups and ask them to read the case and answer the following questions in their small groups. (15 minutes) a. b. c. d.

Identify two or three new business that you think could become “gazelles.”

What factors, if any, do you think they have in common?

Would you like to work in a gazelle? Give reasons for your answer.

How do you feel about automatic citizenship rights being given to international students graduating in science, engineering, or mathematics? What are the potential benefits and risks?

3. Once students have answered the questions, discuss their answers as a class.

Don’t Forget: Be sure to keep students on the case topic; a controversial issue such as this often invites much discussion.

Wrap-Up: Bring the discussion to a close by suggesting students to ask any international students that they know for their opinions and feedback their responses during the next class period.

.

3-20

HANDOUT: SUPPLEMENTAL CASE STUDY Running with the Gazelles—Entrepreneurship and New Job Creation The 2009 global recession has brought a stronger focus on the importance of the role of entrepreneurship in the creation of new jobs. There is no doubt that new businesses are the most important creator of new jobs. According to the U.S. Census Bureau, nearly all net job creation in the United States since 1980 occurred in firms less than five years old. Similar statistics are found in India, the world’s largest democracy. The question then is “what type of entrepreneurship is important and how can it be stimulated?” Entrepreneurial ventures vary enormously. On one end of the spectrum are necessity-based entrepreneurs. On the other are opportunity-based entrepreneurs that often develop significant new technologies. It is this latter type of entrepreneurs—often called “gazelles”—that has significant job growth potential.

Examples of such companies include Kiva Systems and Diapers.Com. Kiva Systems was founded in Woburn, Massachusetts, in 2003, the Woburn-based company seeks to solve supply-chain problems by using robots to organize, manage and move inventory. Between 2005 and 2008 its revenues grew 10,399% (no, that’s not a typo!) and employed 120 people by 2009. Diapers.Com was founded in 2004 and offers free next day shipping for diapers. It currently employs 89 employees with revenues of just under $90 million per annum. These are companies that you probably have never heard of, but they are nonetheless making a significant difference to the lives of two hundred employees. You will, of course, have heard of eBay. In its first five years of operation (1995–1999) it averaged 128 new employees each year.

What type of things can governments do to help stimulate opportunist entrepreneurships. Here are some ideas: a. Welcome immigrants seeking scientific training at our universities. Researchers at Duke University and University of California, Berkley found that immigrants founded or cofounded almost 25 percent of high-tech businesses between 1995–2005. b. Give automatic citizenship rights to immigrant graduates in areas such as mathematics, engineering or science c. Make it easier for university professors to patent their research and get their inventions to the market. d. Make it easier to find start-up capital.

Source: Carl Schramm, Robert Litan and Dane Stangler, “New business, not small business, is what creates jobs.” The Wall Street Journal, November 6, 2009.

DISCUSSION QUESTIONS 1. Identify two or three new business that you think could become ‘gazelles.’

2. What factors, if any, do you think they have in common?

3. Would you like to work in a gazelle? Give reasons for your answer.

4. How do you feel about automatic citizenship rights being given to international students graduating in science, engineering, or mathematics? What are the potential benefits and risks?

.

3-21

In-Class Activity 6: Small-Group Discussion How Can We Succeed in the Software Industry?

Activity Overview: This activity asks students to identify what helps a company become a success or a failure.

Time Limit: 30 minutes What to Do: 1. Divide the class into small groups and ask each group to put together a list of factors that might mean the difference between the success and failure of a new company entering the business software industry. Can small start-ups realistically hope to compete with companies such as Microsoft? (15 minutes) 2. Reassemble the class and ask students to share their results. (15 minutes) Don’t Forget: No set pattern for success or failure has been established in any industry.

Wrap-Up: Remind students that managerial incompetence, neglect, weak control systems, and insufficient capital are the primary reasons for business failure. Hard work, market demand for the products or services being provided, managerial competence, and luck contribute to business success.

.

3-22

In-Class Activity 7: Handout. Business Accountability: Getting on Boards (see following page for handout) Activity Overview: This activity asks students to read and discuss a supplemental article about the dynamics of boards of directors and why some investors are demanding change.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the “Business Accountability” article (see page 3-24 of this Instructor’s Edition) and distribute them to students. Make sure students are familiar with governance and the roles of boards of directors prior to the activity.

2. Divide students into three- or four-member groups and ask them to read the handout. Ask each group to discuss the following questions: (15 minutes) a. What are the possible advantages and disadvantages facing a board of directors composed of insiders? b. What are the possible advantages and disadvantages facing a board of directors composed of outsiders?

3. Reassemble the class and discuss each group’s opinions. (15 minutes) Don’t Forget: The most effective boards are composed more of outsiders than insiders; this does not appear to be industry-specific.

Wrap-Up: Remind students that insiders understand the corporate culture and are familiar with the production processes; outsiders bring expertise from their respective careers.

.

3-23

HANDOUT: BUSINESS ACCOUNTABILITY

Getting on Boards Boards of directors today are under pressure to become actively involved in planning and monitoring corporate activity. At WorldCom, Tyco, and other corporations, the boards were either unaware of the misdeeds taking place around them or, in some cases, actually were party to those activities. At Enron, for example, the board of directors voted several times to waive its policies regarding independence and arms-length transactions, allowing executives to continue their fraud unhampered. When the negligence of these boards was publicly exposed, investors cried out for reform.

Investors want boards to take a more active role in decision-making and to provide more oversight. Most corporations, eager to distance themselves from scandal, are considering transformation of their boards of directors.

The most effective boards are composed of more outsiders than insiders, who are corporate employees. This allows the directors to have independence from the powerful CEO. To enhance decision-making ability, board members should come from diverse backgrounds and have toplevel management experience. Directors should own a substantial amount of the company’s stock. Boards should be actively involved in decision making meetings regularly, setting the overall corporate strategy having access to confidential information. Boards that do not meet these criteria may be too cozy with corporate executives and, thus, fail to vigilantly safeguard the interests of shareholders.

Many high-tech companies are defying these “rules,” however. Boards of dot.coms contain 62 percent of outsiders on average, compared to 78 percent of outsiders for the large firms of the S&P 500. For example, the board of Amazon.com has just five members, is chaired by CEO Jeff Bezos, and lacks any real semblance of independence. Pat McGurn, a director at Institutional Shareholder Services, says, “People are coming to view Amazon’s problems as the result of poor corporate governance, rather than the effect of the economy in general. Unfortunately, the board doesn’t seem to see governance as part of the solution.” At Yahoo!, the board has a mere six members, only one of whom is an outsider.

When the high-tech industry was flying high, the ill-structured boards were unchallenged. “It’s not really until something goes wrong that people focus on [governance],” says Charles M. Elson, a professor and board expert. But in today’s tougher competitive environment, newly cynical investors are demanding change.

DISCUSSION QUESTIONS 1. What are the possible advantages and disadvantages facing a board of directors composed of insiders?

2. What are the possible advantages and disadvantages facing a board of directors composed of outsiders?

.

3-24

In-Class Activity: Conjuring up Profits?

This activity should generate a lot of discussion since most of the students have a Facebook account and have probably seen the movie, “Social Media.”

DISCUSSION QUESTIONS 1. Why do you think Facebook has been so successful?

Answers will vary, but most students will cite the drive of its founder, the unique product, ease of use, etc.

2. Facebook is a corporation. Why do you think the firm uses this form of ownership?

Again, answers will vary but most students probably will cite limited liability due to the lawsuits when the company was founded. They will probably note the favorable financing for corporations and IPOS. 3. What threats might derail Facebook’s success? What steps might the firm take today in order to thwart those threats?

Answers will vary but most students will probably mention privacy issues, competitors, and decline in ad revenue.

4. Suppose Mark Zuckerberg asked you for advice on how to generate more profits from Facebook. What would you tell him?

This question gives students an opportunity to use their creativity to suggest future directions for Facebook.

.

3-25

ANSWERS FOR END OF CHAPTER ACTIVITIES (Starting on Page 82 of the text) QUESTIONS FOR REVIEW 1. Small businesses create new jobs, foster entrepreneurship and innovation, and supply goods and services needed by larger businesses.

2. The easiest industries for new start-ups include services, which are the fastest-growing segment of small business. In addition, start-ups in retailing, construction, and wholesaling are relatively easy. Start-ups in finance and insurance may be more difficult because these businesses are mostly affiliates of or agents for larger national firms. Start-ups in manufacturing and transportation are difficult because of the higher initial outlay of cash required.

3. The starting point for nearly every new venture is a business plan. The key components include the (a) setting out the goals and objectives of the new business, (b) what are the sales forecasts of the new business and (c) the business’s financial plan. The most important reason for writing business plan is that it will help the entrepreneur really think through the viability of the business idea. Having to put ideas, plans, and expectation in writing is sobering , and the very step of writing a business plan will have prevented many would-be entrepreneurs from launching foolish ventures. The second reason for the business plan is to help attract finance for the new venture. This might come from friends, banks, or venture capitalists.

Reasons for failure include managerial incompetence or inexperience, neglect, weak control systems, and insufficient capital. Reasons for success include hard work and dedication, market demand for the products or services being provided, managerial competence, and luck.

4. The basic forms of noncorporate business ownership include proprietorships and partnerships. Proprietors answer to no one but themselves, and they enjoy easy entry and exit into and out of the market. Further, tax laws permit owners to treat sales revenues and operating expenses as part of their personal finances, paying taxes based on their personal tax rate. However, proprietors experience unlimited liability, making them liable for all debts incurred by the business. Finally, proprietors face a potential lack of continuity and can depend only on their own resources and, perhaps, limited managerial and financial capabilities. The partnership, on the other hand, can grow by being able to add new talent and money. In addition, the skills and experience of one partner can complement the skills and experience of another partner. As with the proprietorship, big drawbacks facing a partnership are unlimited liability and potential lack of continuity.

QUESTIONS FOR ANALYSIS 5. Such corporations may choose to remain private if control retention is the aim. Many closely held corporations choose to become public to generate additional funding.

.

3-26

6. Answers will vary, but many students will choose businesses within those industries that offer ease in market entry, primarily because resource availability may be limited to most students; they may not have built much personal credit and are likely not at the peak of their income-earning capacity.

7. Answers will vary, but some students may find the added difficulty in starting from scratch especially challenging, but preferable. Others will likely want to benefit from an existing business.

8. If the funding has “strings attached” that might interfere with the entrepreneur’s plans for the business, the venture capital may be turned down. However, if the terms were especially favorable (e.g., low interest rate, long life of loan) and the entrepreneur has future plans that would use the funds effectively, the venture capital may be welcomed.

APPLICATION EXERCISES 9. Answers will vary, but most students will reveal that proprietors in small businesses are attracted to the simplicity in starting up and in being their own boss, in spite of the disadvantage of unlimited liability. Those contemplating changing the form of business ownership may be considering the advantages of additional capital and/or forms of managerial expertise added to the business.

10. With the economic downturn in recent years, many market analysts are suggesting that the economy is making a comeback. Students will likely be able to identify a number of businesses that are appearing to enter a growth phase after being at a lull for a few years.

ANSWERS TO BUILDING YOUR BUSINESS SKILLS FOLLOW-UP QUESTIONS 1. Answers will vary, but students should consider whether and how they can translate the success of their retail store to the Internet environment.

2. Answers will vary, but students should be thinking about hiring someone to design and maintain the site and about ways to ensure the business can handle the potential increase in orders from all over the country. Changes in the price structure and customer service policies might also be necessary, and new suppliers in other areas might have to be found. The focus of the business might shift from the retail outlet to the Web site, which would bring many other changes with it.

3. Answers will vary, but many students may suggest that there is a chance that a virtual storefront can get lost in the shuffle with hundreds of other virtual storefronts offering competing products. Brick-and-mortar operations can establish themselves based on location and often promote themselves and their images based on location, whereas virtual storefronts give shoppers very little physical, tangible evidence to “associate” with the business itself.

.

3-27

ANSWERS TO EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE QUESTIONS TO ADDRESS 1. Mark’s additional responsibilities are not necessarily worth a $2,000 salary increase.

Connie’s desire to take $2,000 worth of inventory may not be reasonable.

2. Answers will vary, but students should consider how the contributions from both partners would change.

3. Answers will vary, but dissolution is worth considering given that both parties appear to feel wronged. Given Connie’s plan to remove inventory for personal use each month, further conflict seems inevitable.

EXERCISING YOUR ETHICS: TEAM EXERCISE Encourage the students to really try to view this case from their perspective assigned roles since many students may have a difficult time seeing a different perspective.

ACTIVITIES ON MYBIZLAB - INSTRUCTOR TIPS BIZSKILL: Are You an Entrepreneur? Getting Your Business Off the Ground Brief Synopsis/Objectives: In this BizSkill, students win $3.5 million and are asked to make choices on how to set up an entrepreneurial company.

At the end of the BizSkill, students should be able to answer the following questions: 1. What different kinds of entrepreneurs exist?

2. What are the characteristics of entrepreneurs?

How to Best Use This BizSkill: A great way to use this BizSkill is to assign it as homework before your first lecture on the chapter. Ask students to print out their feedback page, and then have them do the BizSkill again at the end of the week to see whether their scores have improved.

.

3-28

Chapter 4: The Global Context of Business Chapter Overview The global market has evolved into major world marketplaces, held together by trade agreements and alliances. A number of factors affect how countries and businesses respond to the international environment. Further, managers and entrepreneurs find themselves challenged by a number of factors that influence their international involvement.

This chapter discusses the overall dynamic nature of international business and how it is shaped by social, cultural, economic, legal, and political differences among nations. We look at: • • •

The rise of international business and describe the major world marketplaces, trade agreements, and alliances.

How differences in import-export balances, exchange rates, and foreign competition determine the ways in which countries and businesses respond to the international environment.

The factors involved in deciding to do business internationally and in selecting the appropriate levels of international involvement and international organizational structure.

The Business Plan Project is also introduced in this chapter. It is a substantial project that runs for the majority of the course, so it is important that you leave time in your lecture plan to introduce it properly. We have included a FAQ sheet to hand out to students. As an experienced instructor, you know that the better you are able to introduce the project now, the more comfortable students will be using it.

LEARNING OBJECTIVES 1. Discuss the rise of international business and describe the major world marketplaces and trade agreements and alliances.

2. Explain how differences in import-export balances, exchange rates, and foreign competition determine the ways in which countries and businesses respond to the international environment.

3. Discuss the factors involved in deciding to do business internationally and in selecting the appropriate levels of international involvement and organizational structure.

4. Describe some of the ways in which social, cultural, economic, legal, and political differences among nations affect international business.

.

4-1

Chapter Outline A. The Contemporary Global Economy 1. The Major World Marketplaces 2. Trade Agreements and Alliances B. International Trade 1. Exchange Rates 2. Forms of Competitive Advantage C. International Business Management 1. Going International 2. Levels of International Involvement 3. International Organization Structures D. Barriers to International Trade 1. Social and Cultural Differences 2. Economic Differences 3. Legal and Political Differences

.

4-2

LIST OF IN-CLASS ACTIVITIES: AUTHOR’S CHOICE Description

Time Limit

Instructor’s Manual Page Reference

Students discuss why certain countries produce labor-intensive products more than others in the global marketplace.

20 min.

4-6, 4-19

Students read a supplemental case study and discuss how it applies to chapter concepts.

30 min.

4-8, 4-20 to 4-21

20 min.

4-12, 4-22

30 min.

4-12, 4-23 to 4-25

Activity

1. Ice-Breaker: Shoes in the Global Marketplace 2. Supplemental Case Study Discussion: The World Trade Organization—All Mouth, No Teeth?

3. In-Class Activity: Assessing Your Own Culture 4. Supplemental Case Study Discussion: Business Accountability Handout Discussion: How to Wake up a Zombie

Ask students to describe what a foreign manager might expect to experience in our domestic marketplace.

Students read an article about what happens to the Japanese economy when “zombie” firms rely on government assistance to bail them out of an economic slump. Then discuss why such firms are not supported by the U.S. government.

LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE At-Home Activity

Description

Deliverable

Application Exercise 9: Interview a Manager

Students survey a local manager’s decision to go international.

Application Exercise 10: Surveying the Indian Culture

Students research the marketing culture in India.

BizSkill

Going Global

A brief paper detailing their interview findings.

A brief paper detailing the outcome of the research.

Students can test their business skills in this online simulation.

Business Plan Project: Part 1

.

Students complete the first part of their business plans, identifying a “great idea” and creating an “identity” for their proposed business

First part of business plan.

Completion Time

Instructor’s Manual Page Reference

2 hours

4-10, 4-27

1 hour

4-12, 4-27

15 min.

4-13, 4-28

1–3 hours

4-14 to 4-18

4-3

TEACHING NOTES AND SUGGESTIONS Learning Objective 1: Discuss the rise of international business and describe the major world marketplaces and trade agreements and alliances.

The Contemporary Global Economy The world economy is becoming a single interdependent system through the process of globalization. Exports are products that are produced domestically and shipped for sale abroad; imports are products that are produced abroad but sold domestically. The total annual volume of world trade is estimated to be $8 trillion. International trade is becoming increasingly important to most nations and their largest businesses. Governments and businesses are more aware of the benefits of globalization to businesses and shareholders. New technologies have made travel, communication, and commerce faster and cheaper. In addition, competitive pressures push firms into foreign markets to keep up with competitors.

A. Major World Marketplaces Managers involved with international businesses need to have a solid understanding of the global economy, including the major world marketplaces.

1. Distinctions Based on Wealth. The World Bank uses per capita incomes to make distinctions among countries. Current classifications include: • • • •

High-income countries Upper-middle-income countries Low-middle-income countries Low-income countries

2. Geographic Clusters. North America is the world’s largest marketplace and most stable economy. Europe includes both Western and Eastern regions. The European Union now integrates all regions of Europe, creating a larger unified marketplace. Though Japan has dominated Pacific Asia, other important commerce centers include China, Thailand, Malaysia, Singapore, Indonesia, South Korea, Taiwan, the Philippines, and Australia. China, the world’s most densely populated country now boasts the world’s third-largest economy, behind only the European Union and the United States.

B. Trade Agreements and Alliances Virtually every nation has formed treaties with other nations to promote free trade. No country is totally self-sufficient; every country relies on imports and exports.

1. North American Free Trade Agreement (NAFTA). NAFTA removes most tariffs and other trade barriers among the United States, Canada, and Mexico and includes agreements on environmental issues and labor abuses.

.

4-4

2. The European Union (EU). The European Union includes most European nations; these countries have eliminated most quotas and set uniform tariff levels on products imported and exported within their group. The EU is now the largest free market in the world.

3. The Association of Southeast Asian Nations (ASEAN). The ASEAN group has a population of over 575 million and a GDP of about $2.6 billion. Because of its relative size, ASEAN holds less global economic significance than NAFTA and the EU. 4. The World Trade Organization (WTO). The WTO promotes trade by encouraging members to adopt fair trade practices, reduces trade barriers by promoting multilateral negotiations, and establishes fair procedures to solve disputes.

C. Import-Export Balances Critical in global business is a country’s acceptable balance between imports and exports. An import-export relationship can be measured through a country’s balance of trade and balance of payments.

1. Balance of Trade. A country’s balance of trade is the total economic value of all the products that it exports minus the economic value of all the products that it imports.

2. Trade Deficits and Surpluses. A trade deficit occurs when a country’s imports exceed its exports. A trade surplus occurs when a country’s exports exceed its imports 3. Balance of Payments. Balance of payments refers to the flow of money into or out of a country. A country’s balance of payments results primarily from its balance of trade, though other contributing factors include money spent by tourists, foreign aid, and the buying and selling of currency.

D. Exchange Rates An exchange rate is the rate at which a nation’s currency can be exchanged for the currency of another. Fluctuations in exchange rates can greatly affect a country’s balance of trade.

With fixed exchange rates, the value of a country’s currency remains relatively constant to that of another country. With floating exchange rates, the value of a country’s currency relative to another currency varies with market conditions. Throughout most of 2009 the United States criticized China for its inflexible exchange rate policy—China being one of the few countries that still uses fixed exchange rates.

E. Forms of Competitive Advantage Managers need to understand forms of competitive advantage when making decisions about international competition.

1. Absolute Advantage. A country enjoys an absolute advantage when it can produce something that is cheaper and/or of higher quality than any other country.

.

4-5

2. Comparative Advantage. A country has a comparative advantage in goods that it can produce more efficiently or better than other goods.

3. National Competitive Advantage. National competitive advantage derives from factor conditions, demand conditions, related and supporting industries, and strategies, structures, and rivalries.

KEY TEACHING TIPS •

Make sure that students understand the World Bank classification method of highincome, upper-middle-income, low-middle-income, and low-income countries.

•

Remind students that the world economy revolves around three major marketplaces North America, Europe, and Asia which are home to most of the largest economies and corporations, most influential financial markets, and highest-income consumers.

•

Make sure that students understand that trade agreements remove tariffs and other trade barriers to promote free trade among countries.

•

Students often confuse balance of trade with balance of payments. Make sure they understand that a country’s balance of trade is the difference between that country’s exports and imports.

•

Make sure students understand that when the value of exports exceeds the value of imports, a country enjoys a trade surplus; when the value of imports exceeds the value of exports, a country suffers from a trade deficit.

•

Make sure that students understand that the balance of payments reflects the inflow and outflow of money as a result of a country’s balance of trade.

QUICK QUESTIONS •

What are some of the forces that spark and sustain globalization?

•

What are some of the features that distinguish the three major marketplaces from one another?

•

What countries are currently members of the European Union?

Use In-Class Activity 1: Ice-Breaker: Shoes in the Global Marketplace Time Limit: 20 minutes

.

4-6

Learning Objective 2: Explain how differences in import-export balances, exchange rates, and foreign competition determine the ways in which countries and businesses respond to the international environment.

International Business Management The primary key to a firm’s success is based largely in how well the firm is managed. The three basic decisions that a company must make when considering globalization are whether to go international at all, the level of international involvement, and the organizational structure that will best meet the firm’s global needs.

A. Going International Not every business is prepared to go international. A major decision factor is the business climate of other countries. Other factors include demand and product adaptations.

1. Gauging International Demand. Foreign demand for a company’s product may be greater than, the same as, or weaker than domestic demand. Determining international demand may require market research and/or prior market entry of competitors.

2. Adapting to Customer Needs. Product modifications may be required to meet the standards of various countries.

3. Outsourcing and Offshoring. Outsourcing is the practice of paying suppliers and distributors to perform certain business processes or to provide needed materials or services. Offshoring involves outsourcing to other countries.

KEY TEACHING TIPS •

A company must make three decisions when considering globalization: o Whether to go international at all o Its level of international involvement o Organizational structure

•

Make sure students do not confuse outsourcing with offshoring. A U.S. company can outsource to another U.S. company. Offshoring always implies outsourcing to other countries. Students typically confuse these two terms, so it is worth emphasizing the difference.

•

Emphasize that international strategic partnerships is one good way to develop local knowledge to gauge market demand. Often, local experts are in a better position to gauge likely market demand and future trends because they are in a better position to understand and interpret how local cultural factors can affect demand issues.

.

4-7

QUICK QUESTIONS •

What is the key to the bakery’s success in this feature? Is this something that could be easily copied by competitors? Why or why not?

•

How might a U.S. food manufacturer have to change its products in order to successfully export to Asia?

•

How might U.S. foreign policy help or hinder the ability of U.S. companies to be successful in international trade?

Use In-Class Activity 2: Supplemental Case Study Discussion: The World Trade Organization—All Mouth, No Teeth?

Time Limit: 30 minutes

.

4-8

Learning Objective 3: Discuss the factors involved in deciding to do business internationally and in selecting the appropriate levels of international involvement and organizational structure.

Levels of International Involvement A firm may enter the global marketplace through different levels of involvement.

A. Exporters and Importers Representing the lowest level of global involvement, exporters and importers conduct only a small part of their business globally. An exporter distributes and sells products in a small number of foreign countries. An importer buys products in foreign markets and then imports them for resale in its home country.

B. International Firms More complex than exporters and importers, international firms conduct a significant portion of business in foreign countries. These firms basically remain domestic with global operations.

C. Multinational Firms Multinational firms—firms that design, produce, and market products in many nations—do not ordinarily think of themselves as having domestic and international divisions. Planning and decision making are geared to international markets. Headquarters locations are almost irrelevant. It is important not to underestimate the economic impact of multinational firms. In 2008 the largest 500 multinationals accounted for $615.4 billion in profits from $10.9 trillion total revenues. They employed tens of millions of people, paid billions in taxes, and brought equipment and services from thousands of other firms across the world.

D. International Organizational Structures Whether an importer, exporter, international firm, or multinational firm, a firm’s level of global involvement will influence the firm’s choice of international organizational strategies.

1. Independent Agents. Independent agents are foreign individuals or organizations that agree to represent the exporter’s interests, including assisting in product sales, collection of payments, and in helping to ensure customer satisfaction.

2. Licensing Arrangements. In licensing arrangements, firms give individuals or companies in a foreign country the right to manufacture or market the firm’s products. In return, the licensor typically receives a fee and royalties, which are usually calculated as a percentage of the license holder’s sales.

3. Branch Offices. To gain more direct control and a more tangible presence in foreign countries, a firm will send some of its own managers to overseas branch offices with this arrangement.

4. Strategic Alliances. Strategic alliances include a company and a foreign partner that combine resources and capital to begin a new business.

.

4-9

5. Foreign Direct Investment. Foreign direct investment means buying or establishing tangible assets in a foreign country.

KEY TEACHING TIPS •

Empathize that the largest of multinational firms now have revenues that exceed the Gross Domestic Product (GDP) of many nations. The influence that these large companies are having on world economics is increasing.

•

Remind students that independent agents often act as sales representatives

QUICK QUESTIONS •

What are licensing arrangements?

•

What are some advantages of forming a strategic alliance with another firm?

•

How many US multinational companies can you name?

•

How many Japanese multinational companies can you name?

•

How many European Companies can you name?

HOMEWORK Interview a Manager Now is a good time to assign, as homework, Application Exercise 9 from the end-of-chapter materials in the textbook (see page 108). This assignment asks students to survey local managers’ decisions to go international, as well as reveals those managers’ choices of international involvement and their use of organizational structures.

At-Home Completion Time: 2 hours

.

4-10

Learning Objective 4: Describe some of the ways in which social, cultural, economic, legal, and political differences among nations affect international business.

Barriers to International Trade Success in foreign markets includes a firm’s ability to respond to social, cultural, economic, legal, and political differences.

A. Social and Cultural Differences These barriers include a plethora of differences in language, religion, perceptions, shopping patterns, and so on, between and among different populations.

B. Economic Differences When trading with different types of economic systems, firms must be aware of the level of government involvement in a given industry.

C. Legal and Political Differences Governments can present many trade barriers in international business, including the control of the flow of capital and the use of tax legislation to encourage or discourage global activity in given industries.

1. Quotas, Tariffs, and Subsidies. A quota restricts the number of products of a certain type that can be imported into a country. The ultimate quota is an embargo—a government order forbidding exportation and/or importation of a particular product (or even all products) from a specific country. A tariff is a tax placed on imports; tariffs directly affect prices by raising the price of imports. A subsidy, a form of indirect tariffs, is a government payment to help a domestic firm compete with foreign firms.

2. Protectionism. Protectionism is the practice of protecting domestic business at the expense of free market competition and is controversial. Supporters argue that tariffs and quotas protect domestic firms, whereas critics cite protectionism as a source of friction between nations.

3. Local Content Laws. Many countries, including the United States, have local content laws—requirements that products sold in a particular country are partially made there.

This guarantees that a percentage of the profits remain in that country.

4. Business Practice Laws. Many businesses entering new markets encounter problems in complying with stringent regulations and bureaucratic obstacles. Such practices are affected by the business practice laws by which host countries govern business practices within their jurisdictions.

5. Cartels and Dumping. Cartels are associations of producers that control supply and prices. Many (but not all) countries forbid dumping—selling a product abroad for less than the cost of production at home. United States law forbids both cartels and dumping.

.

4-11

KEY TEACHING TIPS •

Remind students that it is not only entrepreneurs who factor in risk in their assessment of business opportunities. Even large organizations carefully examine the risk factors involved in Foreign Direct Investment opportunities.

•

Multinational companies carefully monitor the economic issues, such as population size and growth, economic, and political stability, the levels of corruption and a nation’s geographical location in making FDI decisions.

•

Emphasize that one of the key roles of the World Trade Organization is to free up international trade.

QUICK QUESTIONS •

Do you think the United States should impose import quotas on good made overseas to protect U.S. jobs?

•

How do you feel when another country puts quotas on U.S. exports?

Use In-Class Activity 3: Assessing Your Own Culture Discussion Time Limit: 20 minutes Students often think of how different other cultures are from the U.S. culture. This discussion helps students recognize how foreign the U.S. culture really is to business managers from other countries.

Ask students to form groups and identify parts of U.S. culture that might appear interesting, strange, or very uncomfortable for a business person from overseas. If you have international students in your class this will add to the reality of the discussion.

Use In-Class Activity 4: Handout. Business Accountability: How to Wake up a Zombie Time Limit: 30 minutes

VIDEO: MINI Run Time: 7:13 This is the appropriate time to show this video, as it examines the topics covered in this and the previous learning objectives. Incorporate Discussion Questions found on page 111 of the text.

HOMEWORK Surveying the Indian Culture Now might be a good time to assign Application Exercise 10 in the end-of-chapter materials as

.

4-12

homework (see page 108 of the text). This assignment asks students to research the culture of India in considering marketing a chosen product there.

At-Home Completion Time: 1 hour

BIZSKILL: GOING GLOBAL Today’s generation of students likes to learn by doing. In order to facilitate this, we offer a series of online business simulations on MyBizLab to help students implement the ideas presented in the chapter into a business setting. For details on this chapter’s simulation, see page 4-29 of this Instructor’s Manual.

.

4-13

BUSINESS PLANNING PROJECT You will already have seen that a central part of the experiential learning approach of Business Essentials is the Business planning Project. Now is the ideal time to introduce the project and assign Part 1 to students to complete as homework.

The business plan project for Business Essentials is divided into six parts, corresponding to the book’s six parts. The first part of the project is found here. Refer to the Business Plan portion of this Instructor’s Manual for all remaining parts.

For a Sample Syllabus Business Plan Project Outline, see the instructor resource guide in the Business Plan Project document (located with this Instructor’s Manual).

In addition to giving a general overview of the business planning project, you should copy and distribute the following documents to students: •

Student FAQs for the Business Plan Project

•

Student Business Plan Project Template Part 1: The Contemporary Business Environment

PART 1 THE CONTEMPORARY BUSINESS ENVIRONMENT This part of the business plan asks students to come up with a “great idea” for a business, creating an identity and forming a concrete notion of what the business will do. The first part of the plan also asks students to identify the type of ownership the business will take and briefly looks at who the firm’s ideal customers are. This part of the plan also looks at how the business will interact with the community and demonstrate social responsibility, and includes a perspective on the impact of global business.

The first part of the plan should take approximately 1 to 3 hours. However, completion times will vary greatly based on what the individual student brings to the class. Students who already have a “big idea” will have a head start on those who do not.

HOMEWORK DELIVERABLE FROM STUDENTS Each business plan is a unique document, so some variance in response lengths should be expected. As a result, you may not wish to designate a minimum number of pages for the assignment. Keep in mind that students who display a grasp of the concepts and demonstrate higher-level thinking may write 20 to 26 pages during the project. For Part 1, expect an approximate range of 2 to 4 pages.

.

4-14

STUDENT FAQs FOR THE BUSINESS PLAN PROJECT 1. Where do I begin?

This project will challenge you to think about all the parts that are necessary for a business to succeed. You should start by thinking of a business that you would like to begin. Do not use a product that already exists, such as Coca-Cola. Learning comes through the process of using your own ideas, not by imitating others. Each section of the business plan connects with the information that is discussed in class and in the textbook.

2. What should my business plan look like?

There are six parts to the business plan. Your instructor will provide you with the “Business Plan Project Student Template” file that you’ll need to complete each part. Answer the questions that make up each part in the order that they are shown. Note that the template includes hints that will help you answer each question. Once you are done answering the question, you can delete the question and the tip, leaving just your answer behind.

Your instructor may also provide you with a sample business plan for you to use as a guide.

Note that your plan does not have to look exactly like the sample, but you need to show good organizational skills. Note that each of the six parts of the business plan project is fully explained in the Business Plan portion of this Instructor’s Manual.

1. After I finish each part of the plan, what do I do with my assignment?

Your instructor will give you instructions as to how he or she would like you to submit each part of the plan. You will most likely be given a chance to make improvements to your plan throughout the grading period.

Note: You will be using the same student template file to complete the entire plan.

Therefore, after completing each part of the plan, you need to save the file on a disk or to your hard drive.

4. How will I know if I’m doing the plan correctly?

Your instructor will provide feedback to you about your plan. Students who successfully complete the plan have these two qualities in common: They do not procrastinate. A well-written business plan cannot be written overnight, as it requires a good deal of thought and creativity.

They ask a lot of questions. If a term is used in the business plan template that confuses you, check in your textbook or ask your instructor for an explanation.

.

4-15

5. How many pages are needed for a good grade?

It depends on the business that you will be starting. A good explanation normally requires between 12 to 15 pages. This sounds like a lot, but most sections will average 2 to 3 pages.

.

4-16

STUDENT BUSINESS PLAN PROJECT TEMPLATE PART 1: THE CONTEMPORARY BUSINESS ENVIRONMENT BUSINESS NAME What is the name of your business?

Hint: When you think of the name of your business, make sure it captures the spirit of the business you’re creating.

Note to students: Once you have inserted your answer, delete the question and the tip provided here and leave just the heads so your business plan will look more professional.

DESCRIPTION OF BUSINESS What will your business do?

Hint: Imagine you are explaining your business to a family member or a friend. The business should be easy to explain. Keep your description here to about 30 words or less.

FORM OF BUSINESS OWNERSHIP What form of business ownership (sole proprietorship, partnership, or corporation) will your business take? Why did you choose this form?

Hint: For more information on the types of business ownership, refer to the discussion of the different forms of business ownership in Chapter 3.

IDEAL CUSTOMER Briefly describe your ideal customer. What are they like in terms of age, income level, and so on?

Hint: You don’t have to give too much detail in this part of the plan; you’ll provide more details about customers and marketing in later parts of the plan.

OUR ADVANTAGES Why will customers choose to buy from your business, instead of your competition?

Hint: In this section, describe what will be unique about your business. For example, is the product special, will customer service be exceptional, or will you offer the product at a lower price?

ETHICAL ISSUES All businesses have to deal with ethical issues. One way to address these issues is to create a code of ethics. List three core (unchanging) principles that your business will follow.

Hint: To help you consider the ethical issues that your business might face, refer to the discussion in Chapter 2.

.

4-17

SOCIAL RESPONSIBILITY A business shows social responsibility by respecting all its stakeholders. What steps will you take to create a socially responsible business?

Hint: To help you consider issues of social responsibility, refer to the discussion of social responsibility in Chapter 2. What steps can you take to be a good citizen in the community?

Consider also how you may need to be socially responsible toward your customers and, if applicable, investors, employees, and suppliers.

GLOBAL ISSUES Do you think that you’ll sell your product in another country? If so, what countries would you choose, and why? What challenges will you face?

Hint: To help you consider issues of global business, refer to Chapter 4. Consider how you will expand internationally (i.e., independent agent, licensing, etc.). Do you expect global competition for your product? What advantages will foreign competitors have?

.

4-18

IN-CLASS ACTIVITIES In-Class Activity 1: Ice-Breaker Shoes in the Global Marketplace Activity Overview: This activity asks students to think about why certain countries produce more labor-intensive products than others in the global marketplace.

Time Limit: 20 minutes What to Do: 1. Ask students to remove their shoe and note the country in which it was made. Go around the class and keep a tally of country of origin. Most students will have shoes from China. (5 minutes) 2.

Ask students why they think shoes are often made in China. Possible answers will include low wages and a workforce willing to perform this type of work. (5 minutes)

3.

Examine how other countries on the list are similar to China. Point out that shoes are labor intensive and cost savings can be significant. (10 minutes)

Don’t Forget: If students can’t find the country of origin on their shoes, they can use another article of clothing or other belonging, such as their sunglasses or handbags.

Wrap-Up: Wrap up the discussion by discussing what social, cultural, political, economic, and legal variables may affect one country producing more shoes than another.

.

4-19

In-Class Activity 2: Supplemental Case Study Discussion The World Trade Organization—All Mouth, No Teeth?

Activity Overview: This activity asks students to look at the effects of piracy on international business.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Supplemental Case Study (see page 4-19 of this Instructor’s Edition) and distribute them to students.

2. Divide students into groups and ask them to read the case and answer the questions in their small groups. (15 minutes) a. From this case, do you think the World Trade Organization is effective at policing international business disputes? b. What image of America do you think is portrayed by its movie industry? Do you think this portrays an attractive or unattractive image of the United States? c. Do you think that it is fair for China to restrict the number of foreign films it allows to be shown in theatres to 20 per year on the grounds of protecting decency?

3. Once students have answered the questions, discuss their answers as a class. Make sure they address the following points: (15 minutes) a. Often students will want the WTO to intervene to protect U.S. interests. How would they feel if the situation was reversed and the United States was fined because they hindered the trade interests of other countries? For example, in 2009 the United States received a fine of $295 million of sanctions for failing to remove illegal subsidies for the cotton industry. b. Push students to consider how they would feel if WTO rulings meant that local jobs would be lost?

Don’t Forget: Be sure to keep students on the case topic—a controversial issue such as this often invites much discussion.

Wrap-Up: Bring the discussion to a close by encouraging students to visit the WTO website www.wto.org to see what current cases are being investigated. Also tell students that the WTO website is a great way to find out about the businesses of countries around the world.

.

4-20

HANDOUT: SUPPLEMENTAL CASE STUDY

The World Trade Organizations—All Mouth, No Teeth?

One of the roles of the World Trade Organization is to act as the policeman for international trade agreements. When one country feels aggrieved by the actions of another, it is often to the World Trade Organization that they turn for redress. One such example is the case that the United States has bought against China in regard to the restrictions that China placed on imported films, music, and books. China remains one of the least profitable markets for United States movie studios partly because China only allows 20 foreign films to be released in theaters every year.

Toward the end of December 2009, the World Trade Organization made a ruling declaring the restrictions that China had placed on imported movies to be illegal. China vigorously defended their position, but the World Trade Organization rejected their appeal, sealing one of China’s biggest ever losses in the World Trade Organization since it joined in 2001.

A U.S. Trade Representative said that “U.S. companies and workers are at the cutting edge of these industries, and they deserve a full chance to compete under agreed WTO rules.” In contrast, a spokesman for China insisted “China has conscientiously carried out its obligations under WTO rules in terms of access to the publishing market since its entry into the WTO.” But analysts said that, even if implemented, the ruling wouldn’t radically change the way business is done in China for the movie industries. That is because the ruling mainly addresses how products are distributed in China and doesn’t force Beijing to let in products it deems harmful. That means the country can still keep in place a rule restricting the number of foreign films imported each year to 20. What the ruling does give foreign film companies, however, is the ability to distribute their films directly to theaters and bypass the Chinese government run China Film Group Corporation that typically has only given 17.5 percent of profits to the U.S. film company—a significantly lower percentage than is realized in most industrialized countries.

China now has one year to comply with the WTO ruling, which can no longer be appealed. If it doesn’t, the United States would have the right to levy trade sanctions equivalent to the revenue lost by music, movie and even videogame makers because of Chinese distribution laws, which could amount to billions of dollars.

Discussion Questions 1. From this case, do you think the World Trade Organization is effective at policing international business disputes?

2. What image of America do you think is portrayed by its movie industry? Do you think this portrays an attractive or unattractive image of the United States?

Do you think that it is fair for China to restrict the number of foreign films it allows to be shown in theatres to 20 per year on the grounds of protecting decency?

.

4-21

In-Class Discussion 3: Assessing Your Own Culture Activity Overview: Students often think of how different other cultures are to the U.S. culture. This discussion helps students recognize how foreign the U.S. culture is to business managers from other countries.

Time Limit: 20 minutes

What to Do: 1. Ask students to form groups.

2. Identify parts of U.S. culture that might appear interesting, strange, or very uncomfortable for a business person from overseas.

3. If you have international students in your class this will add to the reality of the discussion.

Don’t Forget: How many of your students have had experience with foreign business managers? What about their families?

Wrap-Up: Bring the discussion to a close by asking students for suggestions as to how to acclimate business managers to different cultures.

.

4-22

In-Class Activity 4: Handout. Business Accountability: How to Wake Up A Zombie (see following page for handout) Activity Overview: This activity asks students to read a supplemental article that presents the economic challenges facing the Japanese economy when “zombie” firms rely on government assistance to bail them out of an economic slump.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the “Business Accountability” handout (see pages 4-24 and 4-25 of this Instructor’s Edition) and distribute them to students.

Divide students into three- or four-member groups and ask them to read the handout; students should discuss within their groups: a. “The United States does not support zombie companies.” Please comment on this. b. What have some of the zombie firms overseas done to bail themselves out of their economic slumps? c. What have companies such as General Motors that have received large U.S. government bailouts done to restore profitability?

2. Reassemble the class and discuss each group’s opinions. (15 minutes) Don’t Forget: Various organizations do provide assistance to firms in the United States, though not in the same way as those firms outlined in this article. Think of companies you know—large and small—that have filed for Chapter 11 protection from creditors, reorganized, and reemerged as a viable business.

Wrap-Up: Those zombie firms mentioned in this article that have climbed out of their economic slumps have implemented similar strategies to those that U.S. firms implement in order to maintain their market positions. These strategies can vary from industry to industry.

.

4-23

HANDOUT: BUSINESS ACCOUNTABILITY

How to Wake up a Zombie There is a long-standing tradition in Japan whereby the government often props up failing businesses through low-cost or no-cost loans. The fear has been that if businesses fail, people will lose their jobs, and the highly integrated Japanese industrial system will suffer. These businesses, some of which have been bailed out literally dozens of times, are called “zombie” firms. The major downside of this practice, though, is that it reduces accountability. Managers haven’t always had to worry about profits or efficiency, because they know the government would bail them out. “This kind of intervention can work in the short term. But from a long-term point of view, it has terrible implications: Investors understand that the market is artificial, and accordingly they pull back,” states analyst Jean-Marie Vuillard.

In recent years, though, more firms are accepting responsibility for their own survival.

Cosmetics-maker Shiseido held too much inventory and had overly high expenses, leading to a $550 million loss over two years. But rather than call for a government bailout, Shiseido executives focused on fundamental improvements. Better technology allowed them to control and forecast inventory more effectively. They cut costs throughout the corporation and curtailed their product line. After Shiseido returned to profitability, Chief Logistics Officer Seiji Nishimori boasted, “We’re showing other Japanese companies that it’s possible to reverse a slide.”

Canon, the world’s leading maker of copiers and laser printers, has also taken a disciplined approach to performance improvement. CEO Fujio Mitarai replaced every manufacturing line at the firm’s 29 Japanese factories with small, self-directed teams of a half-dozen workers who do the work previously done by 30 laborers. The teams discovered more efficient inventory management techniques, and Canon was able to close 20 of its 34 parts warehouses.

“Manufacturing is where most of the costs lie,” Mitarai claims. Canon’s earnings improved by 53 percent, enabling Mitarai to conclude, “We’re much more profitable today because of these changes.”

The success of notable high performers, such as multinational Toyota, has caused Japanese firms to realize the benefit of global cost competitiveness. High-tech companies are abandoning manufacturing and switching attention to research and development to counteract an influx of inexpensive electronics from China, Taiwan, and Korea. For example, NEC has moved out of the unprofitable semiconductor chip making business and has focused on more lucrative cell phones and software. Sharp, too, has given up on low-margin PC monitors and refocused its operations on innovative products, such as liquid crystal displays for PDAs. Sony is working on revolutionary new computer chips while reducing its investment in consumer electronics.

All three companies say they now listen to their consumers more closely. “We were proud of our great technology, and [we] just pumped out products without thinking of our customers’ needs,” says NEC director Kaoru Tosaka. “Now, we’re emphasizing efficiency, profits, and clients.”

.

4-24

DISCUSSION QUESTIONS 1. “The United States does not support zombie companies.” Please comment on this.

2. What have some of the zombie firms overseas done to bail themselves out of their economic slumps?

3. What have companies such as General Motors that have received large U.S. government bailouts done to restore profitability?

.

4-25

ANSWERS FOR END OF CHAPTER EXERCISES & ACTIVITIES (Starting on Page 108 of the textbook) QUESTIONS FOR REVIEW 1. The balance of trade is the total economic value of all products that a country exports minus the total economic value of all products it imports. The balance of payments is the flow of money into or out of a country.

2. The three levels are importing/exporting, international business, and multinational business.

Examples will vary.

3. In dealing with mixed and planned economies, firms must be aware of when and to what extent the government is involved in a given industry.

4. Many foreign firms will likely consider the diversity and subcultures among the citizens of a particular state or region, and the willingness of those citizens to work for or buy from a foreign company. However, aspects may vary depending on whether the firm plans to set up a production facility in the area or whether it is looking to increase its customer base.

QUESTIONS FOR ANALYSIS 5. Answers will vary, but students may indicate that many electronics items, for example, are imported from Japan, South Korea, China, and Taiwan; technological expertise among companies there is often perceived as being superior. Linens and clothing, for example, have likely been imported from a variety of countries.

6. The manager of the small firm will likely be interested in the economic system of the potential market and, thus, the ease with which the firm could enter the market. Also important will be the nature of the customer base and whether those new customers possess the same buying characteristics as the firm’s current customers. In addition, the small firm may need to modify the product and/or the promotional strategy based on any cultural or social differences. Legal and political hurdles should also be investigated.

7. Answers will vary, but students should comment on the effects of unrestricted imports on the domestic economy and the effect of tariffs on prices, employment, and competition.

Unrestricted imports certainly increase competition and can alter employment levels eventually. Also, pricing on domestically produced goods will likely be held lower in order to compete with the foreign goods and the increase in supply in some instances. On the other hand, protectionist tariffs make domestic products look more attractive in terms of price and limit consumers’ product options.

8. Answers will vary, but students should comment on the possibility that conduct considered unethical in the home country will damage the firm’s reputation, backfire abroad, or lead to

.

4-26

situations in which the legality of its actions could be called into question.

APPLICATION EXERCISES 9. Answers will vary, but students should focus on the levels of involvement and organizational structures discussed in the chapter. Some firms merely import or export. Others may utilize an independent agent that represents the company in foreign markets. Licensing allows a company to grant exclusive rights to a foreign company to manufacture or market their products. Branch offices allow the domestic company to maintain its own employee base overseas. Finally, a strategic alliance allows a domestic company to partner with a foreign company in working toward a common purpose.

10. Answers will vary, but students should focus on sociocultural differences, such as those arising from religion and language, and consider changes that might be necessary in the product, its packaging, and its marketing and promotion. Even the use of the product may change. For example, a bicycle might be seen as a physical fitness tool or leisure item in the United States but as a mode of transportation in India.

ANSWERS TO BUILDING YOUR BUSINESS SKILLS FOLLOW-UP QUESTIONS 1. Anything that will increase brand recognition and, therefore, sales both in the United States and abroad would be promising. Least promising steps would include focusing solely on local Italian markets where Lang’s products may lack the made-in-Italy cachet that gives them potential elsewhere.

2. It suggests that she should focus on marketing activities that build the brand.

3. Answers will vary, but students should touch on the fact that cultural differences make it difficult for U.S. women to do business in male-dominated cultures where they may be expected to behave in unaccustomed ways and where there are fewer women in business to offer cultural role models. Lang should be businesslike in all her dealings and give a firm but polite refusal to inappropriate invitations. A consistent response may help her eventually cut down on the number of such instances.

4. Some students may feel that since Lang’s firm employs no U.S. workers, the consulate’s treatment is “fair.” Others may feel that because Lang herself is a citizen, the treatment is “unfair.”

5. Some will feel that Lang needs to personally control the design and manufacturing end of her business, others may feel that she should focus on spreading the word about the brand in the United States and Europe.

6. It is unlikely that Lang’s firm can remain a one-person operation for long if it is to be successful.

.

4-27

ANSWERS TO EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE QUESTIONS TO ADDRESS 1. The key ethical issue is whether to pay bribes to establish your business in this foreign country. Does it make sense to extend the U.S. sense of ethical behavior, codified in law (i.e., never pay bribes), to a country that doesn’t consider bribes to be unethical or illegal?

2. Answers will vary, but students may address the temptation that comes from an undetectable source of funds, the responsibility to adhere to U.S. law forbidding bribery domestically or abroad, and the possibility that some managers would hire an intermediary to “do the dirty work” for them.

3. Answers will vary, but students should touch on the main ethical issues discussed in the exercise.

ANSWERS TO EXERCISING YOUR ETHICS: TEAM EXERCISE This exercise should generate a lively discussion with passionate arguments since many students may have experienced outsourcing first hand or know someone who has been outsourced.

Students may have a tendency to look at this issue as either “black or white” but need to be encouraged to explore all aspects of this situation.

ACTIVITIES ON MYBIZLAB - INSTRUCTOR TIPS BIZSKILL: Going Global Brief Synopsis/Objectives: Through a series of accidental discoveries, you and a friend have

developed an inexpensive battery that can recharge itself by sitting in the sun for a few hours.

While you’re considering the prospects in the U.S. market, your friend suggests that your opportunities may be greater in emerging markets where electricity is less reliable. The potential market is huge, but you have to make the right decisions to get in. Are you willing to take the risk?

At the end of this exercise, students should be able to answer the following questions: 1. What is globalization and how can emerging markets offer opportunities for companies?

2. What various options exist for companies to enter the global marketplace?

What factors must businesses take into account when entering the global marketplace?

How to Best Use This BizSkill: A great way to use this BizSkill is to assign it as homework before your first lecture on the chapter. Ask students to print out their feedback page, and then have them do the BizSkill again at the end of the week to see whether their scores have improved.

.

4-28

Chapter 5: Business Management Chapter Overview What makes a good manager? Think back to a favorite manager with whom you have worked. What made that manager effective? Perhaps the manager assigned special roles in setting organizational goals.

Or perhaps he or she was an exceptional communicator, expressed empathy, or was an effective motivator.

Now think back to a “poor” manager you’ve worked with. What made that manager ineffective? Maybe he or she was too controlling, lacked communication skills, or showed favoritism toward subordinates.

Whatever the reason, many people’s future managerial roles will be affected by their past experiences.

This chapter presents an introduction to the foundations of effective management. It describes the nature of management and identifies the four basic functions that constitute the management process and the different types of managers likely to be found in an organization. It discusses the basic skills required of managers, the importance of strategic management and effective goal setting in organizational success (as well as contingency planning and crisis management), and the importance of corporate culture.

Learning Objectives 1. Describe the nature of management and identify the four basic functions that constitute the management process.

2. Identify different types of managers likely to be found in an organization by level and area.

3. Describe the basic skills required of managers.

4. Explain the importance of strategic management and effective goal setting in organizational success.

5. Discuss contingency planning and crisis management in today’s business world.

6. Describe the development and explain the importance of corporate culture.

.

5-1

CHAPTER OUTLINE A. The Management Process 1. Planning 2. Organizing 3. Leading 4. Controlling B. Types Of Managers 1. Levels of Management 2. Areas of Management C. Basic Management Skills 1. Technical Skills 2. Human Relations Skills 3. Conceptual Skills 4. Decision-Making Skills 5. Time Management Skills 6. Management Skills for the Twenty-First Century D. Strategic Management: Setting Goals and Formulating Strategy 1. Setting Business Goals 2. Types of Strategy 3. Formulating Strategy 4. A Hierarchy of Plans E. Contingency Planning and Crisis Management 1. Contingency Planning 2. Crisis Management E. Management and the Corporate Culture 1. Communicating the Culture and Managing Change

.

5-2

LIST OF IN-CLASS ACTIVITIES: AUTHOR’S CHOICE Activity

Description

1. Ice-Breaker: The Management Process

Students work in groups to discuss the management process and how it works.

Students distinguish among strategies at the corporate, business, and functional levels.

Students write down their short-term, intermediate, and long-term goals Students brainstorm in small groups in order to complete a SWOT analysis.

Students are divided into teams to discuss crisis management.

Students work in small groups to share their thoughts on corporate culture.

Students read a supplemental case study and discuss how it applies to chapter concepts.

2. Class Discussion: Sam Adams Makes Headway 3. Class Discussion: How Do Your Goals Stack Up? 4. Small-Group Discussion: SWOT Analysis 5. Up for Debate: I Can’t Believe This Has Happened!

6. Up for Debate: Who Creates Corporate Culture?

7. Supplemental Case Study Discussion: Doctors go back to school—business school!

Time Limit

Instructor’s Manual Page Reference

30 min.

5-5, 5-14

20 min.

5-11, 5-15

30 min.

5-11, 5-16

30 min.

5-11, 5-17

20 min.

5-12, 5-18

30 min.

5-13, 5-19

30 min.

5-13, 5-20 to 5-21

LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE At-Home Activity

Application Exercise 9: Interview a Manager

Application Exercise 10: Comparing Corporate Cultures

BizSkill

Description

Students interview a manager to study levels and areas of management and the functions of management.

Students compare and contrast the corporate cultures of two local companies with which they are familiar.

Plan for Success

.

Completion Time

Instructor’s Manual Page Reference

A brief paper detailing their interview findings.

45 min.

5-7, 5-23

A brief paper outlining the outcome of their findings.

30 min.

5-12, 5-23

Students can test their business skills in this online simulation.

15 min.

5-24

Deliverable

5-3

TEACHING NOTES AND SUGGESTIONS Learning Objective 1: Describe the nature of management and identify the four basic functions that constitute the management process.

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 organization’s financial, physical, human, and information resources to achieve its goals.

A. 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.

B. 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.

C. Leading When leading, a manager works to guide and motivate employees to meet the firm’s objectives.

D. Controlling Controlling is the process of monitoring a firm’s performance to make sure that it is meeting its goals.

KEY TEACHING TIPS •

Point out that planning, organizing, leading, and controlling—the “functions of management”—are carried out by managers at all levels of the organization.

•

Reinforce that planning involves determining what the organization needs to do and how best to get it done.

•

Make sure students understand that organizing is the process of determining the best way to arrange a business’s resources and activities into a coherent structure.

•

Remind students that when leading, a manager guides and motivates employees to meet the firm’s objectives.

.

5-4

•

Identify controlling as the process of monitoring a firm’s performance to ensure it is meeting its goals; actual performance is measured against set standards.

QUICK QUESTION What are some of the kinds of managerial responsibilities associated with each level of management?

Use In-Class Activity 1: Ice-Breaker: The Management Process Time Limit: 30 minutes

.

5-5

Learning Objective 2: Identify different types of managers likely to be found in an organization by level and area.

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.

A. Levels of Management The three basic levels of management are top, middle, and first-line.

1. 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).

2. 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.

3. First-Line Managers. Duties of managers at this level depend on the job, though firstline 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.

B. Areas of Management In any large company, top, middle, and first-line managers work in a variety of areas.

1. Human Resource Managers. These managers hire and train employees, evaluate performance, and determine compensation.

2. 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.

3. Marketing Managers. These managers are responsible for the development, pricing, promotion, and distribution of goods and services.

4. Information Managers. These managers design and implement systems to gather, organize, and distribute information.

5. Financial Managers. These managers are responsible for the firm’s accounting functions and financial resources.

.

5-6

6. Other Managers. Some firms employ various types of specialized managers, such as public relations managers.

TEACHING TIPS •

Students should associate technical skills with first-line managers, conceptual skills with top managers, and human relations skills with middle managers.

•

Make sure students understand that decision-making skills include the ability to define problems and select the best course of action.

HOMEWORK Interview a Manager Now is a good time to assign Application Exercise 9 from the end-of-chapter materials as homework (see page 134 of the text). The assignment asks students to interview a manager in order to further their understanding of levels, functions, and areas of management.

At-Home Completion Time: 45 minutes

.

5-7

Learning Objective 3: Describe the basic skills required of managers.

Basic Management Skills Effectiveness in management results from the development of a variety of skills among managers.

A. 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.

B. 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.

C. 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.

D. 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.

E. 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.

F. Management Skills for the Twenty-First Century Competing globally and managing technology are two major challenges facing managers today.

1. Global Management Skills. Businesses now demand managers who can understand cultural differences and the motives and practices of foreign competitors.

2. Management and Technology Skills. New forms of technology increase the manager’s need to process, organize, and interpret a plethora of information.

VIDEO: PIZZA HUT Run Time: 6:47 This is a good point to show this video, as the content links well to this lecture material, as well as the upcoming lecture material for Learning Objective 4 (SWOT in particular) .

Incorporate Discussion Questions found on page 136 of the text.

.

5-8

Learning Objective 4: Explain the importance of strategic management and effective goal setting in organizational success.

Strategic Management: Setting Goals and Formulating Strategy 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. A strategy is a broad set of organizational plans for implementing the decisions made for achieving organizational goals.

A. Setting Business Goals Goals are performance targets—the means by which organizations and their managers measure success or failure at every level.

1. Purposes 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.

B. 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.

C. 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.

.

5-9

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.

D. A 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.

KEY TEACHING TIPS •

Remind students that strategic management is the process of helping an organization maintain an effective alignment with its environment; it is most closely associated with top managers.

•

Reinforce that goal setting is critical for managers at all levels, not just the top.

•

Students often confuse the types of strategy. Highlight the difference between corporate strategy, business strategy, and functional strategy.

•

Point out that although top managers traditionally carried out strategy formulation, it now often involves people throughout the organization.

•

Remind students that top managers commonly perform strategic planning. Top and middle managers carry out tactical planning. Middle and first-line managers carry out operational planning.

.

5-10

QUICK QUESTIONS •

What are the purposes of goal setting?

•

What is included in your college’s mission statement?

•

What is the difference between environmental analysis and organizational analysis?

Use In-Class Activity 2: Class Discussion: Sam Adams Makes Headway Time Limit: 20 minutes Use In-Class Activity 3: Class Discussion: How Do Your Goals Stack Up? Time Limit: 30 minutes Use In-Class Activity 4: Small-Group Discussion: SWOT Analysis Time Limit: 30 minutes

.

5-11

Learning Objective 5: Discuss contingency planning and crisis management in today’s business world.

Contingency Planning and Crisis Management

Because business environments are often difficult to predict and because the unexpected can create major problems, most managers recognize that even the best-laid plans sometimes simply do not work out. Two common methods of dealing with the unknown and unforeseen are contingency planning and crisis management.

A. Contingency Planning Contingency planning is planning for change; it identifies ways in which a company will respond to change.

B. Crisis Management Crisis management involves an organization’s methods for dealing with emergencies.

KEY TEACHING TIPS •

It’s important to point out that a contingency plan may not always work. Changes in internal and external variables can force changes to even the most well thought-out plan.

•

Remind students that the most successful organizations are those that make their mission statements clear, remain open about internal policies and external relationships, and are adaptive to change.

Use In-Class Activity 5: Up for Debate: I Can’t Believe This Has Happened!

Time Limit: 20 minutes

.

5-12

Learning Objective 6: Describe the development and explain the importance of corporate culture.

Management and the Corporate Culture 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.

A. Communicating the Culture and Managing Change 1. Communicating the Culture. This involves having an understanding of the culture, transmitting the culture to others in the organization, and maintaining the culture.

2. 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.

QUICK QUESTIONS •

What is the corporate culture at your job? In the U.S. Marine Corps? On a football team?

In a beauty salon?

•

What types of corporate cultures are the easiest or most difficult to change? What are some variables that make such change easy or difficult?

Use In-Class Activity 6: Up for Debate: Who Creates Corporate Culture?

Time Limit: 30 Minutes Use In-Class Activity 7: Supplemental Case Study Discussion: Doctors go back to school— business school!

Time Limit: 30 minutes HOMEWORK Comparing Corporate Cultures Now is a good time to assign Application Exercise 10 from the end-of-chapter materials as homework (see page 134 of the text). The assignment gives students an opportunity to compare and contrast the corporate cultures of two local companies with which they are familiar.

At-Home Completion Time: 30 minutes

.

5-13

IN-CLASS ACTIVITIES In-Class Activity 1: Ice-Breaker The Management Process Activity Overview: This activity helps students better understand the management process.

Time Limit: 30 minutes What to Do: 1. Divide students into three-member groups, informing them that the manager of a local catering business needs their help. The caterer has arranged to cater a dinner party for 300 people in just two days. However, the caterer has just learned that 500 people, instead of the anticipated 300, will be attending the party. The caterer has only two employees.

2. Ask each group to think of ways in which the caterer can use the four basic functions of management—planning, organizing, leading, and controlling—in order to accommodate the party. (15 minutes) 3. Reassemble the class and discuss the ways in which the managerial functions may be used.

(15 minutes) Don’t Forget: The management process includes a focus on an organization’s financial, physical, human, and information resources.

Wrap-Up: Conclude by reminding students that, once plans are in place, a number of situations can occur that require minor or major changes in the management process.

.

5-14

In-Class Activity 2: Class Discussion Sam Adams Makes Headway Activity Overview: This activity helps students distinguish among strategies at the corporate, business, and functional levels.

Time Limit: 20 minutes What to Do: 1. Ask students to review the Entrepreneurship and New Ventures feature on page 123 of the textbook. Ask them to refer to the types of strategy outlined in the textbook in identifying specific elements in the scenario that have contributed to the corporate, business, and functional strategies at Boston Beer. (10 minutes) 2. Reassemble the class as a whole and discuss the students’ thoughts. (10 minutes) Don’t Forget: This activity can also be completed in two- or three-member groups.

Wrap-Up: Corporate strategy at Boston Beer is driven by the premium image of the product and the specific distribution to retailers and bars. Remind students that at the business level, Boston Beer’s competitive position is strengthened by its production of small quantities and the cachet derived from that scarcity. Outline, at the functional level, the importance of Koch’s relationship with his German hops supplier and the need to keep a close watch on small competitors who are trying to follow in Koch’s footsteps.

.

5-15

In-Class Activity 3: Class Discussion How Do Your Goals Stack Up? Activity Overview: This activity is designed to help students understand the connection between long-term, intermediate, and short-term goals.

Time Limit: 30 minutes What to Do: 1. Ask students to write down one or two of their long-term goals, focusing on the five-yearplus horizon. (10 minutes) 2. Ask students to write down one or two intermediate goals—focusing on a one- to five-year horizon—that may help them to achieve their long-term goals. (10 minutes) 3. Ask students to identify one or two short-term goals—covering a range of less than one year—that may help them to achieve their intermediate goals. (10 minutes) Don’t Forget: Remind students that the achievement of short-term goals can support the achievement of intermediate goals, which can ultimately support long-term goals.

Wrap-Up: Wrap up the exercise by reminding students that goal setting in organizations is driven by corporate, business, and functional strategies; however, the process is dynamic. Organizational environments and situations can change. As a result, goals may need to be reshaped.

.

5-16

In-Class Activity 4: Small-Group Discussion SWOT Analysis Activity Overview: This activity asks students to brainstorm in small groups in order to complete a SWOT analysis.

Time Limit: 30 minutes What to Do: 1. Divide the class into small groups, asking each group to identify internal strengths (S), weaknesses (W), external opportunities (O), and threats (T) surrounding their college or university. (20 minutes) 2. Reassemble the class and discuss each group’s input. (10 minutes) Don’t Forget: This exercise could be completed as an individual activity prior to asking for student input.

Wrap-Up: Wrap up the discussion by reminding students that strengths, weaknesses, opportunities, and threats surrounding an organization can sometimes be obvious. However, different individuals can sometimes perceive these factors quite differently. For example, what one person perceives as a threat may be perceived as an opportunity by another.

.

5-17

In-Class Activity 5: Up for Debate I Can’t Believe This Has Happened!

Activity Overview: This activity is designed to get students talking about crisis management.

Time Limit: 20 minutes What to Do: 1. Divide the class into small groups and ask each group to assume you have been suddenly called away for the next three weeks, but that class must go on. Appropriate course material, course objectives, and all syllabus content must be covered in a classroom setting—but there is no time to bring in a replacement instructor. Instead, the students themselves are responsible.

2. Each group must decide on the best way to continue. How can material and objectives be adequately covered? Who should carry out the instruction? (20 minutes) Don’t Forget: For smaller class sizes, you might complete this as an individual activity.

Wrap-Up: Be prepared to explain what would and would not feasibly work from an instructor’s perspective as groups present their plans.

.

5-18

In-Class Activity 6: Up for Debate Who Creates Corporate Culture?

Activity Overview: This activity asks students to share their thoughts on corporate culture.

Time Limit: 30 minutes What to Do: 1. Divide the class into three-member groups and ask them to discuss among themselves who creates corporate culture. Ask the groups to consider these conversation starters: (15 minutes) a. If top managers create corporate culture, how do they get everyone else to follow? b. If first-line managers or employees create corporate culture, how do they get top managers to go along with it? c. How often does corporate culture change? d. When corporate culture changes, what typically causes the change?

2. Reassemble the class and discuss each group’s answers. (15 minutes) Don’t Forget: Corporate culture is not always a direct result of top managers’ actions. Sometimes corporate culture is created by first-line managers, employees, or even everyone in the organization.

Wrap-Up: Remind students that the input they provide is likely a result of their own work experience. Some corporate cultures change often and quickly, whereas others tend to be more static.

.

5-19

In-Class Activity 7: Supplemental Case Study Discussion Doctors go back to school—business school! (see following page) Activity Overview: This activity asks students to apply the concepts behind planning, organizing, leading, controlling, and corporate culture to a supplemental case study.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Supplemental Case Study (on Page 5-21 of this Instructor’s Edition) and distribute them to students.

2. Divide students into groups and ask them to read the case and answer the questions in their small groups. (15 minutes) a. Think about a doctors’ office or hospital that you know. Identify what planning might be needed to undertaken to make the office or hospital run efficiently. b. What organizing, leading and control need to take place in a doctor’s office or hospital c. If you were asked to design a corporate culture for a hospital what features would you want to build into that culture and why?

3. Once students have answered the questions, discuss their answers as a class. As students discuss their answers, make sure they answer all questions. Sometimes it is easier to think about planning, or leadership, but make sure they also think about control systems. For example, what data might exist on cost effectiveness of different procedures to treat the same condition? (10 minutes) Don’t Forget: Make sure you keep students on the topic of corporate culture. Ask them to be specific. What should the doctors’ office look like? Should it be formal/informal? Should punctuality be important? Should it be a joking or a serious environment?

Wrap-Up: Wrap up the exercise by asking students for some examples of different behaviors that may be a part of the corporate culture at their jobs.

.

5-20

HANDOUT: SUPPLEMENTAL CASE STUDY

Doctors go back to school—business school!

We have seen that management is a skilled combination of planning, organizing, leading, and controlling and it is used everywhere. It is needed in the military, universities, public administration, Fortune 500 companies, churches, and health care providers. A recent Wall Street Journal article discussed how business schools were beginning to offer courses to help health professionals better mange the delivery of their services.

This article reports when Christopher Barton took over as chief of emergency medicine at San Francisco General Hospital this year, he became responsible for balance sheets, income statements, and personnel, never having had any formal business education. Barton recognized that leaders in medicine and health care (including himself) had not taken the managerial side of health care as seriously as they should. Along with 67 other students, Barton enrolled in Harvard University’s $22,000 non-degree program in Managing Health Care Delivery to help him think critically about ways to improve his day-to-day management of the emergency room processes.

The course has led to Dr. Barton making a number of important changes. He has established annual performance evaluations. He is examining ways to improve delegation and teamwork and examining models to improve patient flow. In January 2010 he plans to take his ER physicians and nurses on a one-day leadership retreat.

Another student at the Harvard program, Judy Smith, medical director of the Roswell Park Cancer Institute in Buffalo, New York observed that “we are coming to grips now with the fact that we are much more similar to other businesses than we are different.” Smith observed that cancer treatment requires careful day-to-day planning and organizing and the skill sets required are not dissimilar to those taught in busies schools.

Source: Jane Porter, “Doctors Seek Aid from Business Schools Universities, Hospitals Create Programs to Assist Medical Professionals In Need of Some Management Know-How.” The Wall Street Journal, December 22, 2009

DISCUSSION QUESTIONS 1. Think about a doctors’ office or hospital that you know. Identify what planning might be needed to undertaken to make the office or hospital run efficiently.

2. What organizing, leading, and control need to take place in a doctor’s office or hospital?

3. If you were asked to design a corporate culture for a hospital what features would you want to build into that culture and why?

.

5-21

ANSWERS FOR END OF CHAPTER EXERCISES & ACTIVITIES (Starting on Page 134 of the textbook) QUESTIONS FOR REVIEW 1. Technical skills may be most important in controlling. Human relations skills are especially important in organizing and leading. Conceptual skills are essential in planning. Decisionmaking and time management skills are important for all management activities.

2. The four main purposes are (a) to provide direction and guidance for managers at all levels; (b) to help firms allocate resources; (c) to help define corporate culture; and (d) to help managers assess performance.

3. The three basic steps in strategy formulation include (a) setting strategic goals that stem from the organization’s mission statement; (b) analyzing the organization and its environment for strengths, weaknesses, opportunities, and threats; and (c) matching environmental threats and opportunities against the organization’s strengths and weaknesses.

4. Corporate culture is the shared stories, experiences, beliefs, and norms that characterize an organization. Factors that form culture can range from the personality of the founder, to the firm’s overall philosophy, to daily operating methods. Culture is sustained by communicating the culture to all employees and by rewarding and promoting those who understand and maintain the culture.

QUESTIONS FOR ANALYSIS 5. The planning practices identified will vary from strategy to tactical to operational in nature.

Further, every organizational structure varies, depending on the number of people working in the organization. Leading or motivating, depends on the number of subordinates or group members present and, perhaps, the types of diversity. Controlling is the one function that ties back to the planning process; if the plan is not going according to expectations, changes are made to guide the organization in the right direction.

6. Answers will vary, although top administrative officials are top managers; mid-level staff and administrators are middle managers; and lower-level staff are closest to first-line managers.

7. A top manager cannot be successful without human relations or conceptual skills. However, in environments marked by rapid change, or in centralized organizations without many management layers, technical skills might remain crucial for top managers. Conceptual skills might be a little less important in organizations that are completely controlled by the government.

.

5-22

8. The older firm is likely to have many established traditions, norms, and layers of management. Decision making is probably concentrated at the top of the organization. Cultural elements are likely to be rather conservative. The newer e-commerce firm probably has a culture that stems directly from the personality of its founders. The firm likely has a flat hierarchy, and all employees likely use their conceptual and decision-making skills. Most cultural elements are probably fluid and freewheeling.

APPLICATION EXERCISES 9. Answers will vary, but students should cover each of the management activities and skills.

10. Answers will vary, but students should focus on areas where the firms are likely to be similar, such as in the type and extent of skills that managers typically use, and different, such as target markets, philosophies, and management styles.

BUILDING YOUR BUSINESS SKILLS FOLLOW-UP QUESTIONS 1. The more a manager has mastered the power content of speech, as McGinty defines it, the more likely he or she is to communicate effectively. Students will have varying ideas as to the effects of “powerful speech” at different levels of the firm, although it would be seen as a positive attribute at every level.

2. Answers will vary, but students should be able to apply the criteria listed in the exercise.

3. Answers will vary, but students should recognize the value of effective communication.

4. Answers will vary, but may include the ease with which personal presentations can provide the same information to many people at one time, the opportunity to address questions immediately, and the opportunity to draw on the charismatic effect of powerful speakers for motivation and leadership purposes.

5. Answers will vary, but many students will identify communication processes within organizations as being directly affected by the corporate culture itself. Personal communication skills and methods exercised within an organization may be partly shaped by the culture of the organization.

EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE QUESTIONS TO ADDRESS 1. The key ethical issue is social responsibility with regard to key stakeholders. There is a clear conflict between the responsibility to maximize short-term profits for investors and the responsibility to maximize social profit for the community in the wake of the tropical storm.

2. Answers will vary, but students should acknowledge the possibility of simply continuing business as usual.

.

5-23

3. Answers will vary, but students should acknowledge that it is often difficult to make decisions that will positively impact all stakeholders involved. Some individuals exercise higher levels of ethical behavior and acts of social responsibility than others.

EXERCISING YOUR ETHICS: TEAM EXERCISE This exercise poses some interesting accountability issues. Action Step 6 zeroes in the various constituencies that have a stake in this decision. It also gives the students an opportunity to review the concepts of being proactive versus reactive and the pros and cons of each.

ACTIVITIES ON MYBIZLAB - INSTRUCTOR TIPS BIZSKILL: Plan for Success Brief Synopsis/Objectives: You’ve recently been hired as a store manager for a retail clothing

store. Anxious to prove yourself to your new boss, you dive into the challenges facing the underperforming store. The holiday season is in a few months, a detailed inventory count is needed, employees are dropping like flies, and you need to market and sell your products. You want to exceed your boss’s goals and get your bonus. Are you up to the challenge?

At the end of this exercise, students should be able to answer the following questions: 1. Why is a mission statement important to an organization?

2. What takes place at the various levels of planning?

3. What is a SMART goal?

4. How are different planning tools used?

How to Best Use This BizSkill: A great way to use this BizSkill is to assign it as homework before your first lecture on the chapter. Ask students to print out their feedback page, and then have them do the BizSkill again at the end of the week to see whether their scores have improved.

.

5-24

Chapter 6: Organizing the Business Chapter Overview Like a thumbprint, every organization has a unique structure. Some new business start-ups begin with a simple structure and over time evolve into an elaborate structure. All organizational structures change, but some change more quickly than others.

This chapter presents the building blocks of organizational structure—specialization and departmentalization. It also describes centralization and decentralization, delegation, and authority as the key ingredients in establishing the decision-making hierarchy. Along the way, the chapter looks at the differences among functional, divisional, matrix, and international organizational structures and examines the most popular new forms of organizational design.

Finally, the chapter explores the informal organization and intrapreneuring.

Learning Objectives 1. Discuss the factors that influence a firm’s organizational structure.

2. Explain specialization and departmentalization as two of the building blocks of organizational structure.

3. Describe centralization and decentralization, delegation, and authority as the key ingredients in establishing the decision-making hierarchy.

4. Explain the differences among functional, divisional, matrix, and international organizational structures and describe the most popular new forms of organizational design.

5. Describe the informal organization and discuss intrapreneuring.

.

6-1

Chapter Outline A. What Is Organizational Structure?

1. Organization Charts 2. Determinants of Organizational Structure B. The Building Blocks of Organizational Structure 1. Specialization 2. Departmentalization C. Establishing the Decision-Making Hierarchy 1. Distributing Authority: Centralization and Decentralization 2. The Delegation Process 3. Three Forms of Authority D. Basic Forms of Organizational Structure 1. Functional Structure 2. Divisional Structure 3. Matrix Structure 4. International Structure 5. Organizational Design for the Twenty-First Century E. Informal Organization 1. Informal Groups 2. Organizational Grapevine 3. Intrapreneuring

.

6-2

LIST OF IN-CLASS ACTIVITIES: AUTHOR’S CHOICE Activity

Description

Time Limit

Instructor’s Manual Page Reference

1. Ice-Breaker: Organizational Structure

Students consider their college’s organizational chart and chain of command and discuss the relationships of the layers of management and why the organizational chart is specifically structured the way that it is.

30 min.

6-4, 6-13

Students consider the advantages of centralization and decentralization.

30 min.

6-8, 6-14

30 min.

6-11, 6-15

30 min.

6-11, 6-16

30 min.

6-12, 6-17 to 6-20

2. Small-Group Discussion: Centralization versus Decentralization 3. Up for Debate: Making the Grade 4. Up for Debate: Who Runs the Grapevine?

5. Supplemental Case Study Discussion: Intrapreneurs Spread Their Wings at Elite Information Systems

Students are divided into teams to discuss the advantages and disadvantages of intrapreneurship at FedEx. Students are divided into teams to discuss “who” within the organization most likely creates the grapevine.

Students discuss the supplemental chapter case study, which focuses on intrapreneuring.

LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE At-Home Activity

Application Exercise 9: Interview a Manager

Application Exercise 10: Intrapreneuring

.

Description

Deliverable

Students interview a manager of a local business and identify how the delegation process is carried out there.

Students consider the benefits and shortcomings of intrapreneuring.

A brief paper detailing the outcome of the interview.

A brief paper outlining the student’s input.

Completion Time

Instructor’s Manual Page Reference

1 to 2 hours

6-8, 6-22

45 min.

6-12, 6-22

6-3

TEACHING NOTES AND SUGGESTIONS Learning Objective 1: Discuss the factors that influence a firm’s organizational structure.

What Is Organizational Structure?

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.

A. 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.

B. 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.

KEY TEACHING TIP •

Remind students that organizational structure refers to the specification of jobs within a firm and how those jobs relate to one another. It can be viewed as the way in which employees’ positions and departments are connected in an organization’s framework.

•

Many factors play a part in determining an organization’s optimal structure, including the organization’s mission, strategy, size, and environment. Most organizations change their structures on a continuing basis.

•

Students should recognize that the first step in developing the structure of any business involves specialization, departmentalization, and the establishment of a decision-making hierarchy.

QUICK QUESTIONS •

What does an organization chart tell us?

•

How does the need to specialize increase as a firm grows?

Use In-Class Activity 1: Ice-Breaker: Organizational Structure Time Limit: 30 minutes

.

6-4

Learning Objective 2: Explain specialization and departmentalization as two of the building blocks of organizational structure.

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.

A. 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.

1. 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.

B. 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.

.

6-5

KEY TEACHING TIPS •

An interesting point to make is that larger companies tend to adopt different types of departmentalization for various levels of the company.

•

Remind students that in a centralized organization, most decision-making authority is held by upper-level managers; in a decentralized organization, decision-making authority is delegated to levels of management at various points below the top.

QUICK QUESTIONS •

What type of company might opt to use process departmentalization?

•

What type of company might opt to use functional departmentalization?

•

What type of company might opt to use customer departmentalization?

.

6-6

Learning Objective 3: Describe centralization and decentralization, delegation, and authority as the key ingredients in establishing the decision-making hierarchy.

Establishing the Decision-Making Hierarchy The decision-making hierarchy is created by assigning tasks, performing tasks, and distributing authority.

A. 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 upperlevel 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.

B. 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.

C. 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.

.

6-7

KEY TEACHING TIPS •

Make sure students understand that a flat organizational structure tends to have fewer layers of management, whereas a tall organizational structure has many layers of management.

•

Students often forget exactly what delegation involves: (1) the assignment of responsibility, (2) the granting of authority, and (3) the creation of accountability.

•

Students can remember line authority because it is the type of authority that flows up and down the chain of command.

•

Students often forget that staff members help line departments in making decisions but do not usually have the authority to make final decisions.

QUICK QUESTIONS •

How many employees do you think you can effectively control? What are some factors that inhibit or enhance a manager’s span of control?

•

Why do managers sometimes have trouble delegating authority?

•

What are some examples of managers who use line authority, staff authority, and committee and team authority? Might one type of authority be easier to use than another?

Use In-Class Activity 2: Small-Group Discussion: Centralization versus Decentralization Time Limit: 30 minutes

HOMEWORK Interview a Manager Now is a good time to assign Application Exercise 9 from the end-of-chapter materials as homework (see page 160 of the text). This assignment asks students to interview a manager to gain first-hand knowledge of how the delegation process is actually carried out at a local service business.

At-Home Completion Time: 1 to 2 hours

.

6-8

Learning Objective 4: Explain the differences among functional, divisional, matrix, and international organizational structures and describe the most popular new forms of organizational design.

Basic Forms of Organizational Structure Four basic forms of organizational structure reflect the general trends followed by most firms: functional, divisional, matrix, and international.

A. Functional Structure Often used by most small- and medium-sized firms, functional organizations divide job responsibilities by functional areas, such as marketing or finance.

B. 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.

C. 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.

D. International Structure International organizational structures have been developed in response to the need to manufacture, purchase, and sell in global markets.

E. 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.

.

6-9

KEY TEACHING TIPS •

Students often have a hard time grasping matrix structure, so make sure they understand that it utilizes two types of structures within the same organization; one structure is the “permanent” structure, and the “second” structure is superimposed on top of it.

•

Remind students that there are several forms of international structure, depending on the degree with which an organization depends on foreign companies to manufacture, purchase, and sell its products.

QUICK QUESTIONS •

Functional structure can be thought of as authority that is determined by the relationships between group functions and activities. What are the benefits of a functional structure?

•

With divisional structure, a firm organizes itself around product-based divisions. How can an organization benefit from a divisional structure?

VIDEO: MY GYM Run Time: 5:45 This is a good point at which to show the video accompanying the chapter, as the content links well to this Learning Objective, as well as to the previous ones.

Incorporate Discussion Questions found on page 162 of the text.

.

6-10

Learning Objective 5: Describe the informal organization and discuss intrapreneuring.

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.

A. Informal Groups Informal groups are groups of people who decide to interact among themselves. Informal organization can be just as powerful as formal organization.

B. 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.

C. Intrapreneuring A relatively new concept, intrapreneuring, is encouraged among businesses as a way of enhancing creativity and flexibility in large, bureaucratic structures.

KEY TEACHING TIPS •

Students should recall that in a team organization, people float from project to project as dictated by their skills and the demands of those projects.

•

Remind students that the virtual organization has little or no formal structure.

•

Reinforce that a learning organization integrates continuous employee learning and development.

QUICK QUESTIONS •

What is the informal organization at your job?

•

If your CEO is seen in a nightclub with someone other than his or her spouse, how long will it take the grapevine to disseminate that information?

Use In-Class Activity 3: Up for Debate: Making the Grade Time Limit: 30 minutes Use In-Class Activity 4: Up for Debate: Who Runs the Grapevine?

Time Limit: 30 minutes

.

6-11

Use In-Class Activity 5: Supplemental Case Study Discussion: Intrapreneurs Spread Their Wings at Elite Information Systems Time Limit: 30 minutes

HOMEWORK Intrapreneuring Now might be a good time to assign Application Exercise 10 from the end-of-chapter materials as homework (see textbook page 160). This assignment is designed to help students understand the benefits—and possible shortcomings—of intrapreneuring.

At-Home Completion Time: 45 minutes

.

6-12

IN-CLASS ACTIVITIES In-Class Activity 1: Ice-Breaker: Organizational Structure Organizational Structure Activity Overview: This activity asks students to consider the organizational chart and chain of command at their college or university and invites them to discuss the relationships of the layers of management and why the organizational chart is specifically structured the way that it is.

Time Limit: 30 minutes What to Do: 1. Divide the class into four-member groups, asking each group to discuss the organizational chart and chain of command at their college or university. Who reports to whom? (10 minutes) 2. Ask each group to discuss the relationship of the layers of management at the college or university, as well as why the organizational chart is structured the way that it is. (10 minutes) 3. Reassemble the class and discuss each group’s findings. Are the groups consistent with one another in their discussions? (10 minutes) Don’t Forget: Students will likely identify many types of reporting relationships within the college or university. In addition, students will identify many reasons for the way the organizational chart at their school is structured, including factors that may not be included in the textbook discussion.

Wrap-Up: Bring the activity to a close by discussing the various reporting relationships evident in the college or university, as well as the different factors that might play a role in the design of the organizational structure, such as chain of command, span of control, delegation of authority, employee skill or certification level, and so on.

.

6-13

In-Class Activity 2: Small-Group Discussion Centralization versus Decentralization Activity Overview: This activity encourages students to consider the advantages and disadvantages of centralization and decentralization within organizations.

Time Limit: 30 minutes What to Do: 1. Divide the class into four-member groups and ask them to come up with five advantages of centralization and five advantages of decentralization in organizations. (15 minutes) 2. Reassemble the class and discuss each group’s input. Which do they think is best? (15 minutes) Don’t Forget: Not everyone has worked in both a centralized and a decentralized organization; however, the advantages for each may become more evident as students think about their definitions.

Wrap-Up: Bring the activity to a close by reminding students that top managers make all (or most) of the decisions in a centralized organization, which may indicate that employees overall “learn” more in a decentralized organization. In a decentralized organization, employees may feel that their input is being heard and addressed in making specific decisions. On the other hand, it may be that cohesiveness may appear to be higher in some centralized organizations.

.

6-14

In-Class Activity 3: Up for Debate Making the Grade Activity Overview: This activity asks students to think about the advantages of intrapreneuring.

Time Limit: 30 minutes What to Do: 1. Ask students to read the Entrepreneurship and New Ventures feature in the textbook on page 152. Divide the class into groups of two or three students, and ask students to discuss how FedEx focuses on intrapreneurship. How has the company benefited from intrapreneuring?

Has it faced any disadvantages from intrapreneuring? (10 minutes) 2. Ask the groups to discuss how FedEx’s success can be attributed to its commitment to decentralization. (10 minutes) 3. Reassemble the class as a whole and discuss each group’s input. (10 minutes) Don’t Forget: Before you begin, remind students that intrapreneurship is the process of creating and maintaining the innovation and flexibility of a small-business environment within the confines of a large, bureaucratic structure. Decentralization refers to the delegation of decision-making authority to levels of management at various points below the top.

Wrap-Up: FedEx perfected its hub-and-spoke system for increased speed and efficiency and developed a reputation for high-quality, reliable, and fast service. FedEx pioneered the use of bar codes and handheld PDAs for drivers and online, real-time package tracking. These are a few areas in which FedEx has proven to be intrapreneurial. Bring the activity to a close by highlighting FedEx’s ability to practice standardization in its daily activities, all the while managers are encouraged to question, challenge, and develop new ideas.

.

6-15

In-Class Activity 4: Up for Debate Who Runs the Grapevine?

Activity Overview: This activity invites students to think more about the grapevine, focusing on who within the organization may be most likely to create it.

Time Limit: 30 minutes What to Do: 1. Divide the class into two- or three-member teams and ask them to discuss within their groups where the grapevine begins within an organization. Is it top managers? Is it mostly males or females? Is the grapevine generated from specific departments? Is it generated from those people with the most seniority? (15 minutes) 2. Reassemble the class as a whole and debate the small groups’ thoughts. (15 minutes) Don’t Forget: The grapevine is not likely to be generated in the same way within every organization. In addition, information changes as it “moves” from person to person. Remind students that they will be merely considering generalizations in this activity.

Wrap-Up: Wrap up the discussion by reminding students that the grapevine can benefit managers within the organization; they can learn a lot about their workers by listening to what is filtering through the rumor mill. Therefore, some managers may be responsible for starting the grapevine. On the other hand, employees can also be responsible for beginning the grapevine as a result of overhearing information or making assumptions about other workers, departments, the company’s strategic plans, and so on.

.

6-16

In-Class Activity 5: Supplemental Case Study Discussion Intrapreneurs Spread Their Wings at Elite Information Systems Activity Overview: This activity asks students to apply what they know about intrapreneuring to a case study.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Supplemental Case Study (on pages 6-19 and 6-20 of this Instructor’s Manual) and distribute them to students.

2. Divide students into groups and ask them to read the case, and then answer the following questions in their small groups. (10 minutes) a. What were some of the reasons why the intrapreneuring experiment made sense to Mark Goldin and Chris Poole? b. What were some of the obstacles Goldin faced? What advantages did he have? c. For what other kinds of applications do you think the intrapreneuring model would serve a parent company well? Why? 3. Discuss the groups’ answers as a class. As students discuss their answers to the previous questions, make sure they consider the following points: (10 minutes) a. The idea made sense because it both allowed Elite to keep a valued employee and offered it a way to achieve its goal of strengthening its Internet presence. In addition, Poole may have realized that giving an insider the responsibility for the new product was a safer risk than waiting for a competitor to come up with it. b. Goldin faced a few obstacles, such as: getting the approval of the board, getting to hire the people he wanted from the parent company, obtaining all the funding and other resources he needed, and getting the parent company to give up its established Web address for the new venture. His advantages were his insider’s knowledge of the company—its customers, its resources, and its employees—the support of Chris Poole, plus his own entrepreneurial talents. c. Answers will vary, but students might suggest any of a number of self-contained ventures, spinoffs, services, support functions, and other applications.

Don’t Forget: Answers to these questions may not apply to all organizational situations.

.

6-17

Wrap-Up: Bring the activity to a close by discussing the different areas of an organization that can be affected by restructuring and the ways in which restructuring can affect employee morale.

.

6-18

HANDOUT: SUPPLEMENTAL CASE STUDY Intrapreneurs Spread Their Wings at Elite Information Systems Everyone at Elite Information Systems knew and respected CTO Mark Goldin at the 35-year-old billing software company. So, when he finally decided that his desire to do something new and different, like start an Internet firm, had won out over his desire to stay at Elite Information Systems, it was with mixed emotions that his colleagues gathered to bid him goodbye. And then, instead of giving his prepared farewell speech, Goldin announced, “I’m not leaving.”

Mark Goldin had just become one of a small, but increasingly visible group of intrapreneurs— those who work within their firms to create a separate new project or harness a new technology, but with the support and resources of the existing company at their disposal. Goldin’s experience at Elite Information Systems illustrates some of the rewards and challenges they face.

Elite Information Systems’s need for a stronger Web presence matched Goldin’s desire to create something on the Internet, and it was that realization that brought Goldin to Elite’s CEO, Chris Poole, the night before his farewell party with a proposal that would keep the two together. Poole agreed, and so Elite.com was born. The new project had to rely on initial funding and expertise from Elite Information Systems so writing a business plan for Elite Information Systems’s board of directors to approve was the first big step. Hiring some of Elite Information Systems’s brightest people away for the new venture was another task; although it was a loss for the parent firm, Poole gave it his support, too. Some of Goldin’s new hires actually had to continue working for Elite Information Systems at the same time because they were so hard to replace, and even Goldin continued to serve as CTO. One unexpected sacrifice for Elite was its online address, Elite.com, which Goldin felt was essential to the identity of the new venture. The trouble was that Elite Information Systems had already established a well-trafficked Web site there. In the compromise that was worked out, Elite.com got the address, and the parent company moved its site to eliteIS.com, leaving a “forwarding address” for its existing 700 customers.

Although some employees of the parent firm at first resented the perks that went to Elite.com, Poole continues to allow Goldin free rein to build the new venture as long as the board of directors approves. While the product that Goldin’s new group created and launched in record time, a software program called Timesolv, was given to customers free at first, at some point it will probably be given a price tag and start to earn its way. In any event, Poole still sees the intrapreneurship venture as full of possibilities. Perhaps, he thinks, it may even transform Elite Information Systems again.

.

6-19

DISCUSSION QUESTIONS 1. What were some of the reasons why the intrapreneuring experiment made sense to Mark Goldin and Chris Poole?

2. What were some of the obstacles Goldin faced? What advantages did he have?

3. For what other kinds of applications do you think the intrapreneuring model would serve a parent company well? Why?

.

6-20

ANSWERS FOR END OF CHAPTER ACTIVITIES (Starting on Page 160 of the Text) QUESTIONS FOR REVIEW 1. An organization chart represents the firm’s structure and shows where employees fit into the hierarchy. Organization charts depict the extent of line and staff authority, departmentalization, and span of control at various levels.

2. Larger firms develop more complex organizational structures. As a firm’s size increases, job specialization becomes increasingly important, followed by departmentalization, and a more definitive decision-making hierarchy.

3. Responsibility is the duty to perform an assigned task; authority is the power to make the decisions necessary to complete that task. Responsibility and authority should be closely linked for any given assignment.

4. Some of the reasons managers have difficulty delegating authority include that (a) they fear that employees can’t do anything as well as they can; (b) they fear that something will go wrong if someone else does it; (c) they fear that the employee will “show up” the manager; (d) they are too bogged down in day-to-day activities to delegate; (e) they don’t know how to delegate; and (f) they want to keep control.

5. The company’s informal organization is the everyday social connections among employees that can transcend formal job-related relationships, creating a very powerful dynamic, which can either support or disrupt a firm’s effectiveness.

QUESTIONS FOR ANALYSIS 6. College organization structures do differ, but most colleges will use a functional structure with a President as its head and cabinet members overseeing various departments such as academic affairs, finance, student development, advancement, and admission. If the student includes the academic divisions in the organization chart he/she will likely include Deans of Schools (or Divisions or Faculties) and individual departments that comprise each school.

7. Answers will vary, but the firm will probably begin with a centralized structure in which the owner will either perform or oversee every job. Various types of departmentalization will probably emerge as the firm grows, and it may become more decentralized as management delegates authority downward. With additional growth, the firm may advance from a functional to a divisional or matrix organization.

8. A divisional structure consists of corporate divisions that operate as relatively autonomous units under the larger corporate umbrella. In a matrix structure, however, group members report to two or more managers, usually one line and one staff manager. The matrix structure is often used to address specific issues on a project-by-project basis. Answers to the second

.

6-21

part of the question—how would students feel about working in a matrix organization— will vary, but students should address the pros and cons of reporting to more than one manager.

APPLICATION EXERCISES 9. Answers will vary, but managers in fast-food restaurants typically delegate tasks like cleaning, cooking, serving, and so on. Depending on the size of the business, ordering, scheduling, and payroll functions may be delegated as well.

10. Answers will vary, but students will probably find that intrapreneurs are most likely to succeed in flexible environments with managers who are open to innovation and willing to reward creativity.

ANSWERS TO BUILDING YOUR BUSINESS SKILLS FOLLOW-UP QUESTIONS 1. Dissatisfied employees can obtain other jobs easily, so firms will try to limit turnover by creating the most satisfactory work environment possible.

2. Answers will vary, but possibilities include variety of job tasks, degree of decision-making authority, international involvement, and job-related benefits.

3. Answers will vary, but students should demonstrate awareness that without making the changes needed to retain qualified programmers, the business is unlikely to thrive long-term.

ANSWERS TO EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE QUESTIONS TO ADDRESS 1. The ethical issues revolve around the employee’s responsibility to the company. While he claims that he is not using company resources directly, he is using an extra hour of company time. In addition, he is assuming no conflict of interest, but without directly discussing the issue with his manager, he cannot be sure of this.

2. Answers will vary, but many students will suggest that if the coworker’s activity does not harm anyone or get in the way of his or her job, little might be said. On the other hand, responses will depend on whether the employee is getting paid during his or her lunch break. If he or she is not getting paid, there is likely not going to be a problem.

3. Answers will vary; whether the employee is getting paid during the lunch break will likely determine how individuals would react to this situation.

EXERCISING YOUR ETHICS: TEAM EXERCISE Students may be inclined to frame this issue in terms of individual rights versus those of the group. They

.

6-22

need to consider the impact of their decision on the whole organization rather just the individuals involved in the immediate decision and the long term consequences.

.

6-23

Chapter 7: Operations Management and Quality Chapter Overview All goods and services production systems have their own unique production processes. These processes provide utility by adding customer value. Companies with different business strategies are best served by having different operations capabilities. Even very similar and competing businesses can produce output and manage quality with completely different production systems.

This chapter is dedicated to the study of operations and quality within both the manufacturing and service sectors. It explains the meaning of the term production (or operations) and describes the three kinds of utility that operations processes provide. It explains how companies with different business strategies are best served by having different operations capabilities and identifies the major factors considered in operations planning.

The chapter also discusses the information contained in four kinds of operations schedules—the master production schedule, detailed schedule, staff schedule, and project schedule—and identifies the activities involved in operations control. Finally, it looks at the activities and underlying objectives involved in total quality management and explains how a supply chain strategy differs from traditional strategies for coordinating operations among firms.

Learning Objectives 1. Explain the meaning of the term production or operations.

2. Describe the three kinds of utility that operations processes provide for adding customer value.

3. Explain how companies with different business strategies are best served by having different operations capabilities.

4. Identify the major factors that are considered in operations planning.

5. Discuss the information contained in four kinds of operations schedules—the master production schedule, detailed schedule, staff schedule, and project schedule.

6. Discuss the two key activities required for operations control.

7. Identify the activities and underlying objectives involved in total quality management.

8. Explain how a supply chain strategy differs from traditional strategies for coordinating operations among firms.

.

7-1

Chapter Outline A. What Does Operations Mean Today?

B. Creating Value Through Operations 1. Differences between Service and Goods Manufacturing Operations 2. Operations Processes C. Business Strategy as the Driver of Operations 1. The Many Faces of Production Operations D. Operations Planning 1. Capacity Planning 2. Location Planning 3. Layout Planning 4. Quality Planning 5. Methods Planning E. Operations Scheduling 1. The Master Production Schedule 2. Detailed Schedules 3. Staff Schedules and Computer-Based Scheduling 4. Project Scheduling F. Operations Control 1. Materials Management 2. Quality Control G. Quality Improvement and Total Quality Management 1. Managing for Quality 2. Tools for Total Quality Management H. Adding Value Through Supply Chains 1. The Supply Chain Strategy 2. Outsourcing and Global Supply Chains

.

7-2

LIST OF IN-CLASS ACTIVITIES: AUTHOR’S CHOICE Activity

Description

1. Ice-Breaker: Are You Getting What You Paid For? 2. Supplemental Case Study Discussion: The Perils of Over Production and Under Production 3. Up for Debate: Do You Really Have to Be on Time for That Meeting in Cairo?

4. Business Accountability Handout Discussion: Round Up the Usual Inspectors

Time Limit

Instructor’s Manual Page Reference

25 min.

7-4, 7-19

30 min.

7-10, 7-20 to 7-23

20 min.

7-12, 7-24

30 min.

7-13, 7-25 to 7-27

Students discuss perceptions of service quality.

Students discuss the additional chapter case study, which focuses on the operations management problems of over production and under production.

Students are divided into teams to discuss the advantages of punctuality and the types of job fields that require punctuality.

Students read an article about the implementation of quality in a manufacturing facility and discuss answers to the accompanying questions.

LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE At-Home Activity

Application Exercise 10: Methods Planning

Application Exercise 11: Interview a Manager

Business Plan Part 2

BizSkill

Instructor’s Manual Page Reference

Brief paper with the results of the exercise.

1 hour

7-11, 7-32

A brief paper detailing the outcome of the interview.

1–2 hours

7-6, 7-32

A 3-5 page paper

2 – 3 hours

7-18, 7-28 to 7-30

Students can test their business skills in this online simulation.

15 min.

Deliverable

Students work with methods planning and process flowcharts.

Students interview the manager of a service operation in order to get firsthand information involved in planning the operation.

Students are asked to devise goals for their company, analyze the internal and external factors affecting their business, and discuss the organization structure of their business.

Improving a Business

.

Completion Time

Description

7-33

7-3

TEACHING NOTES AND SUGGESTIONS Learning Objective 1: Explain the meaning of the term production or operations.

What Does “Operations” Mean Today?

Service operations (or service production) provide tangible and intangible services; firms that make tangible products are engaged in activities for goods operations (or goods production). The term operations (or production) refers to all the activities involved in making products—goods and services—for customers.

KEY TEACHING TIP Remind students that operations refers to all the activities involved in making products—goods and services—for customers.

QUICK QUESTION What is the difference between service operations and goods operations?

Use In-Class Activity 1: Ice-Breaker: Are You Getting What You Paid For? Time Limit: 25 minutes

.

7-4

Learning Objective 2: Describe the three kinds of utility that operations processes provide for adding customer value.

Creating Value Through Operations Both services and goods provide consumers with utility, which is the ability of a product to satisfy a human want or need—in terms of form, time, and place. Form utility is created merely through transforming raw materials into finished goods. Time utility is created when marketers make products available when consumers want them. Place utility is created when products are made available where they are convenient for consumers.

Operations (production) management is the systematic direction and control of the processes that transform resources into finished services and goods that create value for and provide benefits to customers. Operations (production) managers are responsible for ensuring that operations processes create what customers want and need.

A. Differences between Service and Goods Manufacturing Both services and manufacturing operations transform raw materials into finished products.

In service operations, finished products are not things, but are people with needs met and possessions serviced. Four aspects of service operations can make such operations more complicated than simple goods production: 1. Interacting with Consumers. Manufacturing operations focus on physical goods, whereas service operations are a combination of goods and services.

2. Services Can Be Intangible and Unstorable. Intangibility refers to the untouchable value consumers receive in the form of pleasure, gratification, or a feeling of safety; unstorability refers to the idea that a service is often wasted, if it is not used.

3. Customer’s Presence in the Operations Process. Service operations often acknowledge the customer as part of the service transaction itself.

4. Intangibles Count for Service Quality. Customers use different measures to judge services and goods because services include intangibles, not just physical objects.

B. Operations Processes An operations process is a set of methods and technologies used in the production of goods and services.

1. Goods Production Processes: Make-to-Order versus Make-to-Stock Processes. A make-to-order operation makes one-of-a-kind products, according to customer specifications. A make-to-stock operation produces standardized products in large quantities.

.

7-5

2. Service Production Processes: Extent of Customer Contact. In high-contact systems, such as a city metro system, the customer must be a part of the service. Managers must therefore be concerned with issues of cleanliness, punctuality, and customer friendliness.

In low-contact systems, such as a mail sorting office, customers do not have to be present while the service transaction is being performed.

KEY TEACHING TIPS •

Make sure that students understand that utility refers to the ability of a product to satisfy a want or need in terms of form, time, and place. Production adds value by providing utility.

•

Reinforce that goods are produced; services are performed.

•

Remind students that operations processes are methods and technologies used to produce a good or service.

•

Remind students that in a low-contact system, the service buyer doesn’t have to be present during the transaction; in a high-contact system, customers are part of the system.

QUICK QUESTIONS •

What are examples of form, time, and place utility?

•

Think of the last restaurant you patronized. Would you be more likely to complain about the quality of the food or the quality of the service?

•

What is the intangible and unstorable nature of services?

•

What are some examples of products produced in a make-to-order system? In a make-tostock system?

HOMEWORK Interview a Manager Now might be a good time to assign Application Exercise 11 from the end-of-chapter materials as homework (see page 191 of text). This assignment asks students to interview a manager to access firsthand information involved in planning a service operation.

At-Home Completion Time: 1 to 2 hours

.

7-6

Learning Objective 3: Explain how companies with different business strategies are best served by having different operations capabilities.

Business Strategy as the Driver of Operations Companies go about selecting the kind of production that is best for their business based on the firm’s larger business strategy.

A. The Many Faces of Production Operations Every company identifies a strategy that it can use for winning customer orders; such strategies often include quality, lower prices, flexibility, and dependability.

1. Business Strategy Determines Operations Capabilities. Operations capability refers to the activity or process that production must do especially well, with high proficiency.

2. Expanding into Additional Capabilities. Over time, excellent firms learn how to achieve more than just one competence.

KEY TEACHING TIP Remind students that operations capabilities are activities that production must do especially well; top-priority operations capabilities include quality, low price, flexibility, and dependability.

.

7-7

Learning Objective 4: Identify the major factors that are considered in operations planning.

A. Operations Planning Managers from many departments contribute to the firm’s decisions about operations management; this is a process of logical steps upon which the success of the firm depends. The overall business plan guides operations planning, as do qualitative and quantitative forecasts.

1. Capacity Planning The amount of a product that a company can produce under normal working conditions is its capacity. A firm’s capacity depends on how many people it employs and the number and size of its facilities.

2. Location Planning Facility location affects production costs and flexibility. Depending on the site of its facility, a company may either be capable of producing a low-cost product or may find itself at an extreme cost disadvantage.

3. Layout Planning Layout determines whether firms can respond quickly and efficiently to customer requests for additional or different products or find themselves unable to match competitors’ speed and convenience. a. Process Layouts. In a process layout, equipment and people are grouped according to function; this type of layout works especially well in make-to-order shops. b. Product Layouts. In a product layout, one type of product is produced in a fixed sequence and is arranged according to its production requirements. It is efficient for large-volume, make-to-stock operations that mass-produce products quickly, often using an assembly line.

4. Quality Planning Any complete operations plan must ensure that products are produced to meet the firm’s standards of quality—the combination of characteristics of a product or service that bear on its ability to satisfy stated or implied needs. Performance refers to how well the product does what it is supposed to do; consistency refers to the sameness of product quality from unit to unit.

5. Methods Planning In operations systems, methods improvement refers to methods implemented to reduce waste, inefficiency, and poor performance.

.

7-8

a. Improving Process Flows. A process flowchart is helpful in identifying the sequence of production activities, movements of materials, and work performed at each stage of the process. b. Improving Customer Service. Customer service can be improved at various stages along the process flowchart.

B. Operations Control Once long-range plans have been put into action and schedules have been drawn up, operations control requires production managers to monitor production performance by comparing results with detailed plans and schedules. If schedules or quality standards are not met, managers must take corrective action.

1. Materials Management The process of materials management plans, organizes, and controls the flow of materials. The five major areas of materials management are transportation, warehousing, purchasing, supplier selection, and inventory control. Follow-up—checking to ensure that production decisions are being implemented—is a key and ongoing facet of operations. a. Materials Management Activities. Materials management is the process by which managers plan, organize, and control the flow of materials from sources of supply through distribution of finished goods. Once a product has been designed, successful material flows depend on five activities: supplier selection, purchasing, transportation, warehousing, and inventory control. b. Lean Production Systems: Just-in-Time Operations. Lean production systems are designed for smooth production flows that avoid inefficiencies, eliminate unnecessary inventories, and continuously improve production processes. Just-in-time (JIT) production, a type of lean system, brings together all needed materials at the precise moment they are required for each production stage, not before; thus, creating fast and efficient responses to customer orders. c. Quality Control. Quality control means taking action to ensure that operations produce products that meet specific quality standards.

KEY TEACHING TIPS •

Point out that operations control requires managers to monitor performance by comparing results with detailed plans and schedules and then making any necessary changes.

•

Make sure students understand that materials management is the process by which managers plan, organize, and control the flow of materials from sources of supply through distribution of finished goods

.

7-9

•

Reinforce that lean production systems are designed to avoid inefficiencies, eliminate unnecessary inventories, and improve production processes.

•

Reinforce that operations planning includes capacity planning, location planning, layout planning, quality planning, and methods planning.

•

Make sure students understand that capacity refers to the amount of a product a company can produce under normal conditions.

•

Students may forget that the best location for a manufacturer depends on proximity to supplies and customers, wage rates, labor availability, and the area’s infrastructure; the best location for a service provider depends largely on nearness to customers.

QUICK QUESTIONS •

What are some ways in which managers carry out the following materials management activities: supplier selection, purchasing, transportation, warehousing, and inventory control?

•

How might quality control be carried out at a bank? How might quality control be carried out at a fast-food restaurant?

•

What is the difference between controlling quality and building quality into a product or service?

•

Who is responsible for ensuring TQM within an organization?

•

In process layouts, equipment and people are grouped according to function. What is an example of a goods production system that uses a process layout?

•

Product layouts make one product in a fixed sequence and are arranged according to their production requirements. What is an example of a goods production system that uses a product layout?

•

Methods improvement focuses on procedures that can reduce waste and inefficiency within an organization. What are some ways in which waste could be reduced and inefficiency enhanced where you work?

Use In-Class Activity 2: Supplemental Case Study Discussion: The Perils of Over Production and Under Production Time Limit: 30 minutes

.

7-10

HOMEWORK Methods Planning Now is a good time to assign Application Exercise 10 from the end-of-chapter materials as homework (see page 191 of text). This assignment asks students to work with method planning and process flowcharts.

At-Home Completion Time: 1 hour

.

7-11

Learning Objective 5: Discuss the information contained in four kinds of operations schedules—the master production schedule, detailed schedule, staff schedule, and project schedule.

Operations Scheduling Operations scheduling involves developing timetables for acquiring the resources needed for production.

A. The Master Production Schedule A top-level master production schedule shows which products will be produced and when, in upcoming time periods.

B. Detailed Schedules A detailed schedule indicates daily work assignments with start and stop times for assigned jobs at each work station.

C. Staff Schedules and Computer-Based Scheduling Staff schedules specify assigned working times in upcoming days for each employee on each work shift. Computer-based scheduling can handle multi-shift activities for many employees—both part-time and full-time—accommodating vacation times, holiday adjustments, and daily adjustments in staffing for unplanned absences.

D. Project Scheduling with PERT PERT charts break down large projects into steps to be performed and specify the time required to perform each one; PERT also identifies the critical path, which is the most timeconsuming set of activities for completing the project.

KEY TEACHING TIPS •

Reinforce that the master production schedule shows which products will be produced and when, as well as how much labor, material, and equipment resources are needed.

•

Make sure students understand the difference between detailed schedules and staff schedules.

QUICK QUESTION •

How does an organization benefit from PERT scheduling?

Use In-Class Activity 3: Up for Debate: Do You Really Have to Be on Time for That Meeting in Cairo?

Time Limit: 20 minutes

.

7-12

Use In-Class Activity 4: Business Accountability Handout Discussion: Round Up the Usual Inspectors Time Limit: 30 minutes

.

7-13

Learning Objective 6: Discuss the two key activities required for operations control.

Operations Control Operations control includes materials management and quality control. Both activities ensure that schedules are met and products delivered, both in quantity and in quality.

A. Materials Management Materials Management Activities: Once a product has been designed, successful materials flows depend on five activities: 1. Supplier selection means finding and choosing suppliers of services and materials to buy from.

2. Purchasing is the acquisition of all the raw materials and services that a company needs to produce its products.

3. Transportation includes the means of transporting resources to the producer and finished goods to buyers.

4. Warehousing is the storage of both incoming materials for production and finished goods for distribution to customers.

5. Inventory control includes the receiving, storing, handling, and counting of all raw materials, partly finished goods, and finished goods.

B. Quality Control

.

7-14

Learning Objective 7: Identify the activities and underlying objectives involved in total quality management.

Quality Improvement and Total Quality Management It is not enough to control quality by inspecting products and monitoring service operations as they occur. Businesses must also consider building quality into products and services.

A. Managing for Quality Total Quality Management (TQM) includes all of the activities necessary for getting quality goods and services into the marketplace; this process involves all parts of the business, including customers, suppliers, and employees. To bring all the interests of the stakeholders together, TQM involves planning, organizing, directing, and controlling.

1. Quality Ownership: Taking Responsibility for Quality. With TQM, employees and suppliers ultimately accept quality ownership—the idea that quality belongs to each person who creates it while performing a job.

B. Tools for TQM Hundreds of tools have proven useful for quality improvement, ranging from statistical analysis of production data, to satisfaction surveys of customers, to competitive product analysis—a process by which a company analyzes a competitor’s products to identify desirable improvements.

1. Value-Added Analysis. Value-added analysis refers to the evaluation of all work activities, material flows, and paperwork to determine the value that they add for customers.

2. Quality Improvement Teams. Quality improvement teams are groups of employees from various work areas who meet regularly to define, analyze, and solve common production problems.

3. Getting Closer to the Customer. Customers are the driving force for all business activity; the most successful firms keep close to their customers and know what they want in the products they consume.

4. The ISO Series. ISO 9000 is a certification program attesting to the fact that a firm or laboratory has met the quality-management requirements set by the International Organization for Standardization. The ISO 14000 program certifies improvements in environmental performance. It requires a firm to develop an environmental management system: a plan documenting how the company has acted to improve its performance in using resources and in managing pollution.

5. Business Process Reengineering. Business process reengineering focuses on productivity and quality and entails rethinking each of these by starting over from scratch. Reengineering involves the redesign of business processes to achieve improvements in cost, quality, service, and speed.

.

7-15

KEY TEACHING TIPS •

Remind students that competitive product analysis is a process by which a company analyzes a competitor’s products to identify desirable improvements.

•

Students often forget that quality improvement teams are comprised of groups of employees from various parts of the organization.

•

Remind students that ISO 14000 guarantees that a company has an environmental management system, a plan documenting improved use of resources and pollution management.

QUICK QUESTIONS •

What do companies try to achieve with value-added analysis?

•

What are some examples of “internal” customers? What does “getting closer to the customer” mean?

•

What does it mean when a company is ISO 9000 certified?

.

7-16

Learning Objective 8: Explain how a supply chain strategy differs from traditional strategies for coordinating operations among firms.

Adding Value Through Supply Chains A supply chain (or value chain) for any product is the 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.

A. Traditional Strategies Traditional strategies assume that companies are managed as individuals rather than as members of a coordinated supply chain.

B. The Supply Chain Strategy Supply chain strategy is based on the idea that members of the chain, working as a coordinated unit, will gain competitive advantage.

1. Supply Chain Management. Supply chain management (SCM) looks at the supply chain as a whole in order to improve the overall flow through a system composed of companies working together.

2. Reengineering Supply Chains for Better Results. The results often include lower costs, faster service, and the coordination of flows of information and materials.

C. Outsourcing and Global Supply Chains Outsourcing is the strategy of paying suppliers and distributors to perform certain business processes or to provide needed materials or services. Global outsourcing creates new operations jobs for supply chain management and, sometimes, the need for more or different types of employee training.

QUICK QUESTIONS • •

Who are the supply chain members for a manufacturer of baked goods?

How can the reengineering of supply chains add value?

VIDEO: METHOD Run Time: 6:36 This is a good point at which to show the video accompanying the chapter, as the content links well to this Learning Objective, as well as to the previous ones.

Incorporate Discussion Questions found on page 192 of the text.

.

7-17

HOMEWORK Business Plan Now is a good time to assign Part 2 of the Business Plan. In this second section, students are asked to devise goals for their company, analyze the internal and external factors affecting their business, and discuss the organization structure of their business.

At-Home Completion Time: 2 to 3 hours For the complete instructions for this part assignment, see pages 7-28 through 7-30 below. The entire business planning project (including a sample business plan) can be seen in the Business Plan Project section of these Instructor’s Manual files.

.

7-18

In-Class Activity 1: Ice-Breaker Are You Getting What You Paid For? Activity Overview: This activity is designed to get students to think about how to perceive service quality.

Time Limit: 25 minutes What to Do: 1. Divide the class into groups of two to four members and ask each group to think of three services, such as cell phone service, restaurants, a barber or hair salon, insurance agent, or various repair services. (5 minutes) 2. Ask groups to think of ways in which buyers of those services measure the level of service quality they are receiving. (10 minutes) 3. Reassemble the class and ask each group to reveal what they discussed. (10 minutes) Don’t Forget: Measuring the quality of manufactured goods—often through durability, functionality, sturdiness, and so on—is often easier and provides more consistency than measuring service quality. Not everyone measures service quality in the same way.

Wrap-Up: Remind students that service quality is often measured by the tangible evidence of the service— such as a manicured lawn, a tailored suit, and so on. However, service quality can also be measured by examining the characteristics of the service performer; these might include reliability, assurance, responsiveness, etc.

.

7-19

In-Class Activity 2: Supplemental Case Study Discussion The Perils of Over Producing and Under Producing Activity Overview: This activity asks students to apply the concepts of lean manufacturing to a case study.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Supplemental Case Study (see pages 7-24 and 7-25 of this Instructor’s Manual) and distribute them to students.

2. Divide students into groups and ask them to read the case and answer the questions in their small groups. (15 minutes) a. Why do you think some firms have had difficulty keeping up with demand? Do you think it is possible to take lean manufacturing methods too far? Why or why not? b. Why don’t manufacturers experiencing the kinds of problems described in the case build their production capacity back up as a solution? c. What effect do you think running factories and facilities around the clock has on employees? How does employee response to continued overtime affect the firm? d. What should a company do when its capacity far exceeds the demand for its products?

3. Once students have answered the questions, discuss their answers as a class. As students discuss their answers, make sure they touch on the following points: (10 minutes) a. Global demand can be especially difficult to predict. Firms have probably underestimated demand, trimmed production capacity too much, or both. It would take an exceptionally nimble production and operations management system to meet the spikes in demand some firms have experienced without difficulty. b. Building capacity back up takes several years and poses a risk that demand will have slowed again by the time it is in place. It is also quite costly. c. Employees burn out and eventually leave; creating high turnover that costs the firm in recruiting and training costs (both time and money). In addition, the firm can experience higher retention costs to keep employees on staff, such as overtime, bonuses, and extra time off.

Don’t Forget: Remind students to consider the companies in the case when answering the questions; answers could vary if other company or industry examples are used.

.

7-20

Wrap-Up: Close by reminding students that certain production systems work more efficiently in some industries than in others. In industries with extremely volatile external environments, businesses tend to be more reactive to change and may find that reacting to sudden changes in demand is an everyday occurrence. (5 minutes)

.

7-21

HANDOUT: SUPPLEMENTAL CASE STUDY The Perils of Over Producing and Under Producing The exceptionally strong demand that buoyed the economy through 2008 was a good thing, right? Ironically, for some firms, strong orders and spikes in demand brought manufacturing and production problems that might have been worsened by ultra-lean methods they put in place to improve productivity.

In the face of robust competition from abroad, many manufacturers in the 1980s embraced lean operations and just-in-time (JIT) production methods to lower costs and improve productivity.

Big employee layoffs became common, and production controls grew more sophisticated to reduce inventory and costs, allowing firms to produce products more or less on demand. But as demand continued to surge, the headaches at some firms began. Some firms underestimated demand and had to run 24 hours a day to keep up with orders. As a result, these firms could not even shut down for maintenance, so breakdowns occurred with great frequency, leading some workers to seek less stressful employment. Overtime costs often went up, along with costs of repairs and shipping, leading to a squeeze on profit.

Quite a few firms found that they had to work in overdrive to fill their orders, but could not raise their prices due to strong competition in their markets. Some companies had contingency plans such as setting up a network of subcontractors that could supply needed parts and materials when an increase in production was predicted.

Many companies faced the opposite problems in 2009 when consumer markets crashed. For example, in the auto industry General Motors needed government help to survive. Other auto brands, such as Saab, closed completely. Automakers around the world have consolidated, restructured, and sought ways to reduce costs. Auto companies simply overestimated demand and geared up production to unsustainable levels. At the end of 2009 there is still too much global capacity. CSM Worldwide estimates that the auto industry has enough capacity to make 85.9 million cars and light trucks a year—about 30 million more than it sold 2009. This means that the industry is utilizing only 65 percent of capacity. Even if sales growth predictions of an additional 25 million vehicles a year being sold by 2015 are realized this will only represent and even 85 percent of industry capacity. This will likely mean more plant closures in the coming years as well as more brands disappearing from the showrooms.

Source: Matthew Dolan, “Auto Industry Has Room to Shrink Further.” The Wall Street Journal, November 15, 2009 DISCUSSION QUESTIONS 1. Why do you think some firms have had difficulty keeping up with demand? Do you think it is possible to take lean manufacturing methods too far? Why or why not?

2. Why don’t manufacturers experiencing the kinds of problems described in the case build their production capacity back up as a solution?

.

7-22

3. What effect do you think running factories and facilities around the clock has on employees?

How does employee response to continued overtime affect the firm?

4. What should a company do when its capacity far exceeds the demand for its products?

.

7-23

In-Class Activity 3: Up for Debate Do You Really Have to Be on Time for That Meeting in Cairo?

Activity Overview: This activity asks students to express their feelings about punctuality.

Time Limit: 20 minutes What to Do: 1. Divide the class into four-member teams. Ask each team to discuss some real-life situations that require them to be on time. Who benefits from punctuality? (5 minutes) 2. Ask the groups to discuss certain job fields that are time-clock driven. Why are they timeclock driven? Are there any situations discussed in Step 1 that require punctuality but in which punctuality is not entirely necessary? (5 minutes) 3. Reassemble the class as a whole and ask students to discuss each group’s input. (10 minutes) Don’t Forget: Punctuality can be culture-driven; demand for punctuality is situation-specific.

Wrap-Up: Wrap up the activity by discussing the advantages of being on time.

.

7-24

In-Class Activity 4: Business Accountability Handout Discussion Round Up the Usual Inspectors (see following page) Activity Overview: This activity asks students to read a supplemental article and think about the implementation of quality in a manufacturing facility.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Business Accountability article (see pages 7-25 and 7-26 of this Instructor’s Manual) and distribute them to students.

2. Divide students into three-member groups and ask them to read the handout; students should discuss within their groups the following questions: (15 minutes) a. Is Smith Tool Company’s goal for self-inspection the best way to make workers accountable for quality? Are there any other options that might work? b. In what way(s) is this organization implementing TQM? c. How did Smith Tool Company benefit in the end by using self-inspection?

3. Reassemble the class and discuss each group’s opinions. (15 minutes) Don’t Forget: Students should familiarize themselves with TQM principles prior to completing this exercise.

Wrap-Up: Bring the activity to a close by reminding students that Smith Tool Company did experience reduced inspection costs and lower scrap rates and has been able to respond faster to customer demands as a result of implementing the quality change. Because workers have faced greater accountability at work, the workers improved their own work processes and were able to provide higher-value service to customers.

.

7-25

HANDOUT: BUSINESS ACCOUNTABILITY Round Up the Usual Inspectors Self-inspection is gaining popularity because, by increasing the accountability of workers, it also increases the quality of workmanship, reduces costs, and provides better value for customers.

Formal programs for self-inspection aren’t new; the American Society for Quality’s (ASQ) designation of Certified Mechanical Inspector (CMI), established in 1984, is one of ASQ’s older certifications. What is new, however, is its growing acceptance by industries that are facing tougher quality demands from customers. An example is its adoption at Smith Tool Company, an oil equipment manufacturer in Ponca City, Oklahoma.

To improve product quality, the company’s operations management wanted to eliminate traditional inspections by quality specialists who examine the work of production personnel who sometimes view their goal as “getting things done and past inspection” rather than “getting things done right.” Independent inspection—even 100 percent inspection of production output— doesn’t prevent poor quality. Instead, it promotes poor quality attitudes and raises production costs by using extra people that don’t add value for customers: You can’t inspect quality into a product after it is made; you must build quality into the product in the first place—when the work is performed. Commenting on the wastefulness of examining the work of others, quality expert David Hutchins said, “It does not matter how much you inspect a bad product, it will not make it any better; and all inspection does to a good product is add to its cost.”

Smith Tool’s goal for self-inspection was a reorientation making the producing workers accountable for ensuring their own work is “done right the first time.” Each worker’s attitude and training are geared toward “ownership of the process”—and improving it—so workers can do their own work properly, without outside inspection. To get started, the company recognized its workforce needed competence in concepts and practices of quality excellence, so it launched the CMI program. The CMI designation requires passing ASQ’s rigorous four-hour exam after at least two years on-the-job experience in mechanical inspection. Certification recognizes the individual for achieving a high level of proficiency in such topics as technical math, measurement tools, statistical techniques, and quality improvement. A training partnership was formed with Southwestern College of Professional Studies in Wichita and Winfield, Kansas, for a three credit-hour CMI exam preparation course in which employees were strongly encouraged to enroll, at Smith Tool Company’s expense.

To date, more than 100 of Smith Tool Company’s 300 employees hold the title of CMI. Results in the plant have been impressive: inspection costs have been reduced, inventory costs and scrap rates are lower because fewer defectives are produced, product quality is higher, and the company can respond faster to customer demands. In facing greater accountability for quality, Smith Tool Company’s highly trained workers are improving their own work processes and providing higher-value service to customers.

.

7-26

DISCUSSION QUESTIONS 1. Is Smith Tool Company’s goal for self-inspection the best way to make workers accountable for quality? Are there any other options that might work?

2. In what way(s) is this organization implementing TQM? 3. How did Smith Tool Company benefit in the end by using self-inspection?

.

7-27

BUSINESS PLAN PROJECT PART 2 THE BUSINESS OF MANAGING Assignment Overview: The second part of the business plan project asks students to think about goals of their business, some internal and external factors affecting the business, as well as the organizational structure of the business. As part of this assignment, students are asked to complete a simple SWOT analysis, an organizational chart, and a floor plan. These analyses and charts will vary greatly depending on the scope of the business. Encourage as much detail as possible so students can get a clear picture of the true costs of owning a business. Make sure your expectations are clear as to what format (for example, handwritten or electronic) you would like to see the organizational charts and floor plans submitted.

Files to Provide Students: For this part of the project, students will be asked to complete Part 2: The Business of Managing. If students have already started working on the business plan project, they should continue using the student template they began working on in Part 1.

Part 2 Estimated At-Home Completion Time: If done well, this section will require a minimum of 2 to 3 hours. Instructor feedback will improve the quality of student responses so you may wish to spend class time working on the plan.

Homework Deliverable from Students: The length of this section should be somewhat consistent, although some variance can be expected in the organizational chart and floor plan, based on the size of the business. You should expect at least three to five pages in this section.

.

7-28

STUDENT BUSINESS PLAN PROJECT TEMPLATE PART 2: THE BUSINESS OF MANAGING MISSION STATEMENT Provide a brief mission statement for your business.

Hint: Refer to the discussion of mission statements in Chapter 5. Be sure to include the name of your business, how you will stand out from your competition, and why a customer will buy from you.

BUSINESS GOALS Consider the goals for your business. What are three of your business goals for the first year? What are two intermediate to long-term goals?

Hint: Refer to the discussion of goal setting in Chapter 5. Be as specific and realistic as possible with the goals you set. For example, if you plan on selling a service, how many customers do you want by the end of the first year, and how much do you want each customer to spend? If you plan on selling a good, how many do you hope to sell?

SWOT ANALYSIS Perform a basic SWOT analysis for your business, listing its main strengths, weaknesses, opportunities, and threats.

Hint: We explained previously what factors you should consider in your basic SWOT analysis.

Look around at your world, talk to classmates, or talk to your instructor for other ideas in performing your SWOT analysis.

MANAGEMENT Who will manage the business?

Hint: Refer to the discussion of managers in Chapter 5. Think about how many levels of management as well as what kinds of managers your business needs.

ORGANIZATION CHART Show how the “team” fits together by creating a simple organizational chart for your business. Make sure your organizational chart indicates who will work for each manager as well as each person’s job title.

Hint: Most businesses start off quite small. However, as you create your organizational chart, consider what your business will look like in the future. What different tasks are involved in the business? Who will each person report to in the organizational structure? Refer to the discussion of organizational structure in Chapter 6 for information to get you started.

FLOOR PLAN Create a floor plan of the business. What does it look like when you walk through the door?

Hint: When sketching your floor plan, consider where equipment, supplies, and furniture will be located. Ask your instructor how he or she would like you to submit the floor plan for your business.

.

7-29

RAW MATERIALS AND SUPPLIES Explain what types of raw materials and supplies you will need to run your business. How will you produce your good or service? What equipment do you need? What hours will you operate?

Hint: Refer to the discussion of operations earlier in this chapter for information to get you started.

QUALITY ASSURANCE What steps will you take to ensure that the quality of the product or service stays at a high level? Who will be responsible for maintaining the quality of the product or service (or both)?

Hint: Refer to the discussion of quality improvement and Total Quality Management in this chapter for information to get you started.

.

7-30

ANSWERS FOR END OF CHAPTER ACTIVITIES (Starting on Page 190 of the Text) QUESTIONS FOR REVIEW 1. Service operations focus on performance, process and outcome, service characteristics, customer-service links, and service quality considerations. Goods production operations focus on tangible product features and functions as well as on the production processes themselves, including production efficiency.

2. In a low-contact system, customers are not in contact with the service provider; in a highcontact system, the service buyer must be present during the transaction.

3. Capacity planning, location planning, layout planning, quality planning, and methods planning are the five major categories of operations planning.

4. Materials management is the process by which managers plan, organize, and control the flow of materials from sources of supply through distribution of finished goods. Materials management involves supplier selection, purchasing, transportation, warehousing, and inventory control.

5. TQM includes all of the activities necessary for getting high-quality goods and services into the marketplace. TQM must consider all aspects of the business, including customers, suppliers, and employees, who are all responsible for achieving quality.

QUESTIONS FOR ANALYSIS 6. For a real estate firm, labor and customers are the resources; coordinating buyers and sellers is the product. For a child-care facility, labor, customers, and products are the resources; child care is the product. For a bank, labor, equipment, and money are the resources; financial services are the products. In a hotel, labor, equipment, and facilities are the resources; lodging and amenities are the products.

7. Answers will vary, but students should recognize the processes involved in the supply chain and attempt to identify some inefficiencies along the way.

8. Answers will vary greatly, but students should remember that internal customers and suppliers are those people or entities whose work is involved primarily with other workers inside of the organization.

9. Answers will vary, but students should recognize that make-to-order production process usually takes longer, it may cost more but is much more flexible and usually better meets the customer’s needs than a make-to-stock process.

.

7-31

APPLICATION EXERCISES 10. Answers will vary, but process charts should include a logical starting point, show all the steps, and show the predecessor relationships—which tasks must be complete before a task can start.

11. Answers will vary, but many managers will reveal that the top concern is delivering what the customer wants and the costs involved in creating and delivering the service.

ANSWERS TO BUILDING YOUR BUSINESS SKILLS FOLLOW-UP QUESTIONS 1. Answers will vary, but students should point out that technology makes customization easier, cheaper, and more accessible than ever before, which raises customer expectations.

2. Answers will vary, but it seems quite likely that consumers will expect more from products and services that are tailored just for them.

3. The trend creates new needs and wants that entrepreneurs can fill. Whether the product is a personalized holiday ornament, floor mats, ink pens, or sweatshirts, consumers are attracted to the ability to tailor specific products to their own unique tastes. Entrepreneurs can pick up on these opportunities in providing these options to consumers.

4. Answers will vary, although human relations skills clearly play a critical role in any personal, one-to-one business. A doctor, for example, may be valued more for medical skills than human relations skills, while a manicurist may be valued more for human relations skills.

ANSWERS TO EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE QUESTIONS TO ADDRESS 1. The salesperson should have communicated the potential contract with his or her boss, knowing that the contract would require a 20-percent increase in production capacity. However, with a large layoff of employees previously—and knowing that the company needs the business—the salesperson may have assumed that production would not be a problem.

2. Answers will vary, but students should mention that you should be honest with the manager of King Kong Mufflers, letting him know that the company can react to the large order, that the company does have the production capacity, but that the workforce will need to be expanded, which may take a little time up front.

3. Answers will vary, but students should keep in mind that proper delivery to the customer is a priority. Without the production capacity, that cannot be done.

.

7-32

EXERCISING YOUR ETHICS: TEAM EXERCISE In this exercise the students will be faced with the real world dilemma of cost versus benefits.

Students will probably initially be very sympathetic to Ruth and her situation. The students will need to consider not only the quality issues but also, the company’s reputation, costs, profits, information from the previous chapters including chain of command, delegation, authority and Ruth’s apparent decision to not get input from upper management before making such an important decision.

ACTIVITIES ON MYBIZLAB - INSTRUCTOR TIPS BIZSKILL: Improving a Business Instructor Tips

Available at: mybizlab.com

Brief Synopsis/Objectives: In this BizSkill, students play the role of the new owner of a family-run pizza restaurant and delivery business that is plagued by excessive inventory costs, late deliveries, ordering mistakes, no computerized system, and customer complaints. Armed with some common sense, pizza genes, winning family recipes, and operations management expertise, students need to turn the restaurant around.

At the end of the BizSkill, students should be able to answer the following questions: 1. How can a company use lean manufacturing concepts to improve its business?

2. In what ways can the layout of a facility affect its operations?

3. How do products offer different forms of utility to customers?

4. How can companies seek to impact the triple bottom line?

How to Best Use This BizSkill: A great way to use this BizSkill is to assign it as homework before your first lecture on the chapter. Ask students to print out their feedback page, and then have them do the BizSkill again at the end of the week to see whether their scores have improved.

.

7-33

Chapter 8: Employee Behavior and Motivation Chapter Overview What motivates you to do well at your job? Is it money? Respect? Recognition? Every employee in an organization has his or her own set of motivating factors.

This chapter discusses the basic forms of behaviors that employees exhibit in organizations, as well as the nature and importance of individual differences among employees. It also explains the meaning and importance of psychological contracts and the person-job fit in the workplace.

Finally, the chapter presents some time-tested models and concepts of employee motivation, and some strategies and techniques used by organizations to improve employee motivation.

Learning Objectives 1. Identify and discuss the basic forms of behaviors that employees exhibit in organizations.

2. Describe the nature and importance of individual differences among employees.

3. Explain the meaning and importance of psychological contracts and the person-job fit in the workplace.

4. Identify and summarize the most important models and concepts of employee motivation.

5. Describe some of the strategies and techniques used by organizations to improve employee motivation.

.

8-1

CHAPTER OUTLINE A. Forms of Employee Behavior 1. Performance Behaviors 2. Organizational Citizenship 3. Counterproductive Behaviors B. Individual Differences Among Employees 1. Personality at Work 2. Attitudes at Work C. Matching People and Jobs 1. Psychological Contracts 2. The Person-Job Fit D. Basic Motivation Concepts and Theories 1. Classical Theory 2. Early Behavioral Theory 3. Contemporary Motivation Theory E. Strategies and Techniques for Enhancing Motivation 1. Reinforcement/Behavior Modification 2. Using Goals to Motivate Behavior 3. Participative Management and Empowerment 4. Team Structures 5. Job Enrichment and Job Redesign 6. Modified Work Schedules

.

8-2

LIST OF IN-CLASS ACTIVITIES: AUTHOR’S CHOICE Activity

Description

1. Ice-Breaker: Balancing Inducements and Contributions

Students discuss the psychological contract between themselves and their jobs.

Students are divided into teams to express their opinions about important job criteria.

Students examine the challenges stemming from trying to motivate employees in a global company.

Students read an article about applying strategies and techniques for enhancing motivation in a health-care facility and discuss suggested approaches.

Students discuss the supplemental chapter case study.

2. Up for Debate: What Are You Looking for in a Job? 3. Small-Group Discussion: Motivation in Global Firms 4. Business Accountability Handout Discussion: Setting Some Standards for TLC 5. Supplemental Case Study Discussion: Finding a Mentor

Time Limit

Instructor’s Manual Page Reference

20 min.

8-4, 8-14

40 min.

8-6, 8-15

25 min.

8-9, 8-16

30 min.

8-13, 8-17 to 8-19

30 min.

8-13, 8-20 to 8-22

LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE At-Home Activity

Description

Deliverable

Application Exercise 9: Satisfaction and Motivation Application Exercise 10: Interview a Manager

Students examine what makes employees satisfied and motivated.

Students interview the manager of a local business and identify some source of job satisfaction at that company.

A brief paper detailing students’ analyses.

A brief paper detailing the outcome of the interview.

BizSkill

Team Management

.

Students can test their business skills in this online simulation.

Completion Time

Instructor’s Manual Page Reference

30 to 45 min.

8-10, 8-24

1 to 2 hours

8-7, 8-24

15 min.

8-25

8-3

TEACHING NOTES AND SUGGESTIONS Learning Objective 1: Identify and discuss the basic forms of behaviors that employees exhibit in organizations.

Forms of Employee Behavior Employee behavior is the pattern of actions by the members of an organization that directly or indirectly influences the organization’s effectiveness.

A. Performance Behaviors Performance behaviors are the total set of work-related behaviors that the organization expects employees to display.

B. Organizational Citizenship Organizational citizenship includes the positive employee behaviors that do not directly contribute to the bottom line.

C. Counterproductive Behaviors Counterproductive behaviors detract from, rather than contribute to, organizational performance. Such behaviors include absenteeism, which occurs when an employee does not show up for work, and turnover, which occurs when people quit their jobs.

KEY TEACHING TIPS •

Students should be able to identify employee behavior as the pattern of actions by members of an organization that directly or indirectly influences the organization’s effectiveness.

•

Reinforce that counterproductive behaviors include absenteeism, turnover, theft and sabotage, and sexual and racial harassment. You might ask students what counterproductive behaviors they have observed at their jobs.

QUICK QUESTIONS •

What are some typical performance behaviors expected of you in the workplace?

•

What are some examples of employee behaviors that exemplify organizational citizenship?

Use In-Class Activity 1: Ice-Breaker: Balancing Inducements and Contributions Time Limit: 20 minutes

.

8-4

Learning Objective 2: Describe the nature and importance of individual differences among employees.

Individual Differences between Employees Individual differences are personal attributes that vary from one person to another; they may be physical, psychological, and emotional. Two basic categories include personality and attitudes.

A. Personality at Work Personality is the relatively stable set of psychological attributes that distinguish one person from another.

1. The “Big Five” Personality Traits. The “big five” personality traits include agreeableness, conscientiousness, emotionality, extraversion, and openness. Agreeableness is a person’s ability to get along with others. Highly conscientious people tend to focus on only a few things at one time in contrast to less conscientious people who are often pursue a wider range of interests, but are also often disorganized with less self-discipline.

People with positive emotionality are relatively more poised calm and secure. People with negative emotionality are more excitable, insecure and reactive. Extraversion refers to a person’s comfort level with relationships and openness reflects how open or rigid a person’s beliefs are.

2. Emotional Intelligence. Emotional intelligence refers to the extent to which people are self-aware, can manage their emotions, can motivate themselves, express empathy for others, and possess social skills.

B. Attitudes at Work Attitudes reflect our beliefs and feelings about specific ideas, situations, or other people.

Important attitudes are job satisfaction, which reflects the extent to which people have positive attitudes toward their jobs, and organizational commitment, which reflects an individual’s identification with the organization and its mission.

KEY TEACHING TIPS •

Remind students that individual differences may be physical, psychological, or emotional.

•

Make sure students understand that people with high EQs may perform better than others, especially in jobs that require high interpersonal interaction and involve influencing the work of others.

QUICK QUESTION What can you say about each of the “big five” personality traits?

.

8-5

Learning Objective 3: Explain the meaning and importance of psychological contracts and the person-job fit in the workplace.

Matching People and Jobs Managers like to have a good match between people and the jobs they are performing.

A. Psychological Contracts A psychological contract is the overall set of expectations held by employees and the organization regarding what employees will contribute to the organization (contributions) and what the organization will provide in return (inducements). Recent trends in downsizing have led to changes in the psychological contract. Whereas firms used to be able to offer some degree of job security as part of the psychological contract, nowadays other forms of inducement like training and flexible work schedules are often needed to attract and retain people.

B. The Person-Job Fit The person-job fit refers to the extent to which a person’s contributions and the organization’s inducements match one another.

KEY TEACHING TIPS •

Students often have trouble understanding the concept of the psychological contract.

Make sure they understand that it is the set of employee expectations about the contributions that they will make to the organization, and the inducements the organization will provide in return.

•

Reinforce that a good person-job fit is one in which the employee’s contributions match the inducements the organization offers.

QUICK QUESTION How might a company benefit from high degrees of job satisfaction and organizational commitment among its employees?

Use In-Class Activity 2: Up for Debate: What Are You Looking for in a Job? Time Limit: 40 minutes

.

8-6

HOMEWORK Interview a Manager Now is a good time to assign Application Exercise 10 from the end-of-chapter materials as homework (see page 216 of the text). This assignment asks students to interview a manager and identify sources of job satisfaction at that company.

At-Home Completion Time: 1–2 hours

.

8-7

Learning Objective 4: Identify and summarize the most important models and concepts of employee motivation.

Basic Motivation Concepts and Theories Motivation is the set of forces that cause people to behave in certain ways. There are a number of major studies and theories of employee motivation.

A. Classical Theory According to the classical theory of motivation, employees are motivated solely by money.

Frederick Taylor, the father of scientific management, proposed that paying workers more money would prompt them to produce more.

B. Early Behavioral Theory The Hawthorne effect is the tendency for productivity to increase when workers believe they are receiving special attention from management.

1. Human Resources Model: Theories X and Y. McGregor’s Theory X is the managerial assumption that workers are lazy and need direction; Theory Y is the managerial assumption that workers are energetic, cooperative, and self-motivated.

2. Maslow’s Hierarchy of Needs Model. Maslow proposed that workers each have a set of needs that they seek to fulfill in their jobs, and these needs are arranged in a hierarchy of importance. These needs are physiological, safety, social, self-esteem, and selfactualization. Maslow further proposed that lower-level needs must be met before higherlevel needs; and once one set of needs is met, it ceases to motivate behavior.

3. Two-Factor Theory. Herzberg proposed that job satisfaction depends on motivating factors, such as recognition in the workplace, as well as the presence of hygiene factors, such as work conditions. Hygiene factors do not enhance satisfaction, but they do prevent dissatisfaction. Research suggests that the theory works only in some situations.

C. Contemporary Motivation Theory Recently, more complex models of employee behavior and motivation have been developed.

1. Expectancy Theory. This theory suggests that employees are especially motivated to work toward rewards when they have a greater probability of achieving them. This theory explains why people may not work as hard when their salaries are based solely on seniority, for example.

2. Equity Theory. This theory focuses on employees’ perceptions of fairness and unfairness in the workplace. Many people evaluate their treatment by the organization relative to the treatment of others.

.

8-8

KEY TEACHING TIPS •

To begin a discussion on motivation, you might want to ask students what motivates them on the job.

•

Remind students that according to the classical theory of motivation, workers are motivated by money; paying them more money should prompt them to produce more goods.

•

Make sure students understand the distinction between Theory X (workers are lazy) and Theory Y (workers want to do a good job).

•

Make sure students understand that hygiene factors affect motivation and satisfaction only if they are absent or fail to meet expectations.

•

Students often forget that equity theory focuses on social comparisons—people evaluating their treatment by the organization relative to the treatment of others.

QUICK QUESTIONS •

What is the theory behind scientific management?

•

Does the Hawthorne effect still apply to people in the workplace?

•

Why are Theory Y managers more likely to have satisfied and motivated employees?

•

Based on Maslow’s hierarchy of needs, what is an example of how physiological needs take precedence over safety and social needs?

•

How does expectancy theory apply when a student feels that the harder she or he studies for an exam the greater the likelihood of a good grade?

•

How is the comparison of employee inputs relative to outputs similar to the “psychological contract”?

Use In-Class Activity 3: Small-Group Discussion: Motivation in Global Firms Time Limit: 25 minutes

.

8-9

HOMEWORK Satisfaction and Motivation Now might be a good time to assign Application Exercise 9 from the end-of-chapter materials as homework (see page 216 of the text). This exercise asks students to think about what makes employees satisfied and motivated.

At-Home Completion Time: 30–45 minutes

.

8-10

Learning Objective 5: Describe some of the strategies and techniques used by organizations to improve employee motivation.

Strategies and Techniques for Enhancing Motivation Understanding what motivates workers is only one part of the manager’s job. The other part is applying that knowledge.

A. Reinforcement/Behavior Modification Positive reinforcement is used when a company or manager provides a reward when employees exhibit desired behaviors; punishment is used to change behavior by presenting people with unpleasant consequences if they exhibit undesired behaviors.

B. Using Goals to Motivate Behavior Management by objectives (MBO) is a system of collaborative goal setting, extending through all levels of an organization. MBO is primarily concerned with the implementation of plans in organizations.

C. Participative Management and Empowerment In participative management and empowerment, employee suggestions and opinions are welcomed. Employees may feel more committed to the firm’s goals if they have helped to shape them.

D. Team Management Some companies benefit from using team management. Although teams are often less effective in traditional and rigidly structured bureaucratic organizations, they can help smaller, more flexible organizations make decisions quickly and effectively, enhance communication, and encourage organizational members to feel more like a part of an organization.

E. Job Enrichment and Job Redesign Both of these programs typically increase worker satisfaction in jobs that lack motivating factors.

1. Job Enrichment Programs. These programs attempt to add motivating factors to job activities.

2. Job Redesign Programs. These programs attempt to create a better fit between employees and their jobs by restructuring work. Job redesign can usually be carried out through combining tasks, forming natural work groups, and/or establishing client relationships. a. Combining Tasks. Enlarging jobs and increasing their variety can make employees feel that their work is more meaningful.

.

8-11

b. Forming Natural Work Groups. People who perform different jobs on the same projects are candidates for natural work groups that help employees see the place and importance of their jobs in the total structure of the firm. c. Establishing Client Relationships. Allowing employees to interact with customers can increase job variety.

F. Modified Work Schedules 1. Work-Share Programs. These programs allow employees to share a single, full-time job. Employees appreciate the schedule flexibility to accommodate their personal needs, and firms can reduce turnover and save on the cost of benefits.

2. Flextime Programs and Alternative Workplace Strategies. Flextime programs allow workers to choose their working hours by adjusting a standard work schedule.

3. Telecommuting. Telecommuting allows employees to perform some or all of their jobs away from standard office settings. a. Advantages and Disadvantages of Modified Schedules and Alternative Workplaces. Some advantages include (a) more freedom in employees’ personal lives; (b) ability of employees to coordinate work around family members’ schedules; (c) an increased sense of freedom for employees; and (d) higher commitment and satisfaction for employees. Some disadvantages include: (a) the inability of employees to meet deadlines; (b) coordinating work schedules with family members’ schedules; and (c) employer perceptions that unobserved workers are not actually working.

KEY TEACHING TIP Students often confuse the following topics. Job enrichment is designed to add one or more motivating factors to job activities; job redesign acknowledges that different people want different things from their jobs.

QUICK QUESTIONS •

What are examples of positive reinforcement and punishment in the workplace?

•

What contributions and inducements might have built the psychological contract between American Girl and its employees, especially in the early days of production?

•

With management by objectives, managers and subordinates set goals and evaluate progress over time. What are some advantages and disadvantages of MBO?

.

8-12

•

Participative programs are not for everyone. What are some drawbacks of such programs?

•

What are some advantages and disadvantages of using teams in organizations?

•

In what types of situations might employees benefit from work-share programs and flextime programs?

•

What are some drawbacks of relying on telecommuting?

Use In-Class Activity 4: Business Accountability Handout Discussion: Setting Some Standards for TLC Time Limit: 30 minutes Use In-Class Activity 5: Supplemental Case Study Discussion: Finding a Mentor Time Limit: 30 minutes

VIDEO: WHOLE FOODS Run Time: 5:43 This is a good point at which to show the video accompanying the chapter, as the content links well to this Learning Objective, as well as to the previous ones.

Incorporate Discussion Questions found on page 218 of the text.

.

8-13

IN-CLASS ACTIVITIES In-Class Activity 1: Ice-Breaker Balancing Inducements and Contributions Activity Overview: This activity asks students to think about the psychological contract between themselves and their jobs.

Time Limit: 20 minutes What to Do: 1. Divide students into three-member groups. Remind students what it means to have a psychological contract, and what person-job fit refers to. (5 minutes) 2. Tell each student to interview his or her partners, asking the partners to assess the balance of contributions and inducements at their jobs. Is the psychological contract even for both sides?

Do the contributions outweigh the inducements? If the contributions and inducements do not balance, what has to happen so they will be in balance? (15 minutes) 3. Reassemble the class and ask students to share the information they’ve obtained in their interviews. (10 minutes) Don’t Forget: Some students may not feel comfortable revealing the name of their employer in this scenario; if so, they can refer to the employer as “Company X.” Wrap-Up: Close with a recap of the psychological contract and highlight how a good person-job fit occurs when employee contributions and company inducements line up. Ultimately, this results in higher performance and more positive attitudes.

.

8-14

In-Class Activity 2: Up for Debate What Are You Looking for in a Job? Activity Overview: This activity asks students to express their opinions about important job criteria and compare these with other students.

Time Limit: 40 minutes What to Do: 1. Ask students to think about what is important to them in a job, ranking the following items, with 1 being the most important and 10 being the least important. (10 minutes) • • • • • • • • • •

Working Conditions Quality of Coworkers/Mentors Salary Benefits Location of Job Level of Challenge/Responsibility Training Programs Offered Advancement Opportunities Job Security Job Title

2. Divide the class into four-member teams.

3. Ask each team to compare their rankings. What conclusions can they draw? While they are doing this, students could potentially go to the board or an overhead slide and mark their rankings on a table you create; this would give you an overview of the class. (10 minutes) 4. Reassemble the class as a whole and have each group share their findings with the class. (10 minutes) 5. Look at the list of items that people ranked highest in general. Talk about how companies can actually accomplish these. For example, how would a company provide ideal working conditions for its employees? (10 minutes) Don’t Forget: There are no right or wrong answers to this exercise.

Wrap-Up: Wrap up the discussion by reminding students that this is the challenge in any organization— people are motivated by different things. Business owners and managers must find ways to motivate every employee so they have high job satisfaction.

.

8-15

In-Class Activity 3: Small-Group Discussion Motivation in Global Firms Activity Overview: This activity asks students to think about the increased challenges that stem from trying to motivate employees in a global company.

Time Limit: 25 minutes What to Do: 1. Divide the class into small groups and ask them to discuss what types of additional difficulties may arise when attempting to motivate employees in a global company as compared with a domestic company. (10 minutes) 2. Reassemble the class and discuss group comments. (15 minutes) Don’t Forget: Cultural differences can be difficult to assess; students may want to think of differences in perceptions of time, personal space, punctuality, reasons for working, and communication when completing this assignment.

Wrap-Up: Remind students that a good rule of thumb when motivating workers in a global company is to always treat employees with respect, to be sensitive to local cultures, and to follow laws of the host country; the rest might come a little easier.

.

8-16

In-Class Activity 4: Business Accountability Handout Discussion Setting Some Standards for TLC (see following page) Activity Overview: This activity asks students to read a supplemental article and to apply strategies and techniques for enhancing motivation in a health-care facility.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Business Accountability article (on the following pages of this Instructor’s Manual) and distribute them to students.

2. Divide students into three-member groups and ask them to read the scenario, focusing on possible responses to the following questions (15 minutes): a. How can reinforcement/behavior modification be used to enhance employee motivation in this scenario? b. How might managers apply management by objectives in this scenario to enhance motivation?

3. Reassemble the class and discuss the groups’ comments. (15 minutes) Don’t Forget: Students may also want to tie in employee empowerment and participative management techniques when considering the previously mentioned options.

Wrap-Up: Close up the discussion with a recap of reinforcement/behavior modification and a discussion of the pros and cons of management by objectives.

.

8-17

HANDOUT: BUSINESS ACCOUNTABILITY

Setting Some Standard for TLC Personnel working on the firing line are a valuable, yet sometimes untapped, source for improving service delivery. Nowhere is this more evident than in hospitals where staffing needs are at an all-time high. Faced with increasing patient loads and patient information scattered in various departments, nurses too often find themselves searching for information— sometimes up to 30 percent of their time—instead of treating patients. Nurse managers at Southern Tennessee Medical Center in Winchester, Tennessee, recognized information gaps and other inadequacies that, if overcome, could improve patient care for which they are accountable. Revamping into a new care-delivery system would require participation and teamwork of nursing staff at all levels.

Preparation for improvement began by identifying deficiencies in the current process. Nurses were observed trying to clarify patients’ care plans from physicians’ diagnoses, with only general directions for treatment. Even nurses with top-level education and experience were struggling to translate plans into nursing actions. Even worse, plans weren’t located at bedside where nurses needed direction most. Also missing were care standards for treating each health condition, causing inconsistencies in treatments by different nurses from shift to shift for the same patient.

Furthermore, outcome measurements for individual patients were nonexistent so outcomes-based evaluations of nursing performance and accountability were impossible.

A new care system was developed to overcome inadequacies and improve performance. Some highlights of the new process include the following: •

Care standards are explained in nursing documents, at each patient’s bedside, for care categories, such as respiratory, nutrition, elimination, mobility, communication, and circulatory.

•

For each category’s care standards, desired patient outcomes were developed (e.g., the “respiratory” category lists seven desired outcomes including “no wheezing sound in breathing,” “at least 28 respirations per minute” to avoid shortness of breath, and “difficulty in clearing own secretions”).

•

Nurses record “yes/no” bedside responses for patient outcomes, thereby tracking patient progress using consistent treatments across shifts.

•

Response sheets provide data for measuring individual patient outcomes, nursing unit outcomes, and staff performance outcomes for every health-care problem on every work shift.

.

8-18

The new system delivered immediate improvement results on specific care standards for which nurses are held accountable, such as the following: •

Infection-control actions were properly implemented 95 percent of the time by staff without direction from the infection-control specialist.

•

Number of patient falls was reduced by 60 percent.

•

For patients over 65 years old, hospital-acquired constipation fell from 25 percent to less than 3 percent.

In addition, orientation time for new nurses was reduced—at a cost savings of $500 per nurse— because performance expectations and treatment standards are explained in the bedside nursing documentation.

Receiving a 100-percent compliance score from the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), the new system reinforces comments by JCAHO President Dennis O’Leary: “Measures and measurement systems that are truly going to be usable and helpful for people in the trenches will need to be simple, frugal, and focused.”

DISCUSSION QUESTIONS 1. How can reinforcement/behavior modification be used to enhance employee motivation in this scenario?

2. How might managers apply management by objectives in this scenario in an attempt to enhance motivation?

.

8-19

In-Class Activity 5: Supplemental Case Study Discussion: Finding a Mentor Activity Overview: This activity is designed to help students apply the concept of mentoring within the workplace to a case study.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Supplemental Case (on the following pages of this Instructor’s Manual) and distribute them to students.

2. Divide students into small groups; ask them to read the case and answer the questions together. (15 minutes) a. What aspects of the mentoring relationship do you think each partner finds satisfying?

What kind of leadership role does a mentor play? b. What do you think helps account for the success of the mentoring programs? Can you think of any potential drawbacks to these programs? c. What qualities would you look for in a mentor? What kind of mentor do you think you would make?

3. Once students have answered the questions, discuss their answers as a class. Make sure they touch on the following points: (15 minutes) a. Students should recognize that mentees may appreciate help with their career development, while mentors may enjoy the opportunity to share their experience and exercise informal leadership. b. Several factors are mentioned in the case, such as the mentoring booklet, the contract that formalizes the relationship, the opportunity for employees to choose their own mentors, and the fact that the relationship is taken seriously in the performance review process.

Possible drawbacks could occur if the mentor and mentee don’t get along or have some kind of conflict, or if an employee’s mentor leaves the company. c. Answers will vary, but qualities in a mentor include industry experience, company knowledge, empathy, commitment, and good communication skills.

Don’t Forget: This activity could be completed individually by students in class or as a homework assignment.

Wrap-Up: Close the activity by pointing out that mentoring provides managers with a chance to create continuity in corporate culture and management philosophy by training new managers to “think”

.

8-20

and “act” in the company’s traditional way. You may want to also mention that this thought, in some instances, could stifle creativity and innovation among managers. Sometimes it is a plus for an organization to bring a new manager or managers onboard who are going to carry on in their own way.

.

8-21

HANDOUT: SUPPLEMENTAL CASE STUDY

Finding a Mentor Keeping top employees is a challenge. Many firms have found that investing in a mentoring program is one way to attract and to retain top talent. Certainly some large companies have mentoring programs that match employees with mentors. Although such programs vary, they might include features like spending your first 90 days on the job with “buddies” who help you learn the ropes. Some programs require you to sign a mentoring contract establishing your mentoring relationship. You might be required to meet your mentor at least once every quarter, and usually much more often than that. Some mentoring programs have even produced handbooks to guide the mentoring relationship.

But what should you do if there isn’t a formal mentoring program? Terris Scandura, an expert in mentoring from the University of Miami’s Graduate School of Business suggests that employees should make a pitch to potential mentors explaining why they should take valuable time out of their schedule to be a mentor. Sometimes telling the individual that you admire their work will work wonders, Scandura suggests.

Many managers now use mentors. It is widely believed that a good mentor can open up doors for the manager being mentored. Not all forms have such formal programs, and it is not always advisable to find all of your mentors from within your current company. If you do, and you are laid off, you not only lose your job but it may also put strain on your mentoring relationships.

Finally, how many mentors should you have? The current trend is to have a network of mentors so that you do not overly rely on the input of a single individual. Such a network of mentors is like your own personal board of directors where some act as career coaches, while others as career sponsors.

Source: “Associated Press: Finding the Right Mentor Can Bolster Your Career.” The New York Times, December 28, 2009

DISCUSSION QUESTIONS 1. What aspects of the mentoring relationship do you think you would find satisfying? What kind of leadership role does a mentor play?

2. What do you think helps account for the success of mentoring programs? Can you think of any potential drawbacks to such programs?

3. What qualities would you look for in a mentor? What kind of mentor do you think you would make?

.

8-22

ANSWERS FOR END OF CHAPTER ACTIVITIES (Starting on Page 216 of the Text) QUESTIONS FOR REVIEW 1. Answers will vary, but should include the contributions the student will make in terms of effort, ability, loyalty, skills, time, and competency in return for inducements that the organization offers. These inducements will include pay (or other rewards such as good grades) benefits, job security, status, promotion opportunities, career opportunities, and training opportunities.

2. Answers will vary enormously, but money is often cited as a motivator for employees of all ages. In addition, common factors include recognition, benefits, time off, relationships with coworkers, and travel time to/from home. Dissatisfied employees often cite bad relationships with coworkers or a lack of communication from their supervisor as causes.

3. The two are somewhat similar in that they both depict hierarchical needs; however, Maslow describes five basic needs, whereas Herzberg describes two categories of needs. In both cases, lower-level needs must be satisfied first. However, in Maslow’s model, when needs are met, they cease to be motivating, whereas in Herzberg’s model, hygiene factors only affect motivation in that they are absent or fail to meet expectations.

4. Participative management encourages employees to offer opinions and suggestions on how they do their jobs and on how the firm is operated. As a result of helping to shape the organization’s goals, employees are more committed to achieving them. Furthermore, virtually all employees appreciate knowing that managers will listen to their input.

QUESTIONS FOR ANALYSIS 5. Early levels of satisfaction might stem from the excitement of landing a first career job. As workers reach their late twenties, a range of factors might account for the drop: perceived inequities among their coworkers and between their coworkers and management, boredom with the daily grind, a lack of anticipated advancement, financial pressure for family obligations, etc. In later years, job satisfaction may increase as workers either gain more responsibility and control of their work life or come to terms with their jobs as they stand.

6. Answers will vary, but students may note that classical theory would be easy to apply, but too simplistic to be effective. Two-factor theory, expectancy theory, and equity theory allow for more complexity and include clear, applicable motivating factors. Behavior theory, the human resources model, and Maslow’s hierarchy may be the most difficult to apply, since they are somewhat vague and limited in terms of specific applications.

7. Answers will vary, although analyzing the source of dissatisfaction should clearly be the first step, followed by at least discussing the causes with management. Students might also

.

8-23

examine how motivators could be built into the job and how hygiene factor problems might be addressed.

8. Answers will vary, but many people would suggest that the worker improve his job skills—through training and education—that might open doors to more job variety. In addition, many students will suggest that the worker talk with his or her manager about enriching his current job.

APPLICATION EXERCISES 9. Answers will vary, but many will suggest that the employees be empowered to make certain decisions early on and that you commit a certain amount of resources early on for any additional training and education that they might want/need.

10. Answers will vary, but should include discussions of the strategies reviewed in the chapter.

For some manufacturing companies, resources are plentiful and managers can afford to provide a higher-than-average wage and competitive benefits. Job enrichment and open communication throughout an organization are also satisfaction factors.

ANSWERS TO BUILDING YOUR BUSINESS SKILLS FOLLOW-UP QUESTIONS 1. Answers will vary, but will most likely focus on revamping the pay/incentive structure to reward those employees for performance, thereby increasing accountability.

2. Answers will vary, but students should recognize that the new corporate culture will be alienating for some and will only be effective for others if the company generously shares rewards with employees.

3. Answers will vary, but students should consider that the change process would likely be long term. It may be most effective to begin the process with newer employees, working backward to longtime employees who tend to be less flexible. Behavior modification and reinforcement may be the most effective strategies.

ANSWERS TO EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE QUESTIONS TO ADDRESS 1. The new HR manager is deeply concerned that the behavior modification approach demonstrates a lack of respect for employees.

2. Answers will vary, but students should recognize that proceeding with the behavior modification plan is a direct order from the supervisor. Therefore, as a suggestion, the HR manager will likely begin with a few broad rewards and punishments for common behaviors, then add to the list as all of the employees begin to feel comfortable with what is being implemented.

.

8-24

3. Answers will vary, but students will probably consider including elements of expectancy theory while implementing the behavior modification approach.

EXERCISING YOUR ETHICS: TEAM EXERCISE When approaching this exercise students will probably have mixed feelings. Are the employees about to lose their jobs or is this an opportunity to complete a challenging project that could have a positive impact on your career? How do you accomplish an important task when not everyone is as motivated as you are? This should generate a lot of interesting discussion.

ACTIVITIES ON MYBIZLAB - INSTRUCTOR TIPS BIZSKILL: Team Management Instructor Tips

Available at: mybizlab.com

Brief Synopsis/Objectives: You’re a quality manager at Wurley Bikes, a bike manufacturing company.

Over the past two months, the front wheels on your BMX bikes have been defective at a high rate.

Management wants the failure rate to drop by 90 percent within 30 days. You’ve been asked to form a team to tackle the problem. Can you meet the quality improvement challenge in the next 30 days?

At the end of the BizSkill, students should be able to answer the following questions: 1. What are best practices for setting goals for a team?

2. What should you keep in mind when selecting team members?

3. What kinds of habits make a person a good team leader?

How to Best Use This BizSkill: A great way to use this BizSkill is to assign it as homework before your first lecture on the chapter. Ask students to print out their feedback page, and then have them do the BizSkill again at the end of the week to see whether their scores have improved.

.

8-25

Chapter 9: Leadership and Decision Making Chapter Overview Think of a really effective leader with whom you have worked. What made him or her such a good leader? Was it his or her personality? Was it the way he or she handled a crisis? All good leaders have their own “bag of tricks” to motivate, inspire, and influence their employees to work toward company goals.

This chapter focuses on several approaches to leadership and describes transformational and charismatic perspectives on leadership. It also looks at types of leadership substitutes and neutralizers, as well as several contemporary issues in leadership—seeing leaders as coaches and examining gender and cross-cultural issues in leadership. This chapter also: • • •

Discusses strategic leadership, ethical leadership, and virtual leadership.

Relates leadership to decision making.

Discusses both rational and behavioral perspectives on decision making.

Learning Objectives: 1. Define leadership and distinguish it from management.

2. Summarize early approaches to the study of leadership.

3. Discuss the concept of situational approaches to leadership.

4. Describe transformational and charismatic perspectives on leadership.

5. Identify and discuss leadership substitutes and neutralizers.

6. Discuss leaders as coaches and examine gender and cross-cultural issues in leadership.

7. Describe strategic leadership, ethical leadership, and virtual leadership.

8. Relate leadership to decision making and discuss both rational and behavioral perspectives on decision making.

.

9-1

Chapter Outline A. The Nature Of Leadership B. Early Approaches to Leadership 1. Trait Approaches to Leadership 2. Behavioral Approaches to Leadership C. The Situational Approach to Leadership D. Leadership Through the Eyes of Followers 1. Transformational Leadership 2. Charismatic Leadership E. Special Issues in Leadership 1. Leadership Substitutes 2. Leadership Neutralizers F. The Changing Nature of Leadership 1. Leaders as Coaches 2. Gender and Leadership 3. Cross-Cultural Leadership G. Emerging Issues in Leadership 1. Strategic Leadership 2. Ethical Leadership 3. Virtual Leadership H. Leadership, Management, and Decision Making 1. Rational Decision Making 2. Behavioral Aspects of Decision Making

.

9-2

LIST OF IN-CLASS ACTIVITIES: AUTHOR’S CHOICE Activity

Description

1. Ice-Breaker: Are You a Leader or a Manager?

2. Small-Group Discussion: Transformational vs.

Transactional

Students assess their own abilities as leaders and managers.

Students identify a business or political leader and identify transformational or transactional characteristics of that leader.

Students are asked to read the Entrepreneurship and New Ventures feature in the textbook and discuss the charisma of Steve Jobs Students read and discuss an article about leadership styles and the elements that comprise charismatic leadership.

3. Up for Debate: Was Steve Jobs a Charismatic Leader?

4. Business Accountability Handout: The Scrushy Factor

Time Limit

Instructor’s Manual Page Reference

20 min.

9-4, 9-13

20 min.

9-7, 9-14

30 min.

9-7, 9-15

30 min.

9-8, 9-16 to 9-18

LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE At-Home Activity

Description

Deliverable

Application Exercise 9: Interview a Manager

Students interview a manager to gain perspective on whether leadership can be taught.

Students assess the decisions made at both Airbus and Boeing, determining which company made the best decisions in the textbook’s running case.

A brief paper detailing the outcome of the interview.

Application Exercise 10: Airbus Versus Boeing: Who Made the Best Decision?

.

A brief paper detailing responses to the activity.

Completion Time

Instructor’s Manual Page Reference

1 hour

9-5, 9-20

45 min.

9-12, 9-20

9-3

TEACHING NOTES AND SUGGESTIONS Learning Objective 1: Define leadership and distinguish it from management.

The Nature of Leadership Leadership includes the processes and behaviors used by someone, such as a manager, to motivate, inspire, and influence the behaviors of others.

Leadership differs from management in a number of ways: 1. Creating an Agenda: Management is concerned with planning and budgeting, whereas leadership is concerned with establishing direction.

2. Developing Networks: Management is concerned with organizing and staffing, whereas leadership is concerned with aligning people to the strategies of the organization.

3. Executing Plans: Management is concerned with problem solving and organizational control, whereas leadership is concerned with motivation.

4. Outcomes: Management is concerned with predictability and order, whereas leadership is concerned with change.

QUICK QUESTION What distinguishes leadership from management? In other words, can someone be a manager and not a leader, or a leader and not a manager?

Use In-Class Activity 1: Ice-Breaker: Are You a Leader or a Manager?

Time Limit: 20 minutes

.

9-4

Learning Objective 2: Summarize early approaches to the study of leadership.

Early Approaches to Leadership A. Trait Approaches to Leadership The trait approach to leadership focuses on identifying the essential leadership traits in individuals. Although the trait approach was all but abandoned several decades ago, in recent years, it has resurfaced.

B. Behavioral Approaches to Leadership The behavioral approach to leadership focuses on the behaviors employed by effective leaders; this research led to the identification of two basic forms of leader behavior: taskfocused leader behavior, which occurs when a leader focuses on how tasks should be performed in order to meet certain goals; and employee-focused leader behavior, which occurs when a leader focuses on the satisfaction, motivation, and well-being of his or her employees.

KEY TEACHING TIPS Students often confuse the various approaches to leadership. Remind them that the trait approach focuses on identifying traits that indicate leadership ability, including intelligence, dominance, self-confidence, energy, activity, and knowledge.

Remind students to keep the behavioral approach to leadership separate from the trait approach.

The behavioral approach focuses on behaviors used by effective leaders

QUICK QUESTIONS •

What is the difference between task-focused leader behavior and employee-focused leader behavior?

•

The trait approach was all but abandoned several decades ago. Why?

•

The situational approach suggests that leaders can vary their use of authority to fit the situation. What are some situational characteristics that affect decision making?

HOMEWORK Interview a Manager Now might be a good time to assign Application Exercise 9 from the end-of-chapter materials as homework (see page 238 of the text). The assignment asks students to get a manager’s perspective regarding whether leadership can be taught.

At-Home Completion Time: 1 hour

.

9-5

Learning Objective 3: Discuss the concept of situational approaches to leadership.

The Situational Approach to Leadership The situational approach to leadership assumes that the appropriate leader behavior varies from one situation to another. This approach was first proposed as a continuum of leadership behavior.

This continuum ranges from the one extreme of having the leader make decisions alone (i.e., task-focused) to having employees make decisions with only minimal guidance from the leader.

Leadership characteristics considered include: • The managers value system • Confidence in subordinates • Personal style • Subordinate characteristics • Tolerance for ambiguity • Level of knowledge, experience, and motivation • The complexity of the task • The level of interest in the task

.

9-6

Learning Objective 4: Describe transformational and charismatic perspectives on leadership.

Leadership Through the Eyes of Followers Another recent perspective that has been adopted by some leadership experts focuses on how leaders are seen through the eyes of their followers.

A. Transformational Leadership Transformational leadership focuses on the importance of leading for change; it 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 is essentially the same as management in that it involves routine, regimented activities. Only highly skilled leaders tend to be able to succeed in both transactional and transformational realms.

B. Charismatic Leadership Charismatic leadership is a type of influence based on a leader’s personal charisma; charismatic leaders are likely to have a lot of self-confidence, confidence in their beliefs and ideals, and a strong need to influence people. Charismatic leaders: 1. Envision likely future trends 2. Energize others 3. Enable others

KEY TEACHING TIPS •

Remind students that some leaders are able to adopt either transformational or transactional perspectives, depending on their circumstances; others are able to do one or the other, but not both.

•

Point out to students that someone with charisma is more likely to influence others than someone without charisma.

•

It is worth noting that taking over a leadership role from someone who is highly charismatic is a challenge and early positive results are important for them to gain credibility.

QUICK QUESTION What attributes make a leader charismatic?

Use In-Class Activity 2: Small-Group Discussion: Transformational vs. Transactional Time Limit: 20 minutes Use In-Class Activity 3: Up for Debate: Was Steve Jobs a Charismatic Leader?

Time Limit: 30 minutes

.

9-7

Learning Objective 5: Identify and discuss leadership substitutes and neutralizers.

Leadership Substitutes and Neutralizers A. Leadership Substitutes Leadership substitutes are individual, task, and organizational characteristics that tend to outweigh the need for a leader to initiate or direct employee performance. In other words, when certain individual abilities, experiences, training, knowledge, motivation, and/or professional orientation are present people can perform well without a designated leader. An ER specialist knows what to do whether a leader is present or not.

B. Leadership Neutralizers Leadership neutralizers are factors that may render certain leadership behaviors ineffective.

Examples of leadership neutralizers include norms, group cohesion, elements of the job, and organizational factors. An example would be an inexperienced leader assigned to a very experienced group with long standing performance norms and high productivity. Another example might be a worker on an assembly line—he or she can only work as fast at the belt moves and motivational attempt on behalf of leaders can necessarily change production rates, although such leadership might be able to reduce errors and absenteeism.

KEY TEACHING TIP Students often confuse leadership substitutes and leadership neutralizers. Leadership neutralizers are factors that can render various leadership behaviors ineffective.

QUICK QUESTIONS •

What are some examples of possible leadership neutralizers?

•

Leadership substitutes are characteristics that outweigh the need for a leader to initiate or direct employee performance. What are some examples of leadership substitutes?

Use In-Class Activity 4: Business Accountability Handout Discussion: The Scrushy Factor Time Limit: 30 minutes

.

9-8

Learning Objective 6: Discuss leaders as coaches and examine gender and cross-cultural issues in leadership.

The Changing Nature of Leadership A. Leaders as Coaches Many organizations are becoming less hierarchical, changing the role of the leader from “overseer” to “coach.” Mentoring helps less-experienced employees learn the ropes and better prepares them to advance within the organization. The role of the executive coach is also growing in organizations. This is where middle or even senior managers and leaders work with an external coaching consultant to develop a plan to enhance their own leadership, managerial, and life skills.

B. Gender and Leadership Contrary to stereotypes, female leaders are not necessarily more nurturing or supportive than male leaders; and male leaders are not systematically more harsh, controlling, or task-focused than female leaders. Females do tend to be more democratic in making decisions; males tend to be more autocratic.

C. Cross-Cultural Leadership Culture encompasses both international differences and diversity-based differences within one culture. Cross-cultural factors play a growing role in organizations as their workforces become more diverse.

KEY TEACHING TIP Students often remember that culture refers to international differences among people, but they often forget that culture also includes diversity-based differences within one culture.

QUICK QUESTIONS •

Is the United States a collectivist culture or an individualist culture?

•

“A new role for a leader is to become a coach, rather than an overseer.” Explain this statement. What has brought about this change in leadership focus?

•

Do men and women tend to lead differently? If so, how?

.

9-9

Learning Objective 7: Describe strategic leadership, ethical leadership, and virtual leadership.

Emerging Issues in Leadership A. Strategic Leadership Strategic leadership is a leader’s ability to understand the complexities of both the organization and its environment and to lead change in the organization.

B. Ethical Leadership Ethical leadership is a leader’s ability to maintain high ethical standards for his or her own conduct, to unfailingly exhibit ethical behavior, and to hold others in the organization to the same standards.

C. Virtual Leadership Virtual leadership refers to leadership that is exhibited when leaders and their employees work in locations that are far from one another.

Virtual leadership involves managing employees who work in different locations than the manager. What are some advantages and disadvantages of virtual leadership from the manager’s perspective?

.

9-10

Learning Objective 8: Relate leadership to decision making and discuss both rational and behavioral perspectives on decision making.

Leadership, Management, and Decision Making Decision making—choosing one alternative from among several options—is a critical management skill.

A. Rational Decision Making There are a number of steps in the rational decision-making process.

1. Recognizing and Defining the Decision Situation. There must be a stimulus or spark to initiate the process; managers must develop a complete understanding of the problem, its causes, and its relationship to other factors.

2. Identifying Alternatives. Alternative courses of action must be developed; the more important the decision, the more attention is directed to developing alternatives.

3. Evaluating Alternatives. Managers must weigh the pros and cons and the feasibility of all alternatives to the problem.

4. Selecting the Best Alternative. Finding multiple acceptable alternatives may be possible; selecting just one alternative and rejecting all the others might not be necessary.

5. Implementing the Chosen Alternative. Implementation is sometimes fairly easy; whereas in other situations implementation is difficult.

6. Following Up and Evaluating the Results. Managers should make sure that the chosen alternative has served it original purpose.

B. Behavioral Aspects of Decision Making 1. Political Forces in Decision Making. Political forces contribute to the behavioral nature of decision making. A coalition is an informal alliance of individuals or groups formed to achieve a common goal.

2. Intuition. Intuition is an innate belief about something, often without conscious consideration. Intuition is often thought of as a “hunch.”

3. Escalation of Commitment. Escalation of commitment occurs when managers become so committed to the course of action they have chosen that they stay with it, even when it appears to have been wrong.

4. Risk Propensity and Decision Making. Risk propensity is the extent to which a decision maker is willing to gamble when making a decision.

.

9-11

KEY TEACHING TIPS •

Remind students that they often engage in rational decision making, which occurs when a manager makes a decision by selecting and implementing a “best” alternative.

•

A coalition is an informal alliance of individuals or groups formed to achieve a common goal; point out that this goal is often a preferred decision alternative.

•

Remind students that when they have a “hunch,” it is intuition, which is an innate belief about something, often without conscious consideration.

•

Point out that every individual has a varying level of risk propensity, which is the extent to which a person is willing to gamble when making a decision.

QUICK QUESTIONS •

What are some typical constraints that can limit the identification of alternatives?

•

If an alternative appears not to be working, what are the manager’s options?

•

For what types of decisions would the rational decision-making model apply? Why?

•

Escalation of commitment involves selecting a course of action and then becoming so committed to it that managers stay with it, even when it appears to be wrong. Why do some managers stay with a course of action even when they know it to be wrong?

VIDEO: SOUTHWEST AIRLINES Run Time: 6:02 This is a good point at which to show the video accompanying the chapter, as the content links well to this Learning Objective, as well as to the previous ones.

Incorporate Discussion Questions found on page 240 of the text.

HOMEWORK Airbus versus Boeing Now is a good time to assign Application Exercise 10 from the end-of-chapter materials as homework (see page 238 of text). This assignment gives students a chance to further research the decisions made in the running example throughout the textbook by Boeing and Airbus and weigh the two companies’ decisions.

At-Home Completion Time: 45 minutes

.

9-12

IN-CLASS ACTIVITIES In-Class Activity 1: Ice-Breaker Are You a Leader or a Manager?

Activity Overview: This activity provides students with a chance to interview a classmate, then discuss their own leadership potential with that classmate.

Time Limit: 20 minutes What to Do: 1. After reviewing the differences between “managers” and “leaders,” ask students to think about their own leadership and management potential. Assign each student to a partner, asking each one to briefly interview the other to find out how each would assess his or her own management and leadership potential. (10 minutes) 2. Reassemble the class and ask for volunteers who are willing to share any information about their own personal assessments and/or introduce their interviewee to discuss some of the topics discussed in the interview. (10 minutes) Don’t Forget: Some students will already have some managerial/leadership experience upon which to draw.

For those who don’t, ask them to consider a situation where they have been able to display management or leadership qualities (in a school club or a circle of friends, for example); or, ask them to identify characteristics and behaviors in their own bosses that they admire, and then assess whether they could emulate those behaviors and characteristics. This may help them to better distinguish their leadership potential from their management potential.

Wrap Up: Wrap up the discussion by reminding students that some managers are both leaders and managers.

.

9-13

In-Class Activity 2: Small-Group Discussion Transformational vs. Transactional Activity Overview: This activity asks students to assess the leadership characteristics of selected leaders, identifying transformational and transactional characteristics among them.

Time Limit: 20 minutes What to Do: 1. Divide the class into small groups and ask each group to come up with a business or political leader with whom all are familiar. Based on the leader selected, each group should identify their selected leader as being either transformational or transactional. (10 minutes) 2. Reassemble the class as a whole to discuss each group’s input. (10 minutes) Don’t Forget: People can perceive leadership differently. Groups should make their assessments based on the descriptions of transactional and transformational leadership given in the textbook.

Wrap-Up: Bring the activity to a close by providing a quick overview of both types of leadership, identifying some cited leadership characteristics from the groups’ discussions for further definition.

.

9-14

In-Class Activity 3: Up for Debate Was Steve Jobs a Charismatic Leader?

Activity Overview: This activity asks students to assess the leadership characteristics of one of the most successful entrepreneurs in the world.

Time Limit: 30 minutes What to Do: 1. Ask students to read about Steve Jobs in the Entrepreneurship and New Ventures feature on page 231, considering his traits and behaviors as a leader and making notes about whether he was a charismatic leader. (10 minutes) 2. Ask the class as a whole to discuss those traits and behaviors that might indicate that Steve Jobs had a high or low level of charisma. (20 minutes) Don’t Forget: This assignment can be completed using any number of successful (or unsuccessful) entrepreneurs.

Wrap-Up: Bring the activity to a close by discussing how what one person views as charismatic may not be viewed as charismatic by another individual.

.

9-15

In-Class Activity 4: Business Accountability Handout Discussion The Scrushy Factor Activity Overview: This activity asks students to assess leadership styles and the elements of charismatic leadership.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Business Accountability article (on the following pages of this Instructor’s Manual) and distribute them to students.

2. Divide the class into small groups and ask them to read the handout, focusing on two questions (15 minutes): a. What is the leadership style of Scrushy? b. Is Scrushy a charismatic leader? Explain. c. What safeguards could be put in place to help charismatic leaders not fall into similar pitfalls? d. Can you think of examples of charismatic leaders that are very positive?

3. Reassemble the class and discuss each group’s opinions. (15 minutes) Don’t Forget: When assessing leadership style, a number of different elements can play a role.

Wrap-Up: Bring the activity to a close by reviewing the meaning of transformational, transactional, and charismatic leadership.

.

9-16

HANDOUT: BUSINESS ACCOUNTABILITY The Scrushy Factor Shareholders, employees, and charitable organizations appreciated the money HealthSouth made—and the generosity with which chairman, CEO, and founder Richard M. Scrushy spent it.

On the other hand, stock analysts, reporters, and government regulators found him “brash” and “abrasive.” Scrushy seemed to be one of those people whom others either love or hate. Recently, however, Scrushy came under investigation by governmental agencies and has been fired. Was Scrushy’s leadership failing due to unsympathetic outsiders, as he would have the public believe? Or were HealthSouth’s current problems merely the logical consequences of Scrushy’s brand of autocratic leadership?

Scrushy trained as a respiratory therapist before working at the hospital corporation, Lifemark.

There, he rose to oversee a division with $100 million in sales. His ex-wife, Karon Brooks, says that Scrushy “was always driven to be very successful.” In 1986, he founded a rehabilitative services firm he called HealthSouth. Today, HealthSouth is the largest health-care firm in the country, treating 120,000 patients daily at its 2,000 rehabilitation, outpatient surgery, and diagnostic facilities.

Scrushy’s personality and methods came under closer scrutiny as his company grew. He often behaved arrogantly, even for a CEO. For example, HealthSouth’s Web site boasted “one of the finest management teams,” and Scrushy himself claimed, “We know this business better than anybody in the world.” One government official, on a first meeting with Scrushy, was greeted with “I hear you never had a real job.” About stock advisors, Scrushy complains, “I’m running a business and all they do is read and analyze this.” Such sentiments, and the way they are expressed, did not endear Scrushy to opinion makers.

Scrushy’s extravagant lifestyle also invited criticism. He lives in a mansion in Birmingham, Alabama, where HealthSouth is headquartered. He has three other luxury homes, along with a seaplane and a 92-foot yacht. In response to claims that he is ostentatious, Scrushy protested, “I’m not bigger than life. I don’t even own a Ferrari. I don’t even own a Bentley.” However, Scrushy’s compensation in 2002 was $10.5 million, 10 times the average for health-care CEOs. Questionable decisions were also part of Scrushy’s leadership. He billed Medicare for equipment that HealthSouth bought from a firm owned by his parents. (The firm paid $7.9 million in 2001 to settle Medicare’s claim.) HealthSouth sold property that cost $1.9 million to Scrushy for $640,000 just two years later. The company also sold $58 million in property to a real estate firm owned by Scrushy, then leased it back. Scrushy denied any impropriety, stating, “Everything was disclosed. Everybody knew exactly what was going on all the time.”

That was probably true but was also certainly part of the problem. HealthSouth’s board of directors contained few outside members, although the firm has recently added more outside members. Many of HealthSouth’s numerous acquisitions were of companies owned by Scrushy and members of the board. Scrushy and the directors had interlocking board membership and

.

9-17

investments in several firms. HealthSouth made loans worth $36 million to board members and Scrushy.

In August 2002, Scrushy announced that HealthSouth would face higher-than-expected losses due to changes in Medicare. In the month before the announcement, board members and Scrushy made significant stock sales, which led to an insider-trading investigation by the FBI. Immediately afterward, Scrushy resigned as CEO. Board members reviewed Scrushy’s actions and cleared him of any wrongdoing. But Scrushy has come under additional scrutiny for alleged accounting problems at HealthSouth during his tenure.

Scrushy refused to provide reasonable justification for his actions. He claimed that analysts were vindictive because of their failures. “The first thing [the analysts] are going to do is slam the management,” says Scrushy. Former HealthSouth director Janis L. Jones defends Scrushy: “Richard’s flamboyant and somewhat of an autocrat. It’s easy to make him the next Martha Stewart.”

The analogy with Martha Stewart is unfortunate. In 2007 Richard Scrushy was sentenced to a seven year prison term on an indictment of 30 counts of money laundering, obstruction of justice, extortion, racketeering, and bribery. In December 2009 the shareholders of HealthSouth won a $2.88 billion civil suit against him over an accounting fraud that sent HealthSouth into bankruptcy.

DISCUSSION QUESTIONS 1. What is the leadership style of Scrushy?

2. Is Scrushy a charismatic leader? Explain.

3. What safeguards could be put in place to help charismatic leaders not fall into similar pitfalls?

4. Can you think of examples of Charismatic leaders that are very positive?

.

9-18

ANSWERS FOR END OF CHAPTER ACTIVITIES (Starting on Page 238 of the Text) QUESTIONS FOR REVIEW 1. Leadership includes the processes and behaviors used by someone to motivate, inspire, and influence the behaviors of others. Management, however, tends to focus on results and identifying deviations. Leaders focus on energizing people to overcome bureaucratic hurdles to help reach goals. A manager may or may not be a leader; management can often be carried out via some formal authority within the organization, while leadership may potentially be carried out by anyone in the organization.

2. The trait approach to leadership focuses on identifying specific leadership traits that may indicate one’s leadership potential. The behavioral approach to leadership determines what specific behavior may indicate leadership effectiveness; two dimensions researched include task-focused leader behavior and employee-focused leader behavior. The situational approach assumes that appropriate leader behavior varies from one situation to another.

3. Leadership substitutes are individual, task, and organizational characteristics that tend to outweigh the need for a leader to initiate or direct employee performance. Leadership neutralizers tend to render certain leadership behaviors ineffective, based on the presence of the neutralizers; norms and cohesiveness in a group, for example, can be so strong that there is very little an individual manager can do to influence the group.

4. The rational decision-making model begins with (1) recognizing and defining the decision situation. Decision makers then (2) identify alternatives, remembering that various constraints often limit their alternatives; (3) evaluate the alternatives; (4) select the best alternative; (5) implement the chosen alternative; and (6) follow up and evaluate the results.

QUESTIONS FOR ANALYSIS 1. Answers will vary, but most responses will likely discuss the charismatic characteristics of the leaders.

6. Students should discuss various substitutes for leadership, which tend to outweigh the need for a leader to initiate or direct employee performance, as well as various leadership neutralizers, which render certain leadership behaviors ineffective in certain situations.

7. There are a number of concerns that followers typically have in virtual organizations. One concern is making sure instructions are clearly understood. In the absence of nonverbal communication, it is sometimes difficult to assess the relative importance of different tasks.

The second problem is loneliness and isolation. Research is showing that people who are working from home sometimes feel isolated from the daily interactions that typically take place in organizations. One problem for the leaders of virtual organizations is that they must

.

9-19

work harder to develop a positive work culture. Team leaders may not know their team members personally and this may make appropriate task assignments more difficult.

8. Answers will vary but will focus on the behavioral aspects of political forces and coalitions, intuition, escalation of commitment, and risk propensity.

APPLICATION EXERCISES 9. Answers will vary, but students may find that some managers believe that leadership automatically develops internally, maybe even from the time individuals are born. Others believe that leadership is a learned behavior, stemming from life’s experiences.

10. Answers will vary depending on the amount and type of information found. Some students may feel that Airbus represents a more collaborative effort, not just because it represents an alliance between different countries, but because of its interest in working directly with Boeing. Therefore, students may think that Airbus makes a more conscientious attempt to utilize resources available. Boeing’s decision to work alone, some students may feel, enhances the competitiveness in the airline industry and pushes Boeing out of the limelight— with its modified 747s and smaller, new plane—as Airbus captures the attention with its jumbo jet.

ANSWERS TO BUILDING YOUR BUSINESS SKILLS FOLLOW-UP QUESTIONS 1. Students will likely conclude that there are certain characteristics, traits, and skills that might indicate “leadership” and/or “management” among individuals. Student assessments will be situation-specific and could be difficult to prove either way.

2. Some students may feel that some of these traits are accurate indicators of effective leadership.

However, some students may feel that certain traits are more critical in an industry of this type than of another type.

3. Students may find this question controversial. Similar to whether ethics or morals can be taught, deciding whether leadership can be taught may involve an assessment of whether one feels that certain traits are acquired versus ascribed.

4. Students will likely agree that a wide array of factors will affect leadership traits and that these factors are likely to impact individuals in different ways.

.

9-20

ANSWERS TO EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE QUESTIONS TO ADDRESS 1. As owner and CEO, you have to make the best decision for the organization. It might be common for individuals to envy characteristics of others, but letting those wrong feelings—in this case, jealousy—get in the way of the strategic direction of the company can be detrimental.

2. Pushing all personal feelings aside, most managers would choose to terminate the one employee that was measurably the lowest performing. In making decisions such as this, an individual will likely face criticism from certain employees regardless of the decision made.

3. Answers will vary, but students will want to keep a high degree of ethics in mind when making such decisions.

EXERCISING YOUR ETHICS: TEAM EXERCISE This exercise should encourage thoughtful discussion on the nature of leadership, responsibilities of a leader, the decision-making process, and the impact a leader’s personality has on an organization.

.

9-21

Chapter 10: Human Resource Management and Labor Relations Chapter Overview Human resource management involves a steady stream of activities. An HR manager’s job revolves around a set of functions including HR planning, staffing, developing employees, appraisal, and compensation and benefit.

This chapter covers each of these functions, including how managers plan for their organization’s HR needs and ways in which organizations select, develop, and appraise employee performance. The chapter also describes the main components of a compensation system and some of the legal issues involved in hiring, compensating, and managing workers.

Finally, the chapter discusses workforce diversity, the management of knowledge workers, the use of a contingent workforce and why workers organize into labor unions.

A career in HR management can be rewarding, but given the dynamic nature of the external environment, keeping abreast of changes and incorporating those necessary changes into these HR management functions is also challenging.

Learning Objectives 1. Define human resource management and explain how managers plan for their organization’s human resource needs.

2. Identify the tasks in staffing a company and discuss ways in which organizations select new employees.

3. Describe how managers develop the workforce in their organization through training and performance appraisal.

4. Describe the main components of a compensation system and describe some of the key legal issues involved in hiring, compensating, and managing workers in today’s workplace.

5. Discuss the legal context of human resource management and identify the contemporary legal issues.

6. Discuss workforce diversity, the management of knowledge workers, and the use of a contingent workforce as important changes in the contemporary workplace.

7. Explain why workers organize into labor unions.

8. Describe the collective bargaining process.

.

10-1

Chapter Outline A. The Foundations of Human Resource Management 1. The Strategic Importance of HRM 2. HR Planning B. Staffing the Organization 1. Recruiting Human Resources 2. Selecting Human Resources C. Developing the Workforce 1. Training 2. Performance Appraisal D. Compensation and Benefits 1. Wages and Salaries 2. Incentive Programs 3. Benefits Programs E. The Legal Context of HRM 1. Equal Employment Opportunity 2. Contemporary Legal Issues in HRM F. New Challenges in the Changing Workplace 1. Managing Workforce Diversity 2. Managing Knowledge Workers 3. Contingent and Temporary Workers G. Dealing with Organized Labor 1. Unionism Today H. Collective Bargaining 1. Reaching Agreement on Contract Terms 2. Contract Issues 3. When Bargaining Fails

.

10-2

LIST OF IN-CLASS ACTIVITIES: AUTHOR’S CHOICE Activity

Description

1. Ice-Breaker: Writing a Job Description 2. Up for Debate: Working with Friends 3. Small-Group Discussion: What Motivates Employees?

4. Business Accountability Handout Discussion: Tallying Up the Costs of Discrimination 5. Supplemental Case Study Discussion: An About Face for LinkedIn

Students write a job description for both the instructor’s job and the student’s job.

Students are divided into teams to discuss the motivational elements behind employees creating their own job titles.

Students consider what incentives might motivate workers.

Students read an article about discrimination and sexual harassment in the workplace and discuss hostile environment sexual harassment.

Students discuss the supplemental chapter case study, which focuses on health and safety in the workplace.

Time Limit

Instructor’s Manual Page Reference

45 min.

10-5, 10-19

30 min.

10-8, 10-20

30 min.

10-10,10-21

30 min.

10-12, 10-22 to 10-23

30 min.

10-12, 10-24 to 10-26

LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE At-Home Activity

Application Exercise 9: Interview a Manager Application Exercise 10: Unionized versus Nonunionized

Business Plan Project Part 3

BizSkill

Description

Deliverable

Students interview an HR manager to gain insight into the HR profession.

Students interview two managers—one unionized and one nonunionized—in order to compare the benefits packages and working conditions of both companies.

Students complete Part 3 of the business plan project, in which they think about their employees, the jobs they will be performing, and the ways in which they can lead and motivate them.

A brief paper detailing the outcome of the interview.

Human Resource Management

.

A brief paper detailing the outcome of the interviews.

Completion Time

Instructor’s Manual Page Reference

1 hour

10-7, 10-31

45 min.

10-16, 10-31

3–5 hours

10-27 to 10-29

Part 3 of the business plan (3-5 pages).

Students can test their business skills in this online simulation.

15 min.

10-32

10-3

TEACHING NOTES AND SUGGESTIONS Learning Objective 1: Define human resource management and explain how managers plan for their organization’s human resource needs.

Defining Human Resource Management Human resource management (HRM) is the set of organizational activities directed at attracting, developing, and maintaining an effective workforce.

A. The Strategic Importance of HRM The importance of HRM has grown dramatically in the last several years; this stems from increased legal complexities, the recognition that human resources are a valuable means for improving productivity, and today’s awareness of the costs associated with poor human resource management.

B. Human Resource Planning Human resource planning is the starting point for attracting qualified human resources.

1. Job analysis. Job analysis is a systematic analysis of jobs within an organization. The job analysis results in: (a) the job description, which lists the duties and responsibilities of a job, its working conditions; and the tools, materials, equipment, and information used to perform it; and (b) the job specification, which lists the skills, abilities, and other credentials and qualifications needed to perform the job effectively.

2. Forecasting HR Demand and Supply. Forecasting the supply of labor involves forecasting the internal supply—the number and type of employees who will be in the firm at some future date—and the external supply—the number and type of people who will be available for hiring from the labor market at large. a. Replacement Charts. Replacement charts list each important managerial position, who occupies it, how long that person will probably stay in it before moving on, and who is now qualified or soon will be qualified to move into it. b. Skills Inventories. Employee information systems (skills inventories) contain information on each employee’s education, skills, work experience, and career aspirations.

3. Matching HR Supply and Demand. After comparing future demand and internal supply, managers can make plans to manage predicted shortfalls or overstaffing. During the downturn of 2008–2009 many firms found it necessary to reduce the size of their workforce. Others did not reduce their workforce but reduced the number of hours each employee spent at work.

.

10-4

KEY TEACHING TIPS •

Remind students that HRM is the set of organizational activities directed at attracting, developing, and maintaining an effective workforce.

•

Students often confuse these terms: A job description lists what you do in the job, including the duties and responsibilities; a job specification lists the skills and abilities you bring with you to the job.

•

Remind students that forecasting the supply of labor includes both an internal and external forecast.

QUICK QUESTIONS •

Why has the role of human resource management increased in importance in the last several years?

•

How can an HR manager benefit from the use of a replacement chart?

•

How can an HR manager benefit from the use of an employee information system?

Use In-Class Activity 1: Ice-Breaker: Writing a Job Description Time Limit: 45 minutes

.

10-5

Learning Objective 2: Identify the tasks in staffing a company and discuss ways in which organizations select new employees.

Staffing the Organization Staffing the organization is one of the most complex and important tasks of good HR management.

A. Recruiting Human Resources Recruiting is the process of attracting qualified persons to apply for the jobs that are open.

1. Internal Recruiting. Internal recruiting means considering present employees as candidates for openings.

2. External Recruiting. External recruiting involves attracting people outside of the organization to apply for jobs.

B. Selecting Human Resources The intent of the selection process is to gather from applicants information that will predict their job success and then to hire the candidates likely to be most successful. The organization can only gather information about factors that can be used to predict future performance; validation is the process of determining the predictive value of that information.

1. Application Forms. An application form is a method of gathering information about the applicant’s work history, educational background, and other job-related data; the application form should not contain questions about areas unrelated to the job, such as gender, religion, or national origin.

2. Tests. Tests of ability, skill, aptitude, or knowledge relevant to a particular job are usually the best predictors of job success, although tests of general intelligence or personality are occasionally useful as well.

3. Interviews. In a structured interview, questions are written in advance, and all interviewees follow the same question list with each candidate; in an unstructured interview, questions are asked at random.

4. Other Techniques. Organizations often require applicants to take physical exams and drug tests. Some organizations also run credit checks on prospective employees.

KEY TEACHING TIPS •

Remind students that new employees are found both internally and externally in the recruitment process.

.

10-6

•

Remind students that all applicant information gathered in the selection process can be used to predict job success.

QUICK QUESTIONS •

What are the benefits and drawbacks of internal recruiting? External recruiting?

•

When do you think tests are useful in the selection process?

•

Why are interviews sometimes a poor predictor of job success? In what way(s) might an interview be an accurate predictor of job success?

HOMEWORK Interview a Manager Now might be a good time to assign Application Exercise 9 from the end-of-chapter materials as homework (see page 264 of the text). This assignment asks students to interview an HR manager at a local company and identify the steps in the selection process for an open position at that company.

Note: To give students greater insight into the work of an HR manager, they may also want to ask the following questions: •

What are the greatest challenges facing someone in your position?

•

What is the best part and least favorite part of your job?

•

What advice would you give someone who wants to get into this line of work?

At-Home Completion Time: 1 hour

.

10-7

Learning Objective 3: Describe how managers develop the workforce in their organization through training and performance appraisal.

Developing the Workforce A. Training As its name suggests, on-the-job training occurs while an employee is at work. Off-the-job training takes place at locations away from a work site. This approach offers a controlled environment and allows focused study without interruptions. Training is a necessary practice if the organization wants to maintain a qualified and effective workforce.

1. Training. After a company hires new employees, it must acquaint them with the firm and their new jobs. On-the-job training occurs while employees are at work. Off-the-job training takes place at locations away from work, such as in simulated work environments or in classrooms. Vestibule training takes place in simulated work environments that make the off-the-job training more realistic.

B. Performance appraisals Performance appraisals are designed to show workers precisely how well they are doing their jobs. Typically, the appraisal process involves a written assessment issued on a regular basis.

As a rule, however, the written evaluation is only one part of a multistep process.

1. Performance Appraisal. This process begins when a manager defines performance standards for an employee. Performance appraisals measure an employee’s performance on job requirements and job-related goals. Most companies have a step-by-step process for dismissing or demoting employees. In addition, firms usually have a plan to decide which employees will remain employees when downsizing or making cutbacks.

QUICK QUESTIONS 1. What types of training are offered at your place of work?

2. What do you think would be the biggest challenges of giving an employee performance appraisal?

Use In-Class Activity 2: Up for Debate: Working with Friends Time Limit: 30 minutes

.

10-8

Learning Objective 4: Describe the main components of a compensation system and describe some of the key legal issues involved in hiring, compensating, and managing workers in today’s workplace.

A. Compensation and Benefits A major factor in retaining skilled workers is a company’s compensation system—the total package of rewards that it offers employees in return for their labor.

1. Wages and Salaries Wages are paid hourly for time worked. A salary is an amount paid per year for discharging the responsibilities of a job. Companies may set wages and salaries by looking at competitors’ rates. In addition, firms must decide how their wage and salary levels will compare for different jobs.

2. Incentive Programs Incentive programs are special pay programs designed to motivate high performance. a. Individual Incentives. A bonus may be awarded to employees upon their reaching a sales quota or performance goal. Merit salary systems link rises to performance levels in non-sales jobs. Pay-for-performance (or variable pay) goes to middle managers on the basis of companywide performance, business-unit performance, personal record, or all three factors. b. Companywide Incentives. These programs apply to all employees in a firm. In profit-sharing plans, a firm’s profits earned above a certain level are distributed to employees. Gain-sharing plans distribute bonuses to employees when a firm’s costs are reduced through greater work efficiency. Pay-for-knowledge plans distribute pay to workers who learn new skills and become proficient at different jobs.

3. Benefits Programs Benefits are compensation other than wages and salaries, including social security retirement benefits, workers’ compensation insurance, health and life insurance, and paid vacations and holidays. Most companies are required by law to provide social security retirement benefits and workers’ compensation insurance (insurance for compensating workers injured on the job). a. Retirement Plans. Retirement plans are set up to pay pensions to workers when they retire. Contributions are made either totally by the company or by both the company and the employee. In recent years more companies have run into problems because they have not set aside enough money to cover the retirement funds for their workers. Some major companies have stopped contributing toward retirement accounts while others have transitioned employees to riskier 401(k) plans. b. Containing the Costs of Benefits. To contain the costs of benefits, employees can select from a variety of benefit alternatives in what is known as a cafeteria benefits plan.

.

10-9

KEY TEACHING TIPS •

Point out that a compensation system includes more than just wages and salaries; it includes incentives and employee benefit programs.

•

Students often confuse the types of incentive plans: Profit-sharing plans distribute profits earned above a certain level to employees; gainsharing plans distribute bonuses to employees who achieve greater work efficiency; and pay-for-knowledge plans encourage workers to learn new skills.

QUICK QUESTIONS •

In what way(s) is variable pay a better motivator than a merit raise?

•

How can an organization benefit from offering incentive programs to its employees?

•

How does a cafeteria benefit plan allow a company to cut costs?

Use In-Class Activity 3: Small-Group Discussion: What Motivates Employees?

Time Limit: 30 minutes VIDEO: PATAGONIA Run Time: 8:05 This is a good point to play this video because it highlights how a company’s HR management system supports the company’s mission. In addition, the video identifies how a company can use recruitment and selection to find the best employees, as well as describes the components of a company’s compensation system. Incorporate Discussion Questions found on page 267 of the text.

.

10-10

Learning Objective 5: Discuss the legal context of human resource management and identify the contemporary legal issues A. The Legal Context of HR Management 1. Equal Employment Opportunity. Numerous federal and state laws, federal guidelines, presidential executive orders, and judicial decisions mandate equal employment opportunity, which is nondiscrimination in employment on the basis of race, color, creed, sex, or national origin. b. Protected Classes in the Workplace. A protected class consists of all individuals who share one or more common characteristics as indicated by a given law; the most common criteria for defining protected classes include race, color, religion, gender, age, national origin, disability status, and status as a military veteran. c. Enforcing Equal Employment Opportunity. The Equal Employment Opportunity Commission (EEOC) has responsibility for enforcing Title VII, the Equal Pay Act, and the Americans with Disabilities Act. A business with government contracts must have on file a written affirmative action plan—a written statement of how the organization intends to actively recruit, hire, and develop members of relevant protected classes. d. Legal Issues in Compensation. Some legislation goes beyond equal employment opportunity and deals more substantively with other issues; one such area is legislation covering compensation.

B. Contemporary Legal Issues in HR Management 1. Employee Safety and Health. The Occupational Safety and Health Act of 1970 holds that every employer has an obligation to furnish each employee with a place of employment that is free from hazards that cause or are likely to cause death or physical harm.

2. Emerging Areas of Discrimination Law a. AIDS in the Workplace. Employers cannot legally require an AIDS test or any other medical examination as a condition for making an offer of employment.

Organizations must treat AIDS like any other disease covered by law; employers cannot discriminate against a person with AIDS, and they should try to educate coworkers about AIDS. b. Sexual Harassment. Sexual harassment is defined by the EEOC as unwelcome sexual advances in the work environment. With quid pro quo harassment, the harasser offers to exchange something of value for sexual favors. Lewd jokes, unwelcome comments, and so on constitute a hostile work environment. c. Employment-at-Will. The concept of employment-at-will holds that both employer and employee have the mutual right to terminate an employment relationship anytime for any reason and with or without advance notice to the other.

.

10-11

d. The PATRIOT Act. In response to the terrorist attacks of September 11, 2001, the U.S. Government passed legislation to increase its powers to investigate and prosecute suspected terrorists. The HRM implications are that certain individuals (including ex-convicts and aliens from other countries deemed by the U.S. Government to have repeatedly provided support for acts of international terrorism) are ineligible to work with potentially dangerous biological agents.

KEY TEACHING TIPS •

Reiterate that protected classes consist of individuals who share characteristics—such as race, color, religion, gender, age, disability status, and national origin—as indicated by a given law.

•

Reinforce that sexual harassment includes (a) quid pro quo, in which the harasser offers something of value for sexual favors, and (b) hostile work environment, in which lewd behavior displayed by another employee is offensive.

QUICK QUESTIONS •

What is the purpose of an affirmative action plan?

•

What does OSHA guarantee?

Use In-Class Activity 4: Business Accountability Handout Discussion: Tallying up the Costs of Discrimination Time Limit: 30 minutes Use In-Class Activity 5: Supplemental Case Study Discussion: An about Face for LinkedIn Time Limit: 30 minutes

.

10-12

Learning Objective 6: Discuss workforce diversity, the management of knowledge workers, and the use of a contingent workforce as important changes in the contemporary workplace.

New Challenges in the Changing Workplace New challenges arise as the economic and social environments of business change.

A. Managing Workforce Diversity Workforce diversity is the range of workers’ attitudes, values, beliefs, and behaviors that differ by gender, race, age, ethnicity, physical ability, and other relevant characteristics; many U.S. organizations are now creating more diverse workforces, embracing more women, ethnic minorities, and foreign-born employees than ever before.

B. Managing Knowledge Workers Traditionally, employees added value to organizations because of what they did or because of their experience; today, however, many employees add value because of what they know.

1. The Nature of Knowledge Work. Knowledge workers tend to work in high-tech firms and are usually experts in some abstract knowledge base; they require highly specialized training, and not every organization is willing to make the human capital investments necessary to take advantage of these jobs.

2. Knowledge Worker. Management and Labor Markets—organizations that need knowledge workers must introduce regular market adjustments in order to pay them enough to keep them.

C. Contingent and Temporary Workers 1. Trends in Contingent and Temporary Employment. A contingent worker is a person who works for an organization on something other than a permanent or full-time basis.

2. Managing Contingent and Temporary Workers. The keys to understanding how to use such workers involve careful planning and understanding their advantages and disadvantages within the organization. In addition, managers must assess the real cost of using contingent workers.

KEY TEACHING TIP Remind students that workforce diversity is the range of workers’ attitudes, values, beliefs, and behaviors that differ by gender, race, age, ethnicity, physical ability, and so on.

.

10-13

QUICK QUESTIONS •

How can an organization benefit from welcoming a diverse workforce?

•

How do knowledge workers add value to an organization?

•

What are some advantages and disadvantages of hiring contingent workers?

.

10-14

Learning Objective 7: Explain why workers organize into labor unions.

Dealing with Organized Labor A labor union is a group of individuals working together to achieve shared job-related goals, such as higher pay, shorter working hours, more job security, greater benefits, or better working conditions. Labor relations refers to the process of dealing with employees who are represented by a union. Collective bargaining is the process by which union leaders and managers negotiate common terms and conditions of employment for the workers re represented by unions.

A. Unionism Today 1. Trends in Union Membership. Since the mid-1950s, U.S. labor unions have experienced increasing difficulties in attracting new members. In 2007 only 12.1 percent of the U.S. labor force is represented by a labor union.

2. Trends in Union-Management Relations. With the exceptions of the automobile and steel industries, unions are clearly in a weakened position and have taken much more conciliatory stances in their relations with management.

3. The Future of Unions. The future of unions depends on the future composition of the workforce. Unions will most likely evolve to assume new roles and responsibilities, such as having a voice in management. Even large and influential unions such as the United Auto Workers (UAW) were forced to make significant concessions during the large-scale restructuring of the U.S. auto industry in 2008–2009.

KEY TEACHING TIPS •

Remind students that the official term describing the process of dealing with employees represented by a labor union is labor relations.

•

Remind students that collective bargaining is much like the negotiation process. When involved with collective bargaining, both labor and management present demands and then focus on identifying the bargaining zone.

•

Be sure to distinguish between the types of strikes: (a) the economic strike, which is triggered by stalemates in the bargaining process and (b) the sympathy strike, occurring when one union strikes in sympathy with another.

•

Students often confuse mediation and arbitration. Mediation involves a third party who makes recommendations to solve a dispute; arbitration involves a third party who makes a legally binding decision to solve a dispute.

.

10-15

QUICK QUESTIONS •

In most sectors, unions are in a weakened position compared with many decades ago.

How has this affected the way in which labor works with management?

•

What issues are typically most important to union negotiators when collective bargaining with management?

•

When bargaining fails between labor and management, what are some union tactics that can be brought to the bargaining table? Management tactics?

HOMEWORK Unionized versus Nonunionized Now is a good time to assign Application Exercise 10 from the end-of-chapter as homework (see page 264 of the text). This assignment asks students to interview the managers of two local companies, one unionized and one nonunionized, and compare the wage and salary levels, benefits, and working conditions of employees at the two firms.

At-Home Completion Time: 45 minutes

.

10-16

Learning Objective 8: Describe the collective bargaining process.

Collective Bargaining Collective bargaining is an ongoing process involving the drafting and administering of the terms of a labor contract.

A. Reaching Agreement on Contract Terms. By law, union leaders and management representatives must negotiate “in good faith.”

B. Contract Issues. In the past, most union-management bargaining situations were characterized by union themselves fighting against wage cuts rather than striving for wage increases. Now, the contract can address any number of issues, including: 1. Compensation. A cost-of-living adjustment (COLA) is one of the most common tools for securing wage increases. Wage reopener clauses provide for renegotiated wage rates at preset times during the duration of the contract.

2. Benefits. Typical employee benefit issues include the cost of insurance, retirement, paid holidays, and working conditions.

3. Job Security. In many cases, demands for job security include the promise that a company will not move to another location and that, if the workforce is reduced, seniority will be used to determine which workers lose their jobs.

4. Other Union Issues. Such issues include working hours, overtime policies, and restperiod arrangements.

5. Management Rights. Unions often try to limit management rights by specifying hiring, assignment, and other policies, though management wants to control hiring policies and work assignments.

D. When Bargaining Fails 1. Union Tactics. When their demands are not met, unions may bring a variety of tactics to the bargaining table. a. Strikes. A strike occurs when employees walk off the job and refuse to work.

Economic strikes are triggered by stalemates over mandatory bargaining items; sympathy strikes occur when one union strikes in sympathy with action initiated by another and may violate the sympathetic union’s contract. Wildcat strikes, not authorized by the union, deprive strikers of their status as employees and protection of national labor law. b. Other Labor Actions. Additional union tactics include picketing, in which workers

.

10-17

march at the entrance to the firm with signs explaining their reasons for striking; boycotts, in which union members agree not to buy products of a targeted employer; and a work slowdown, in which workers perform their jobs at a much slower pace than normal.

2. Management Tactics. Lockouts occur when employers deny employees access to the workplace. A firm can also hire temporary or permanent replacements called strikebreakers.

3. Mediation and Arbitration. In mediation, a neutral third-party offers advice and suggestions in settling a labor-management dispute; in voluntary arbitration, the neutral third party dictates a settlement between the two sides, which have agreed to submit to outside judgment. Compulsory arbitration is used to settle disputes between the government and public employees.

.

10-18

IN-CLASS ACTIVITIES In-Class Activity 1: Ice-Breaker Writing a Job Description Activity Overview: This activity asks students to write a job description for an instructor and for a student.

Time Limit: 45 minutes What to Do: 1. Review what is included in a job description, then ask students to think about what variables should be included in their instructor’s job description and what should be included in a student’s job description, if one were to exist, making individual notes along the way. (10 minutes) 2. Split the class into small groups, asking members of each group to share what they came up with in Step 1. (10 minutes) 3. Ask each group to further discuss what should be included in their instructor’s job description and in a student’s job description, considering any other factors that might come to mind that have not already been discussed. Write a final job description for both instructor and student. (10 minutes) 4. Reassemble the class and discuss each group’s suggestions.(15 minutes) Don’t Forget: There are many roles that instructors play in a college or university other than what students see in the classroom.

Wrap-Up: Review the purpose of a job description, highlighting some of the major elements included in most college or university instructors’ job descriptions.

.

10-19

In-Class Activity 2: Up for Debate Working with Friends Activity Overview: This activity asks students to consider the pros and cons of working with friends.

Time Limit: 30 minutes What to Do: 1. Divide the class into three-member groups and ask them to read the Entrepreneurship and New Ventures feature on page 248 of the textbook. (10 minutes) 2. Ask groups to consider the pros and cons of working with friends. Do you think Netflix’s strategy of seeking to meet employees’ needs makes good business sense? (10 minutes) 3. Regroup the class as a whole and discuss each group’s input, then ask the class to come up with a final decision. (10 minutes) Don’t Forget: To arrive at a final decision, groups may have to resort to voting.

Wrap-Up: Wrap up the activity by briefly discussing what students think the future of the video/DVD industry might look like. Do students believe we will have video rental stores in the future? Will Netflix survive the increasing move to video streaming?

.

10-20

In-Class Activity 3: Small-Group Discussion What Motivates Employees?

Activity Overview: This activity asks students to consider what companywide incentives might motivate workers who work in specific jobs.

Time Limit: 30 minutes What to Do: 1. Divide the class into small groups and assign each group to one of the jobs below: (5 minutes) • Cook at a fast-food restaurant • Waitress at a local diner • Groundskeeper • Computer technician at a small firm • Janitor • College professor 2.

Ask each group to brainstorm what incentives would be especially motivating for a worker performing the assigned job; remind students to consider both tangible and intangible incentives. (10 minutes)

3.

Reassemble the class and ask each group to share their results, allowing all students to share input. (15 minutes)

Don’t Forget: This activity can be completed using any type of job as the basis for discussion. Remind students to consider “reasonable” costs to the company as they brainstorm for ideas.

Wrap-Up: Bring the activity to a close by recapping each group’s conclusion, reminding students that tangible incentives, such as various benefits packages, can be motivating but that intangible incentives, such as employee recognition programs, can also be motivating.

.

10-21

In-Class Activity 4: Business Accountability Handout Discussion Tallying up the Costs of Discrimination Activity Overview: This activity highlights the high costs of employee discrimination in a national organization.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Business Accountability article on page (on the following page of this Instructor’s Manual) and distribute them to students.

2. Divide the class into small groups and ask them to consider the following questions (15 minutes): a. How is hostile work environment/sexual harassment evident in this scenario? b. Is workforce diversity necessary in an organization like this one? In what ways can such organizations benefit from workforce diversity?

3. Regroup as a class and discuss each group’s responses. (15 minutes) Don’t Forget: Remind students of the two types of sexual harassment: hostile environment and quid pro quo.

Wrap-Up: Briefly discuss how attracting a more diverse workforce and customer base can place an organization in a better market position than those organizations that do not make welcoming diversity a part of the strategic focus.

.

10-22

HANDOUT: BUSINESS ACCOUNTABILITY Tallying up the Costs of Discrimination Just how important is an understanding of the legal context of HR management? Experiences at Rent-A-Center clearly show what can happen when a firm minimizes the importance of the HR function. Thorn Americas, a unit of London-based Thorn EMI, had prospered as a large player in the rent-to-own industry. The firm had a large professionally staffed HR department and was known for its progressive hiring and employment development practices.

Thorn merged with another large rent-to-own business, Renters Choice. The new firm was renamed Rent-A-Center, and an outsider—J. Ernest Talley—was brought in to run the combined business. But Talley had some unusual views of the HR function. Specifically, he saw HR as an expense, bristled at the notion of government regulation, and allegedly had a strong bias against women. For example, he was quoted by one employee as saying “Get rid of women any way you can.” Another indicated that he said “Women should be home taking care of their husbands and children, chained to a stove, not working in my stores.”

Even though Rent-A-Center had 2,300 locations and 13,000 employees, Talley essentially eliminated the firm’s HR function. For example, he fired the firm’s top HR executive and dropped all training and employee relations activities. He kept only enough clerical support to handle payroll and benefits activities. But his stance on women and the culture he created proved to be costly. Thousands of talented women left the company, and thousands of potentially valuable new employees were systematically blackballed. Talented males also left in droves, at least in part because they wanted no part of what Talley was trying to do.

Talley’s stance soon prompted legal action. Several women charged that they had been demoted or forced to resign because of their gender. Others charged that he had created a hostile work environment, a key form of sexual harassment. For instance, at one national sales meeting in Las Vegas, Talley hired scantily clad dancers for entertainment. Many of the men in attendance got drunk, while the women felt humiliated.

The lawsuit against Rent-A-Center represented 5,300 current and former employees, as well as approximately 10,000 rejected job applicants. One attorney involved in the case said, “I’ve never seen a case in which so many women and men tell the same kind of story all across the country.

It’s remarkable.” Faced with overwhelming evidence, Rent-A-Center forced Talley to retire and settled the suit for $47 million in payments. The firm also agreed to reestablish an HR department, hire an HR vice president, and take numerous other steps to change its employment practices and culture.

DISCUSSION QUESTIONS 1. How is hostile work environment/sexual harassment evident in this scenario?

2. Is workforce diversity necessary in an organization like this one? In what ways can such organizations benefit from workforce diversity?

.

10-23

In-Class Activity 5: Supplemental Case Study Discussion An About Face for LinkedIn Activity Overview: This activity asks students to read a case study to examine the usefulness of LinkedIn as a professional networking tool.

Time Limit: 30 minutes

What to Do: 1. In advance, make copies of the Supplemental Case Study (on following pages of this Instructor’s Manual) and distribute them to students.

2. Divide students into groups and ask them to read the case and answer the questions in their small groups. (15 minutes) a. Do you think LinkedIn is a good idea? b. Does Social Networking really work for professionals? c. If LinkedIn is to succeed as a network recruiting organizations locate suitable talent, and help job seekers connect with recruiters, what additional add-ons do you think they will need to develop to attract more users and get these users to spend more time linking up?

3. Once students have answered the questions, discuss their answers as a class. Students will feel passionate about Facebook, but will be less familiar with LinkedIn. Ask them if they would use Facebook to find jobs, and how they would go about it. (10 minutes) Don’t Forget: Many different stakeholders will be affected by decisions regarding OSHA and health and safety.

Wrap-Up: Wrap the activity up with an overview of OSHA’s purpose.

.

10-24

HANDOUT: SUPPLEMENTAL CASE STUDY An About Face for LinkedIn Job seekers are increasingly turning to electronic means to find jobs. Online sites such as monster.com and careerbuilder.com have high traffic. But what is the role of social networking sites such as LinkedIn? LinkedIn is a professional social networking site in which users build up a network of contacts to which they are directly connected. Users can then view the network of contacts created by each of their connections (these are called second-degree connections). Users can ask their direct contacts to introduce them to secondary contacts in the network. LinkedIn is often used as a tool to build up professional networks that can be influential in the hunt for new career possibilities.

Employers can list vacant jobs they are seeking to fill. Employees can view the profile of hiring manages and see if any of their contracts might be able to introduce them.

In 2009 it had 50 million worldwide users. But the jury is still out as to whether it will continue to be the site of choice for job seeking professionals. Compared to other social networking sites like Facebook, users spend far less time on LinkedIn. Take, for example, Ms. Nejaime, a San Francisco real estate agent, who uses LinkedIn to check out job prospects. She reports that she only logs in a few times a month due to lack of features on the LinkedIn site. “I would like to get more use out of it,” said Ms. Nejaime “I just don’t know how.” By contrast, the 47-year-old says she uses Facebook every day to touch base with friends and professional contacts. In contrast to LinkedIn’s 50 million members Facebook has over 350 million members.

LinkedIn CEO Jeff Weiner, a former senior executive at Yahoo! Inc., wants to give people reasons to spend more time on LinkedIn, which is primarily used by professionals to post resumes. One of Mr. Weiner’s solutions is to take a page from Facebook’s playbook. He recently opened LinkedIn’s site to third-party developers so they can create applications that will draw professional users to the site when they aren’t looking for work. For example, software maker SAP AG has written an app that allows certified SAP developers to highlight their credentials by adding a “badge” to their LinkedIn profiles. A recently announced partnership with microblogging service Twitter Inc. enables LinkedIn members to link their Twitter accounts to their LinkedIn profiles.

LinkedIn expects other developers will target specific interest groups. For example, a developer might build an app that enables lawyers to highlight their case histories on their profiles. Unlike Facebook, which includes games, LinkedIn said all apps for its network must be professionally oriented. Submissions will be approved on a case-by-case basis.

Although Facebook doesn’t specifically target the professional market, hundreds of companies, such as Ernst & Young and EMC Corp., use the site to highlight their firms and recruit new candidates, said a Facebook spokeswoman. Special groups for lawyers, accountants, engineers, sales people and other professionals have cropped up all over Facebook as well.

.

10-25

Source: Scott Morrison, “LinkedIn wants users to connect more.” The Wall Street Journal, December 29, 2009

DISCUSSION QUESTIONS 1. Do you think LinkedIn is a good idea?

2. Does Social Networking really work for professionals?

3. If LinkedIn is to succeed as a network recruiting organizations locate suitable talent, and help job seekers connect with recruiters, what additional add-ons do you think they will need to develop to attract more users and get these users to spend more time linking up?

.

10-26

THE BUSINESS PLAN PROJECT Part 3: People in Organizations This part of the business plan asks students to think about their employees, the jobs they will be performing, and the ways in which they can lead and motivate them. Students take the different job titles they created in the organizational chart in Part 2 and give thought to the skills that employees will need to bring to the job before they begin. They also consider the training they’ll need to provide employees after they are hired, as well as how they’ll compensate their employees. Part 3 of the business plan also asks students to consider how they’ll lead employees and keep them happy and motivated.

Files to Provide Students: For this part of the project, students will be asked to complete Part 3: People in Organizations (see below). If students have already started working on the business plan project, they should continue using the student.

Part 3 Estimated At-Home Completion Time: If done well, this section will require a minimum of 3 to 5 hours. As noted previously, because some companies will have more job descriptions and job specifications than others, you may want to limit the number you ask students to complete.

Homework Deliverable from Students: The length of this section should be somewhat consistent, although some variance can be expected depending on the size and complexity of the business. You should expect at least 3 to 5 pages in this section.

.

10-27

STUDENT BUSINESS PLAN PROJECT TEMPLATE PART 3: PEOPLE IN ORGANIZATIONS

CORPORATE CULTURE What do you see as the “corporate culture” of your business? What types of employee behaviors, such as organizational citizenship, will you expect?

Hint: Will your business demand a casual environment or a more professional environment?

Refer to the discussion on employee behavior in Chapter 8 for information on organizational citizenship and other employee behaviors.

LEADERSHIP PHILOSOPHY What is your philosophy on leadership? How will you manage your employees day-to-day?

Hint: Refer to the discussion on leadership in Chapter 9 to help you formulate your thoughts.

JOB DESCRIPTIONS Looking back at your organizational chart in Part 2, briefly create a job description for each team member.

Hint: As you learned in Chapter 10, a job description lists the duties and responsibilities of a job; its working conditions; and the tools, materials, equipment, and information used to perform it. Imagine your business on a typical day. Who is working and what are each person’s responsibilities? (Note that if your business is very large, you should ask your instructor how many positions he or she would like you to create job descriptions for.)

JOB SPECIFICATIONS Next, create a job specification for each job, listing the skills, credentials, and qualifications needed to perform the job effectively.

Hint: As you write your job specifications, consider what you would write if you were making an ad for the position. What would the new employee need to bring to the job in order to qualify for the position?

Insert Job Title #1: Insert Needed Skills/Credentials/Qualification for Job: Insert Job Title #2: Insert Needed Skills/Credentials/Qualification for Job: Insert Job Title #3: Insert Needed Skills/Credentials/Qualification for Job: TRAINING EMPLOYEES What sort of training, if any, will your employees need once they are hired? How will you provide this training?

Hint: Refer to the discussion of training in Chapter 10. Will you offer your employees on-the-job training? Off-the-job training? Vestibule training?

.

10-28

COMPENSATION A major factor in retaining skilled workers is a company’s compensation system—the total package of rewards that it offers employees in return for their labor. Part of this compensation system includes wages/salaries. What wages or salaries will you offer for each job? Why did you decide on that pay rate?

Hint: Refer to Chapter 10 for more information on forms of compensation. You may also want to check out sites like www.salary.com, which includes a salary wizard you can use to determine how much people with different job titles are making in your area and across the United States.

INCENTIVES As you learned in Chapter 10, incentive programs are special programs designed to motivate high performance. What incentives will you use to motivate your workforce?

Hint: Be creative and look beyond a simple answer, such as giving pay increases. Ask yourself, who are my employees and what is important to them? Refer to Chapter 10 for more information on the types of incentives you may want to consider.

.

10-29

ANSWERS FOR END OF CHAPTER ACTIVITIES (Starting on Page 264 of the Text) QUESTIONS FOR REVIEW 1. Internal recruiting builds morale and motivation for other employees who see peers being promoted; in addition, with internal recruiting, there is no need to teach the culture and the nature of the business. In discussing disadvantages of internal recruiting, students will likely add that such recruiting may lead to fewer new ideas, may create other openings in the company that will need to be filled, and may create resentment among other employees who are not promoted. External recruiting, on the other hand, brings new ideas and expertise, increases workforce diversity, and provides new information about the competition and the marketplace. Disadvantages of external recruiting include increased training costs and temporary efficiency loss, loss of morale among current employees, and friction regarding salary differences if the outsider is more highly paid.

2. Employers need to ensure that workers are performing their jobs correctly and efficiently in order to prevent costly errors. Also, in order to be socially responsible to employees, suppliers, shareholders, and customers, firms must train their workers in the latest technology, the most efficient production processes, and the nature of the industry.

3. Individual incentives may include bonuses, merit pay, or pay-for-performance.

Companywide incentives include profit-sharing plans, gain-sharing plans, and pay-forknowledge plans. Mandatory benefits include social security and workers’ compensation insurance, while optional benefits include health and life insurance, stock purchase plans, retirement programs, and family-friendly benefits, such as flextime, subsidized cafeterias, subsidized or free child care, sick days, vacations, employee recognition awards, etc.

4. Some industries have a tradition of union organization, for example the auto industry. Other industries, such as fast food, have a more transient work force that makes it more difficult to organize. Additionally, workers’ perspective on working conditions, benefits, and salary impact their desire to organize.

QUESTIONS FOR ANALYSIS 5. Answers will vary, but should include discussion of drug abuse’s impact on the workplace and issues of employee privacy.

6. These workers may feel they have satisfactory wages, adequate benefits, satisfactory working conditions, and reasonable job security.

7. Answers will vary, but many students will recognize that job-specific or industry-specific training may be necessary, as well as possibly some special types of training, such as learning a foreign language or computer program.

.

10-30

8. Answers will vary, but many students will express satisfaction in merely finding a job in their chosen industry after graduation, while some students will be more aggressive in finding more tangible benefits in their jobs.

APPLICATION EXERCISES 9. Answers will vary based on the company and the position. However, most HR managers will reveal how certain recruitment tools work better than others, how certain jobs require preemployment testing, and how the value placed on the interview process may vary depending on the job or other factors.

10. Answers will vary. Often students believe that unionized companies pay better and provide better benefits; however, this is not always the case.

ANSWERS TO BUILDING YOUR BUSINESS SKILLS FOLLOW-UP QUESTIONS 1. Answers will vary, but will likely focus on the purpose of unions and how well union contracts actually represent labor in the ways intended.

2. Answers will vary, but many unionized workers will suggest that the union is only as good as the contract, revealing how critical the collective bargaining process is in creating satisfied workers.

3. Answers will vary, but in some instances, the union will help workers find jobs while others will not.

4. Answers will vary, but trends in union participation have decreased in the past several decades, so many students will base their opinions on that alone.

ANSWERS TO EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE QUESTIONS TO ADDRESS 1. The key ethical issue is dishonesty—your manager is encouraging you to deliberately mislead employees and to actively interfere with organizing activities. Furthermore, terminating a key organizer is blatant intimidation.

2. Basic arguments for extreme measures to fight unionization include the need to limit spending on human resources. Basic arguments against extreme measures include the questionable ethics of this approach and the negative impact on morale, which could negatively affect efficiency and effectiveness.

3. Answers will vary, but older, more experienced managers may be more likely to stand up to their bosses, refusing to mislead their employees.

.

10-31

EXERCISING YOUR ETHICS: TEAM EXERCISE This should be an interesting discussion because students will bring their own perspectives on race, gender, job performance to this exercise. Students should focus on job performance and contributions to the company when making their decisions but the discussion will be wide ranging covering the legal issues, diversity, perception, etc.

ACTIVITIES ON MYBIZLAB - INSTRUCTOR TIPS BizSkill: Human Resource Management/Hiring an Employee Instructor Tips Available at: mybizlab.com Brief Synopsis/Objectives: In this BizSkill, students are asked to play the part of an employee at a medical products company named QueStar, with a staff of 150 and a sales force of 20. Management has asked the student to increase sales revenue by 15 percent—no easy task in a competitive market.

At the end of the BizSkill, students should be able to answer the following questions: 1. How is a job description created?

2. How can I gather resources to locate appropriate candidates?

3. How do I evaluate resumes?

4. How do I conduct a candidate interview?

5. How can the art of negotiation benefit my hiring practices?

How to Best Use This BizSkill: A great way to use this BizSkill is to assign it as homework before your first lecture on the chapter. Ask students to print out their feedback page, and then have them do the BizSkill again at the end of the week to see whether their scores have improved.

.

10-32

Chapter 11: Marketing Processes and Consumer Behavior Chapter Overview Many students think that marketing is merely sales or advertising. Actually, sales and advertising are just a small part of the overall marketing process. Think of a product that you buy often. You might not realize that everything about that product—from the time it is created, produced, packaged, and shipped to you—involves various facets of marketing.

This chapter explains the concept of marketing and discusses the five forces that constitute the external marketing environment. It also explains the purpose of a marketing plan, identifies the four components of the marketing mix, and discusses the necessity of identifying market segments. As the chapter unfolds, many variables surrounding both the consumer and organizational markets are discussed, as well as a focus on distinguishing features between products and services and the importance of branding and packaging. The chapter also discusses the consumer buying process, organizational markets, and key considerations in the new product development process. Finally, it looks at the challenges that arise in adopting an international marketing mix and the ways in which small businesses can benefit from an understanding of the marketing mix.

Learning Objectives 1. Explain the concept of marketing and identify the five forces that constitute the external marketing environment.

2. Explain the purpose of a marketing plan and identify the four components of the marketing mix.

3. Explain market segmentation and how it is used in target marketing.

4. Describe the key factors that influence the consumer buying process.

5. Discuss the three categories of organizational markets.

6. Explain the definition of a product as a value package and classify goods and services.

7. Describe the key considerations in the new product development process, and explain the importance of branding and packaging 8. Discuss the marketing mix as it applies to international and small business.

.

11-1

Chapter Outline A. What Is Marketing?

1. Delivering Value 2. Goods, Services, and Ideas 3. Relationship Marketing and Customer Relationship Management 4. The Marketing Environment B. Strategy: The Marketing Environment 1. Product 2. Pricing 3. Place (Distribution) 4. Promotion 5. Blending It all Together: Integrated Strategy C. Target Marketing and Market Segmentation 1. Identifying Market Segments D. Understanding Consumer Behavior 1. Influences on Consumer Behavior 2. The Consumer Buying Process E. Organizational Marketing and Buying Behavior 1. Business Marketing 2. B2B Buying Behavior F. What Is a Product?

1. The Value Package 2. Classifying Goods and Services 3. The Product Mix G. Developing New Products 1. The New Product Development Process 2. Product Mortality Rates 3. Product Life Cycle 4. Identify Products H. The International Marketing Mix 1. International Products 2. International Pricing 3. International Distribution 4. International Promotion I. Small Business and the Marketing Mix

.

11-2

LIST OF IN-CLASS ACTIVITIES: AUTHOR’S CHOICE Activity

Description

1. Ice-Breaker: Assessing the Marketing Environment

Students consider various elements from the marketing environment that affect specific industries.

Students consider all the valuable 2. Small-Group Discussion: Data information they give to others about Mining themselves.

3. Business Accountability Handout Students read an article about ambush Discussion: Sports Marketing Ambush! marketing in the sports industry.

Students discuss the additional chapter 4. Supplemental Case Study Discussion: case study, which focuses on involving Putting your Soul into Shoe Design customers in the design process.

Students are divided into teams to 5. Up for Debate: Social Networking debate the advantages and and Job Seeking disadvantages of using Social Networking to find jobs Students consider what a foreign visitor 6. Small-Group Discussion: Never might notice about the American Give a German a Yellow Rose marketplace.

Time Limit

Instructor’s Manual Page Reference

30 min.

11-7, 11-19

20 min.

11-7, 11-20

30 min.

11-11, 11-21 to 11-23

30 min.

11-14, 11-24 to 11-25

30 min.

11-17, 11-26

30 min.

11-18, 11-27

LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE At-Home Activity

Description

Application 9: CRM and the Marketing Mix

Application Exercise 11: Buzz Marketing Campaign Kit

Students identify ways to incorporate CRM and the basic components of the marketing mix.

Students are asked to examine the market segmentation of a foreign product sold in the United States.

Students select a product and develop a buzz marketing campaign kit.

BizSkills

Product Development

Application 10: Market Segmentation of a Foreign Product

.

Deliverable

Completion Time

A brief paper explaining recommendations.

Instructor’s Manual Page Reference 11-8, 11-29

30 min.

Brief paper exploring if the product is segmented by geographic, demographics or psychographics.

11-10, 11-29 45 min.

A buzz marketing campaign kit including what makes the product cool and its value proposition.

1 hour

11-17, 11-29

Students can test their own skill in the mini-simulation.

15 min.

11-30

11-3

TEACHING NOTES AND SUGGESTIONS Learning Objective 1: Explain the concept of marketing and identify the five forces that constitute the external marketing environment.

What Is Marketing?

The American Marketing Association defines marketing as “a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.”

A. Providing Value and Satisfaction Consumers buy products that offer the best value when it comes to meeting their needs and wants.

1. Value and Benefits. Value compares a product’s benefits with its costs; benefits include the product’s functions and emotional satisfactions associated with owning, experiencing, or possessing it.

2. Value and Utility. Products provide utility, which is the product’s ability to satisfy a human want or need. Marketing strives to provide four kinds of utility—form utility, time utility, place utility, and ownership utility.

B. Goods, Services, and Ideas Consumer goods are tangible products that consumers purchase for final consumption; firms that sell these goods are engaged in consumer marketing. Industrial goods are products that are purchased by companies to be used in further production of goods; firms that sell products to other businesses are engaged in industrial marketing. Services are products with intangible (nonphysical) features, such as professional advice, improved safety procedures, timely information for decisions, or a resort vacation. Service marketing is the application of marketing for services.

C. Relationship Marketing Relationship marketing focuses on building long-lasting relationships between customers and suppliers.

1. Data Warehousing and Data Mining for Building Customer Relationships. Data warehousing is the compiling and storage of consumer data; data mining allows for the sifting, sorting, and searching for previously undiscovered customer information and preferences.

D.

The Marketing Environment Marketing decisions are affected by various influences in the external environment.

.

11-4

1. Political and Legal Environment. Political activities may result in favorable laws and regulations that may open new international business opportunities.

2. Sociocultural Environment. Elements from this segment of the environment include changing demographics, values and religion, buying behaviors, preferences, and activities as well as many other factors.

3. Technological Environment. Technological change happens so quickly in some industries that existing products become obsolete very quickly, while new-product introductions replace them.

4. Economic Environment. Economic conditions affect many facets of marketing, including consumer spending patterns and marketers’ plans for product offerings, pricing, and promotional strategies.

5. Competitive Environment. All marketers compete for the purchasing power of consumers. This sometimes occurs through product differentiation and consumer segmentation. Substitute products may not look alike or they may seem very different from one another, but they can fulfill the same need; brand competition occurs between similar products; international competition matches domestic products against foreign products.

E. Strategy: The Marketing Mix A company’s marketing managers are responsible for planning and implementing all the activities that result in the transfer of goods or services to its customers. These activities culminate in the marketing plan—a detailed strategy for focusing marketing efforts on consumer needs and wants. The marketing mix consists of the “Four Ps” of marketing: product, pricing, place, and promotion.

1. Product. The product is a good, service, or idea designed to fill a consumer need.

Meeting consumer needs often requires that marketers change existing products. a. Product Differentiation. Product differentiation is the creation of a feature or image that makes a product differ enough from existing products to attract consumers.

2. Pricing. Pricing must be set to support a variety of costs, yet prices cannot be so high that consumers turn to competing products.

3. Place (Distribution). Distribution activities are concerned with getting the product from the producer to the consumer.

4. Promotion. Promotion refers to techniques of communicating information about products. Promotion includes a combination of personal selling and/or nonpersonal selling, including advertising, sales promotion, and public relations.

.

11-5

F. Small Business and the Marketing Mix Far more small businesses fail than succeed. The successful small businesses have learned skillful application of the marketing mix and careful consideration of each element in the marketing mix.

1. Small-Business Products Understanding the target market and the targeted group’s wants is critical.

2. Small-Business Pricing Profits are often determined by accurately assessing costs from the start.

3. Small-Business Distribution The most critical aspect of distribution for small businesses is facility location.

4. Small-Business Promotion Understanding promotional costs, as well as benefits of chosen promotional tools, may be the most critical steps involved.

KEY TEACHING TIPS •

Students often forget that marketing is more than just advertising and sales. It is a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships.

•

Make sure that students grasp the concept of utility—the ability of a product to satisfy a human want or need—as it is a difficult concept for some students.

•

Consumer marketing involves the sale of consumer goods and services to consumers; industrial marketing involves the sale of industrial goods and services to other companies.

•

Relationship marketing emphasizes building lasting relationships with customers and suppliers. What do organizations hope to gain from relationship marketing?

•

Make sure students understand the distinction between data warehousing and data mining.

•

Reinforce that every marketer is faced with forces from the external environment, including the political-legal, sociocultural, technological, economic, and competitive environments.

Reinforce that although price may be the easiest of the Four Ps to change, a price that is too high fails to attract buyers, and a price that is too low yields little profit.

•

.

11-6

•

Make sure students understand that place is concerned with all of the activities involved in getting products from producers to consumers.

•

Reinforce that promotion refers to techniques—advertising, personal selling, sales promotions, publicity, and PR—for communicating information about products.

•

Remind students that the marketing mix consists of product, price, promotion, and placement. It is affected by variables such as consumer characteristics, consumer needs, emerging marketing, and competition.

•

Stress that the elements of the marketing mix—the Four Ps—are treated similarly by small businesses and large businesses; only the implementation may change.

QUICK QUESTIONS •

How does a marketer create form utility, time utility, place utility, and ownership utility?

•

What are some examples of consumer goods? What about industrial goods?

•

Relationship marketing emphasizes building lasting relationships with customers and suppliers. What do organizations hope to gain from relationship marketing?

•

Make sure students understand the distinction between data warehousing and data mining.

•

What are some common political-legal factors that affect marketing?

•

What are some common sociocultural factors that affect marketing?

•

What are some common technological factors that affect marketing?

•

What are some common economic factors that affect marketing?

•

What are some examples of competing products?

•

Why do marketers attempt to differentiate their products?

Use In-Class Activity 1: Ice-Breaker: Assessing the Marketing Environment Time Limit: 30 minutes Use In-Class Activity 2: Small-Group Discussion: Data Mining Time Limit: 20 minutes

.

11-7

HOMEWORK CRM and the Marketing Mix Now is a good time to assign Application Exercise 9 from the end-of-chapter materials as homework (see page 295 of the text). This assignment is designed to get students thinking about the different elements of the marketing mix.

At-Home Completion Time: 30 minutes

.

11-8

Learning Objective 2: Explain the purpose of a marketing plan and identify the four components of the marketing mix.

The marketing plan—a detailed strategy for focusing marketing efforts on customers’ needs and wants. Therefore, marketing strategy begins when a company identifies a customer need and develops a product to meet it. Starbucks’s revised strategy in our opening case, for example, recognizes consumers’ needs for more affordable coffee products in a down-turned economy.

In planning and implementing strategies, marketing managers develop the four basic components (often called the “Four Ps”) of the marketing mix: product, pricing, place, and promotion.

Product Marketing begins with a product—a good, a service, or an idea designed to fill a customer’s need or want.

Pricing. The pricing of a product—selecting the best price at which to sell it—is often a balancing act.

Place (Distribution). In the marketing mix, place refers to distribution. Placing a product in the proper outlet—for example, a retail store—requires decisions about several activities, all of which are concerned with getting the product from the producer to the consumer.

Promotion. The most visible component of the marketing mix is no doubt promotion, which refers to techniques for communicating information about products.

Integrated marketing strategy ensures that the Four Ps blend together so that they are compatible with one another and with the company’s nonmarketing activities as well.

.

11-9

Learning Objective 3: Explain market segmentation and how it is used in target marketing.

Target Marketing and Market Segmentation Target markets are groups of people with similar wants and needs who can be expected to show interest in the same products. Market segmentation divides a market into categories of consumer types, based on geographic, demographic, and psychographic variables.

A. Identifying Market Segments Members of a market segment must share common traits that will affect their purchasing decisions.

1. Geographic Variables. Consumers in certain geographic regions exhibit characteristics and buying patterns that are typical of those regions. Geographic variables are the geographical units, from countries to neighborhoods that may be considered in a segmentation strategy.

2. Demographic Variables. Demographic variables describe populations, including such traits as age, income, gender, ethnic background, marital status, race, religion, and social class.

3. Psychographic Variables. Psychographic variables include life styles, opinions, interests, and attitudes.

KEY TEACHING TIP The consumer buying process consists of a series of steps taken by consumers when making purchases: (a) Problem/Need Recognition, (b) Information Seeking, (c) Evaluation of Alternatives, (d) Purchase Decision, and (e) Postpurchase Evaluation.

QUICK QUESTIONS • • •

What demographic variables would affect your purchase of a cell phone?

How can psychographic variables—unlike geographic and demographic variables—be changed by marketing efforts?

What factors might consumers consider when evaluating alternatives in the consumer buying process?

HOMEWORK Target Marketing and Market Segmentation Now is a good time to assign Application Exercise 10 from the end-of-chapter materials as homework (see page 295 of the text). This assignment is designed to get students thinking about target marketing and the basis upon which target markets are segmented.

At-Home Completion Time: 45 minutes

.

11-10

Learning Objective 4: Describe the key factors that influence the consumer buying process.

Understanding Consumer Behavior Consumer behavior is the study of the decision process by which people buy and consume products.

A. Influences on Consumer Behavior Influences on consumer behavior can include psychological, personal, social, and/or cultural elements. When consumers exhibit brand loyalty, they regularly purchase products because they are satisfied with the products’ performance or benefits.

B. The Consumer Buying Process Various models have been constructed to help marketers understand how consumers come to purchase products; marketers eventually use this information to develop marketing plans.

The consumer buying process includes five steps: 1. Problem/Need Recognition. The consumer recognizes a problem or a need.

2. Information Seeking. Consumers seek information from personal sources, marketing sources, public sources, and experience.

3. Evaluation of Alternatives. Consumers compare products before deciding which one(s) meet their needs.

4. Purchase Decision. Ultimately, consumers make purchase decisions. Rational motives involve the logical evaluation of product attributes, such as cost, quality, and usefulness.

Emotional motives involve nonobjective factors and include sociability, imitation of others, and aesthetics.

5. Postpurchase Evaluation. Only satisfied customers will likely make repeat purchases.

QUICK QUESTIONS •

What are some examples of psychological influences and personal influences on consumers? What about social influences and cultural influences?

•

What is the difference between rational motives and emotional motives when consumers make a purchase decision? Are emotional motives related to psychographics?

Use In-Class Activity 3: Business Accountability Handout Discussion: Sports Marketing Ambush!

Time Limit: 30 minutes

.

11-11

Learning Objective 5: Discuss the three categories of organizational markets.

Organizational Marketing and Buying Behavior Organizational markets and buying behaviors are quite different from consumer markets and consumer behaviors.

A. Business Marketing Organizational markets fall into three categories: industrial, reseller, and government/ institutional markets.

1. Industrial Market. The industrial market includes businesses that buy goods that are either converted into other products or goods that are used up during production.

2. Reseller Market. The reseller market consists of marketing intermediaries, such as wholesalers and retailers that buy products and resell them.

3. Government and Institutional Market. In addition to federal and state governments, the institutional market consists of nongovernment organizations, such as hospitals, churches, and museums, that also use supplies and equipment as well as legal, accounting, and transportation services.

B. B2B Buying Behavior Organizational buying behavior bears little resemblance to consumer buying practices.

Demand for industrial products is stimulated by differences in buyers and buyer-seller relationships.

1. Differences in Buyers. Industrial buyers are trained, professional, specialized, and expert.

2. Differences in the Buyer-Seller Relationship. Industrial buying situations often involve frequent, enduring buyer-seller relationships.

KEY TEACHING TIP Goods and services can fall into two groups: consumer products and industrial products.

QUICK QUESTIONS • • • • •

How are farmers and manufacturers, for example, included in the industrial market?

What are the roles of wholesalers and retailers in the reseller market?

How are consumer-seller relationships different from buyer-seller relationships?

How are convenience goods different from shopping goods? How are shopping goods different from specialty goods?

What types of industrial products are considered expense items?

.

11-12

Learning Objective 6: Explain the definition of a product as a value package and classify goods and services.

What Is a Product?

In order to develop the marketing mix and plan their strategies effectively, marketers must consider what consumers buy when they purchase products; marketers must begin by understanding product features and benefits.

A. The Value Package Product features are the tangible and intangible qualities that are built into products; product benefits include what products can do emotionally or physically for consumers. Today’s consumer regards a product as a bundle of attributes—benefits and features—that, taken together, marketers call the value package.

B. Classifying Goods and Services Goods and services may be classified according to their prospective buyers; buyers may be classified as buyers of consumer products or buyers of industrial products.

1. Classifying Consumer Products. Convenience goods (such as milk and newspapers) and convenience services are consumed rapidly and regularly. They are inexpensive and are purchased often and with little output of time and effort. Shopping goods and shopping services are more expensive and are purchased less often than convenience products. Consumers often compare brands, sometimes in different stores. They may also evaluate alternatives in terms of style, performance, color, price, and other criteria.

Specialty goods and specialty services are extremely important and expensive purchases. Consumers usually decide on precisely what they want and will accept no substitutes. They often go from store to store, sometimes spending a great deal of money and time to get a specific product.

2. Classifying Organizational Products. Expense items are goods and services consumed within one year by other suppliers of services or producers of goods. Capital items are permanent, long-lasting goods and services that have expected lives of more than one year.

C. The Product Mix The product mix is the total assortment of all goods and/or services that a marketer makes available for sale.

1. Product Lines. A group of products that are closely related because they function in a similar manner (flavored coffees) or are sold to the same customer group (stop-in coffee drinkers) who will use them in similar ways is a product line.

.

11-13

KEY TEACHING TIPS •

Remind students that a value package is a combination of all the product features and benefits—all bundled together—that are found to be attractive to the consumer.

•

Make sure students understand the distinction between a product mix (the total assortment of all goods and services available from a marketer) and a product line (a group of products that function in a similar manner or are sold to the same customer group who will use them in similar ways).

Use In-Class Activity 4: Supplemental Case Study Discussion: Putting Your Soul into Shoe Design!

Time Limit: 30 minutes

.

11-14

Learning Objective 7: Describe the key considerations in the new product development process and explain the importance of branding and packaging.

Developing New Products To expand or diversify to survive, marketers must develop and successfully introduce streams of new products. Competition and shifting consumer preferences cause marketers to continually monitor and frequently change their offerings.

A. The New-Product Development Process Product development is a long, complex process. New products usually involve carefully planned and sometimes risky commitments of time and resources.

1. Product Mortality Rates. Estimates indicate that it takes 50 new product ideas to generate one product that reaches that marketplace; only a few of the survivors become successful.

2. Speed to Market. The quicker a product enters the marketplace, the more likely it is to survive. Introducing new products ahead of competitors allows companies to become market leaders.

B. The Product Life Cycle Every product passes through a series of stages during its limited profit-producing life.

1. Stages in the Product Life Cycle. The product life cycle is a natural process in which products are born, grow, mature, decline, and die. The stages include: introduction, which begins when the product enters the marketplace; growth, when sales and profits climb; maturity, when sales growth begins to slow; and decline, when sales and profits continue to fall.

C. Identifying Products Branding and packaging are two tools that allow consumers to identify products in the marketplace.

1. Branding Products Brand names are symbols for characterizing products and distinguishing them from one another; branding is the process of using symbols to communicate the features and qualities of products. Brand awareness is the brand name that first comes to your mind when you consider a particular product category. a. Gaining Brand Awareness i. Product Placements. A product placement is a promotional tactic for brand exposure in which characters in television, film, music, magazines, or video games use a real product that is visible to viewers.

.

11-15

ii. Buzz Marketing. Buzz marketing relies on word-of-mouth to spread the buzz about a new product. Buzz marketing agencies employ volunteers to spread the buzz about a new product. iii. Viral Marketing. Viral marketing relies on word-of-mouth and the Internet to spread information like a “virus” from person-to-person about products and ideas. b. Types of Brand Names i. National Brands. These are brand-name products produced by, widely distributed by, and carrying the name of a manufacturer. ii. Licensed Brands. These are brand-name products that carry the name of an organization or individual. iii. Private Brands. These are brand-name products that a wholesaler or retailer has commissioned from a manufacturer.

D. Packaging Products A product’s package serves several purposes; the packaging can serve as an in-store advertisement, a display for the brand name, an identifier of product features and benefits, and can reduce the risk of damage and increase the difficulty of stealing.

KEY TEACHING TIPS • • • •

Stress that high mortality rates indicate that out of many new ideas, only a few products reach the market.

Reinforce that the product life cycle is a series of stages through which a product passes during its commercial life; the duration of a product’s life cycle varies.

Remind students that both product placements and viral marketing help marketers gain brand awareness.

Make sure students understand that branding is the process of using symbols to communicate the qualities of a particular product made by a particular producer.

QUICK QUESTIONS • • • • • •

Can you think of any recent examples of a product that benefited from its speed to market?

What happens in the decline stage of the product life cycle?

How does successful branding lead to brand awareness?

Why is viral marketing sometimes more successful than traditional media options?

What is the difference between national, licensed, and private brands?

What are some purposes of packaging?

.

11-16

Use In-Class Activity 5: Up for Debate: Social Networking and Job Seeking Time Limit: 30 minutes

VIDEO: DC SHOES Run Time: 5:47 This is a good point to show this video, as it describes how market segmentation is used to create a target market for a product, and discusses the components of the value package and the importance of branding. Incorporate Discussion Questions found on page 296 of the text.

HOMEWORK Developing a Buzz marketing Campaign Kit Now is a good time to assign Application Exercise 11 from the end-of-chapter materials as homework (see page 295 of the text). This assignment is designed to get students thinking about buzz marketing and how to launch a word-of-mouth campaign.

At-Home Completion Time: 1 hour

.

11-17

Learning Objective 8: Discuss the marketing mix as it applies to international and small business.

The International Marketing Mix Foreign consumers differ from domestic buyers in language, customs, business practices, and consumer behavior. Marketing products internationally means mounting a strategy to support global business operations.

A. International Products Some products can be marketed internationally without modifications, whereas other products need to be modified to fit the needs of a local market.

B. International Pricing Many factors that affect domestic pricing also affect international pricing; additional factors affecting global pricing are the costs of transportation and selling abroad.

C. International Distribution Distribution networks in other countries may be costly. Many domestic marketers hire foreign agents to assist with selling, advertising, and providing information about local markets.

D. International Promotion Many American promotional tactics do not succeed in other countries. Marketers must consider differences in language and culture when promoting products abroad.

KEY TEACHING TIP •

Remind students that one consideration when determining the difference between domestic pricing and international pricing is the higher cost of transporting and selling products abroad.

•

Reinforce that marketers face an extreme advantage when distributing products abroad if they can deliver through already-established networks.

Use In-Class Activity 6: Small-Group Discussion: Never Give a German a Yellow Rose Time Limit: 30 minutes

.

11-18

IN-CLASS ACTIVITIES In-Class Activity 1: Ice-Breaker Assessing the Marketing Environment Activity Overview: This activity asks students to consider various elements from the marketing environment that affect specific industries.

Time Limit: 30 minutes What to Do: 1. Divide the class into five-member groups and assign an industry to each group. For example, you may use the automotive industry, fast-food industry, apparel industry, airline industry, and the banking industry. (5 minutes) 2. Ask each group to discuss how variables from each of the five environments highlighted in the textbook—the political-legal, sociocultural, technological, economic, and competitive environments—affect their assigned industry. (10 minutes) 3. Reassemble the class and discuss each group’s input. (15 minutes) Don’t Forget: With groups of five students, you can assign each student to analyze one of the environments.

After this activity is completed, you can ask students to further research their assigned industry to find additional environmental variables that are currently affecting it.

Wrap-Up: Review the five marketing environments presented in the textbook and some of the common variables that come from each. Remind students that, in many cases, the same variables from each respective environment affect a number of different industries.

.

11-19

In-Class Activity 2: Small-Group Discussion Data Mining Activity Overview: This activity asks students to think about all the valuable information about themselves that they give to others.

Time Limit: 20 minutes What to Do: 1. Divide students into small groups and ask them to discuss and make a list of all the locations where they freely give valuable personal information. (10 minutes) 2. Reassemble the class and compile the groups’ lists. Are the lists similar? For what purposes is this information used by others? (10 minutes) Don’t Forget: You can also use this activity as an in-class debate with students considering the pros and cons of data mining.

Wrap-Up: Bring the activity to a close by briefly discussing the purpose of data mining and its advantages and disadvantages from a consumer’s perspective.

.

11-20

In-Class Activity 3: Business Accountability Handout Discussion Sports Marketing Ambush!

Activity Overview: This activity asks students to consider ambush marketing in the sports industry Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Business Accountability article (on the following pages of this Instructor’s Manual) and distribute them to students.

2. Divide the class into small groups and ask them to read the scenario, paying attention to the following questions: (15 minutes) a. Do you consider ambush marketing to be ethical? Why or why not? b. What advice would you give a sports league seeking to minimize the impact that ambush marketing is having on the league’s official sponsors? c. What advice would you give to a new sporting good manufacturer with a limited marketing budget that is considering an ambush marketing campaign of the Final Four basketball tournament?

3. Regroup and discuss each group’s suggested answers. (15 minutes) Don’t Forget: This topic is controversial. Students’ opinions will vary on both questions.

Wrap-Up: Bring the activity to a close by reminding students of the role that promotion plays in the marketing mix. Also remind students that social responsibility comes into play quite often as the marketing mix is developed.

.

11-21

HANDOUT: BUSINESS ACCOUNTABILITY Sports Marketing Ambush!

We all know that the sports business is huge. Sponsors pay millions of dollars to advertise at the Super Bowl or Olympic Games. Others pay millions to top athletes to get the athletes to wear or endorse their products. Other companies however, use marketing techniques to try to get exposure for very minimal costs. This is ambush marketing!

Ambush marketing is not popular with the sponsors that together paid an estimated $43.5 billion for what they thought were exclusive sponsorship rights for teams, leagues, and events around the world. Ambush marketing also threatens the sports leagues and event themselves.

The International Olympic Committee estimates that sponsorship makes up 40 percent of the total revenue for the Olympic movement and they do not want to see this revenue eroded if companies begin to pull back on sponsorship monies.

What then, is ambush marketing and how does it work? Ambush marketing originally described a brand’s attempts to associate itself with a team or event without buying the rights to do so, in order to detract from a rival that did pay for the rights. In 1992, for example, American Express Co. showed TV ads with Barcelona, Spain, the host city of the Summer Olympics that year, in the background and a message that said “You don't need a visa” to visit Spain. Visa Inc., an official sponsor of the Olympic Games, complained loudly. Amex has said that the commercials did not refer to the Olympics and were not an attempt to ambush Visa.

Today ambush marketing covers a variety of practices including: • • • • • • •

Predatory Ambushing: Intentionally attacking a rival’s official sponsorship in an effort to gain market share and to confuse consumers as to whom the official sponsor is.

Coattail Ambushing: The attempt by a brand to directly associate itself with a team or sports event by using a legitimate link other than becoming an official sponsor Self-Ambushing: Marketing activities by an official sponsor above and beyond what has been agreed on in the sponsorship contract.

Associative Ambushing: The use of imagery or terminology to create an allusion that an organization has links to a sports event Distractive Ambushing: Setting up a promotional presence at or near an event without making specific reference to the event itself.

Insurgent Ambushing: The use of surprise street-style promotions at or near an event.

Unintentional Ambushing: Sometimes media coverage will mention equipment or clothing used by an athlete, or a company that is providing a service in support of an event. Consumers can come away thinking the company is an official sponsor of the event.

Sports organizations are doing more to protect their investments, and those of their sponsors.

The International Olympic Committee, for example, now requires broadcasters of the Games to offer official sponsors first rights of refusal for advertising time during programming. Bids .

11-22

from potential host cities, meanwhile, are required to include guarantees that legislation will be in place to “reduce and sanction” ambush marketing, and that street vending will be eliminated and outdoor and public-transport advertising controlled from two weeks before the opening ceremony until the official closing.

Source: Simon Chadwick and Nicholas Burton, “Ambushed.” The Wall Street Journal, January 25, 2010.

Discussion Questions 1. Do you consider ambush marketing to be ethical? Why or why not?

2. What advice would you give a sports league seeking to minimize impact that ambush marketing is having on the league’s official sponsors?

3. What advice would you give to a new sporting good manufacturer with a limited marketing budget that is considering an ambush marketing campaign of the Final Four basketball tournament?

.

11-23

In-Class Activity 4: Supplemental Case Study Discussion Putting Your Soul into Shoe Design!

Activity Overview: This activity asks students to consider how consumers are increasingly involved in product design.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Supplemental Case Study (on the following page of this Instructor’s Manual) and distribute them to students.

2. Divide students into groups and ask them to read the case, answering the accompanying questions within their groups. (15 minutes) a. Design a pair of Keds, Nike, or Converse shoes. What would you include in your design? b. Do you think the Keds Collective initiative will succeed? Why or Why not? c. What other types of products or services could involve customers in the design process?

3. Once students have answered the questions, discuss their answers as a class. Make sure they bring up the following points: (15 minutes) a. Which is the most popular shoe design in your class? Have a class vote and consider giving extra credit to the winner! b. Create a list of products or services that consumers could be involved in. These might include book covers, apparel, magazines, jewelry, pottery, etc.

Don’t Forget: Be sure to let students know that marketing is primarily about meeting consumers’ needs, not about manipulating them to buy things they do not want.

Wrap-Up: A good way to bring this activity to a close is to ask students to design some apparel for your college sports team.

.

11-24

HANDOUT: SUPPLEMENTAL CASE STUDY Putting Your Soul into Shoe Design!

Businesses are constantly looking for new ways to market their products and particularly new ways to get customers emotionally attached to their products or services. Southwest Airlines get customers, Disney wants you to meet the mouse, and Coca Cola sells you the American Dream.

But some companies are taking customer involvement to a new level. Increasingly, clothing and footwear brands are inviting customers to design their own shoes.

The Second Life virtual computer world enables avatar owners into the design studio. But now real companies are doing the same. Regular people can design unique Nike and Converse shoes and display them on the firm’s online galleries, inviting their friends to see their designs through Facebook, MySpace or Twitter messages.

Keds are going even further. They are allowing customers to design their own unique Keds and then set up stores to sell them at both retail and wholesale. The program is called Keds Collective. Jeriana San Juan, an assistant costume designer for “Saturday Night Live,” has sold six pairs of Keds with her designs, including an interesting ink-splatter look. “I’m totally thrilled,” she says. “I didn’t expect that people would buy—other than my cousin who I told about it.”

The program involves a “wholesale business-model change” for Keds, says the company’s president, Kristin Kohler Burrows: “Marketing has evolved into a conversation with the consumer.” The shoes don’t permit total customization; the fit is uniform. But the patterns, embellishments, trim, color and other details can be chosen from a palette or, in some cases, uploaded and incorporated into the factory system.

Of course, companies like Keds won’t get richer selling one pair of shoes at a time. Custom products sell at a slight premium over regular items, but they cost more to produce, too. (Prices differ depending on the designs.) But the true riches are in the marketing. Social media can turn those custom sneakers into an advertising juggernaut when the designers—you and me—proudly holler about them from the rooftops of the Internet. Ms. San Juan, for instance, has posted her Keds designs on Facebook and is adding a Keds link to her Web site.

“People feel much more connected to the brand, because they’re part of the advertising, in reality,” says Darren Paul, co-founder of the Night Agency, a social-media-marketing consulting group that worked with Keds on the Collective.

Source: Christina Binkley, “Getting Kicks by Designing Your Own.” The Wall Street Journal, December 10, 2009 QUESTIONS 1. Design a pair of Keds, Nike, or Converse shoes. What would you include in your design?

2. Do you think the Keds Collective initiative will succeed? Why or Why not?

3. What other types of products or services could involve customers in the design process?

.

11-25

In-Class Activity 5: Up for Debate Social Networking and Job Seeking Activity Overview: This activity asks students to debate the advantages of social networking to find job opportunities.

Time Limit: 30 minutes What to Do: 1. Divide the class into three-member groups and ask them to read the Entrepreneurship and New Ventures feature on page 291 of the textbook. (5 minutes) 1. Ask each group to discuss the following questions: (15 minutes) a. What are the advantages and disadvantages of using a social networking site like LinkedIn to find jobs? b. What would you say to a friend of suspect character who asked you to introduce him/her to one of your LinkedIn connections? Would you introduce him/her even if it might reflect badly on you or damage your own LinkedIn network?

3. Bring the class together and debate the groups’ answers. (10 minutes) Don’t Forget: To ask students how much time they spend on MySpace of Facebook each week. Do they regard these social networking sites as having any potential for finding jobs?

Wrap-Up: Bring the activity to a close by encouraging students to continually build up their network of contacts as they are a great source of information for potential job openings.

.

11-26

In-Class Activity 6: Small-Group Discussion Never Give a German a Yellow Rose Activity Overview: This activity asks students to consider what a foreign visitor might notice about the American marketplace.

Time Limit: 30 minutes What to Do: 1. Divide students into small groups and ask them to assume that they will be receiving a foreign visitor. At this point, individual groups can select the home country of their visitor if it will help with the assignment.

2. Tell each group to assume that the visitor wants to know what he or she might be able to observe about the American marketplace. In general, the visitor is curious about the various elements of the marketing mix. For example, in considering products, you might mention product assortment and the use of brands; for promotion, you might mention the most popular media options used for specific products and what consumers are attracted to in an advertisement. Ask each group to come up with some suggestions. (15 minutes) 3. Regroup the class and have each group share some of their suggestions. (15 minutes) Don’t Forget: Parts of the marketing mix can often be quite similar from one culture to the next; however, elements of the marketing mix can also vary, depending on the product and the culture into which the product is being sold.

Wrap-Up: Close the activity with a short discussion of the elements of the marketing mix and how these elements can change from one culture to the next, depending on the product and the culture into which the product is being sold.

.

11-27

ANSWERS FOR END OF CHAPTER ACTIVITIES (Starting on Page 294 of the Textbook) QUESTIONS FOR REVIEW 1. Both deal with the way people purchase and consume products. However, organizational buyers are professional, specialized, and expert, relying less on product image. Buyer-seller relationships tend to be longer lasting.

2. Market segmentation is a method of breaking consumers into mutually exclusive groups based on similar characteristics that are likely to affect consumption. By identifying and targeting segments that are most likely to purchase its products, an organization can tailor its marketing efforts in terms of product features and benefits, pricing, packaging, promotion, and distribution.

3. The various classifications of consumer and industrial products include: • Consumer products • Convenience goods and services—candy, ATM services • Shopping goods and services—clothing, car repair • Specialty goods and services—houses, interior design, industrial products • Expense items—inventory, repair bills • Capital items—computer servers, long-term maintenance contracts 4. Answers will vary, but students should focus on the benefits versus costs, since a value package is a combination of all the product features and benefits—all bundled together—that are found to be attractive to the consumer. Benefits include not only the functions of the product, but also the emotional satisfaction but this has to be compared to the costs of the product. Students should recognize that “cost” isn’t just the out-of-pocket expenditure but includes the emotional cost and buyer’s time in making the purchase. A satisfied customer perceives the benefits derived from the purchase to be greater than its costs.

QUESTIONS FOR ANALYSIS 5. Answers will vary, but should include need recognition, search for information, evaluation of information, purchase decision, and post-purchase evaluation.

6. Answers will vary, but many students will mention an increase in the tangible elements surrounding a service—such as, a frequent-buyer card—that will enhance its value. In addition, value can be added with enhanced operating hours and by meeting customers’ expectations. A sustainable competitive advantage can be gained when consumers perceive a service to be superior, as those buyers consistently have the service performed over time.

7. Convenience goods, such as candy bars, should have very prominent branding and packaging elements in order to spur impulse purchases. Shopping goods, such as computers and clothing, should be branded and packaged to clearly communicate their unique features and benefits since shoppers engage in comparisons. Specialty goods, such as high-end cosmetics .

11-28

in top department stores, should be branded and packaged in a way that reinforces their mystique.

8. Answers will vary, but students should address how the person’s job relates to product, price, promotion, and place, and how the person monitors decisions in each area to determine when change is necessary.

APPLICATION EXERCISES 9. The students should focus on meeting customer’s needs and wants and ensuring the product meets customer’s expectations to create an ongoing relationship. The product and pricing strategies should reinforce the customer’s perceptions. The place and promotion strategies should reinforce the product and customer connection.

10. Answers will vary, but students should focus on data mining to build stronger enterpriseclient relationships. If a company has a clearer picture of a consumer’s preferences they can better tailor the product itself, its price, promotion, and distribution to fit the customer’s needs and preferences.

11. Students will select a wide variety of goods and services so the marketing campaign kits will vary. However, the kits should contain information on why the product is “cool” and its value proposition so that the buzz can begin.

ANSWERS TO BUILDING YOUR BUSINESS SKILLS FOLLOW-UP QUESTIONS 1. Answers will vary, but students should include specific information for each of the market segmentation factors.

2. Answers will vary. Students may identify low competition and seasonality for heating and air conditioning use as being important factors. For example, mild year-round temperatures place less emphasis on the need for either heating or air conditioning.

3. Answers will vary, though demographic and psychographic variables have little influence on the need for heating and air conditioning in climates with extreme weather conditions.

4. These ads are likely targeted to middle- to higher-income owners of older homes who need to replace heating or air conditioning systems or are willing to pay for upgraded equipment for greater comfort. They may also target affluent buyers who are building a home.

ANSWERS TO EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE QUESTIONS TO ADDRESS

.

11-29

1.

The key ethical issues are integrity and communication. Matt has invested enormous effort in information collecting and evaluating alternatives, expecting that once he had made the purchase decision, the dealer would come through on its end of the bargain. One possibility is that the sales representative and the sales manager simply had not communicated, but this becomes an ethical issue when the sales representative has the responsibility to establish contracts without the authority to deliver results.

2.

Since the contract has been signed, the minimal obligation of the car company is to offer the 2012 model at the 2011 price.

3.

Answers will vary. Students will want to consider the negative impact on the local marketplace if the customer leaves completely dissatisfied. Especially, with social media, this situation could go viral.

EXERCISING YOUR ETHICS: TEAM EXERCISE The recommendations may vary dramatically due to the different perspectives. Students should be encouraged to explore all the issues including: the company’s reputation, product warranty, installation, and possible legal consequences.

ACTIVITIES ON MYBIZLAB - INSTRUCTOR TIPS BIZSKILLS: Product Development Instructor Tips

Available at: mybizlab.com

Brief Synopsis/Objectives: In this BizSkill, students play the role of a marketer at PowerTech, a company that supplies batteries for all kinds of devices—game systems, cameras, cell phones, digital music players, and more. They’re asked to decide whether a new battery idea could make it in the marketplace.

At the end of the BizSkill, students should be able to answer the following questions: 1. How is market research important in developing new products?

2. What is involved in consumer decision making?

3. How does business-to-business marketing differ from marketing to consumers?

How to Best Use This BizSkill: A great way to use this BizSkill is to assign it as homework before your first lecture on the chapter. Ask students to print out their feedback page, and then have them do the BizSkill again at the end of the week to see whether their scores have improved.

.

11-30

Chapter 12: Pricing, Distributing, and Promoting Products Chapter Overview By now, students have grasped that the marketing mix—or the Four Ps—is built around the characteristics and needs of the target market. This chapter brings the Four Ps another step forward by discussing pricing, distribution, and promotion.

Specifically, the chapter identifies the various pricing objectives that govern pricing decisions and the price-setting tools used in making these decisions. It discusses pricing strategies and identifies the pricing tactics that can be used for setting prices. It examines the meaning of distribution mix and identifies the different channels of distribution. Along the way, the chapter examines the role of wholesalers, different types of retailing, the role of e-intermediaries, and the major activities in the physical distribution process. Finally, the chapter looks at the objectives of promotion, the considerations in selecting a promotional mix, the tasks involved in personal selling, sales promotions, and publicity and public relations.

Learning Objectives 1. Identify the various pricing objectives that govern pricing decisions, and describe the price-setting tools used in making these decisions.

2. Discuss pricing strategies that can be used for different competitive situations and identify the pricing tactics that can be used for setting prices.

3. Explain the meaning of distribution mix, identify the different channels of distribution.

4. Describe the role of wholesalers and explain the different types of retailing.

5. Describe the role of e-intermediaries and explain how online shopping agents and online retailers add value for advertisers and consumers on the Internet.

6. Describe the major activities in the physical distribution process.

7. Identify the important objectives of promotion, discuss the considerations in selecting a promotional mix, and discuss advertising promotions.

8. Outline the tasks involved in personal selling, describe the various types of sales promotions, and distinguish between publicity and public relations.

.

12-1

Chapter Outline A. Determining Prices 1. Pricing to Meet Business Objectives 2. Price-Setting Tools B. Pricing Strategies and Tactics 1. Pricing Strategies 2. Pricing Tactics C. The Distribution Mix 1. Intermediaries and Distribution Channels D. Wholesaling E. Retailing 1. Types of Brick-and-Mortar Retail Outlets 2. Nonstore Retailing F. The Role of E-Intermediaries 1. Online Shopping Agents 2. Electronic Retailing G. Physical Distribution 1. Warehousing Operations 2. Transportation Operations 3. Distribution through Supply Chains as a Marketing Strategy H. The Importance of Promotion 1. Promotional Objectives 2. The Promotional Mix 3. Advertising Promotions I. Personal Selling 1. Sales Promotions 2. Direct (or Interactive) Marketing 3. Publicity and Public Relations

.

12-2

LIST OF IN-CLASS ACTIVITIES: AUTHOR’S CHOICE Activity

Description

1. Ice-Breaker: Why Do They Charge More?

2. Up for Debate: Getting a Stimulus Boost with Pricing and Promotion

Students consider pricing strategies behind some well-known competing brands.

Students are divided into teams to discuss the pros and cons of relying on distributors to help push products through distribution channels.

Students read a supplemental case study which focuses on physical distribution issues.

3. Supplemental Case Study Discussion: Talking ‘bout My Generation 4. Business Accountability Handout Discussion: A Quicken Course in Accountability 5. Up for Debate: What’s the Best Way to Reach Them?

Students read an article about the importance of “knowing your customer” when new products are designed and launched into the market.

Students discuss different ways that a product can be promoted to one specific target market.

Time Limit

Instructor’s Manual Page Reference

30 min.

12-5, 12-23

30 min.

12-14, 12-24

30 min.

12-14, 12-25 to 12-27

30 min.

12-17, 12-28 to 12-30

30 min.

12-17, 12-32

LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE At-Home Activity

Description

Deliverable

Application Exercise 9: Pricing

Students consider pricing objectives behind familiar brands.

Students examine various media options used by marketers of well-known products by selecting a product and identifying as many media used in its promotion as they can.

Students complete the fourth part of the business plan project, in which they are asked to consider marketing mix elements and approaches to target marketing.

A brief paper explaining students’ analyses.

Application Exercise 10: Advertising Media

Business Plan Project Part 4

BizSkill

Pricing Strategies and Objectives

.

A brief paper detailing students’ analyses.

Part 4 of the business plan project.

Students can test their business skills in this online simulation.

Completion Time

Instructor’s Manual Page Reference

30 min.

12-5, 12-33

1 hour

12-17, 12-33

3 to 5 hours

12-19 to 12-22

15 min.

12-19, 12-34

12-3

TEACHING NOTES AND SUGGESTIONS Learning Objective 1: Identify the various pricing objectives that govern pricing decisions, and describe the pricesetting tools used in making these decisions.

Determining Prices In pricing, managers decide what the company will get in exchange for its products.

A. Pricing to Meet Business Objectives Pricing objectives are the goals that sellers hope to achieve in pricing products for sale.

Marketers’ pricing strategies are influenced by a variety of factors. Some companies are profit-maximizing pricing objectives, while others have market-share pricing objectives. The seller’s pricing decision is critical for determining the firm’s revenue, which is the selling price times the number of units sold.

REVENUE = SELLING PRICE X UNITS (QUANTITY) SOLD 1. Profit-Maximizing Objectives. Some companies set prices to maximize profits and, therefore, have profit-maximizing pricing objectives. Marketers attempt to set prices to sell the number of units that will generate the highest possible profits.

2. Market Share Objectives. Some firms want to dominate the market or secure high market share and, therefore, have market share pricing objectives. Market share is determined by estimating the total percent of the market that the marketer is currently supplying; a business may be willing to accept minimal profits or even losses to establish market share.

B. Price-Setting Tools Marketers must estimate the potential impact before deciding on final prices. Tools used for this purpose are cost-oriented pricing and breakeven analysis.

1. Cost-Oriented Pricing. Cost-oriented pricing considers the need to cover production costs and the cost of the merchandise. Markup is the amount added to an item’s total cost to earn a profit; markup is usually stated as a percentage of the product’s selling price. Using cost-oriented pricing, a firm will cover variable costs—costs, such as materials bought to make the product, that change with the number of units of a product produced and sold. It will also make some money to pay fixed costs—costs, such as annual rent, that must be paid regardless of the number of units produced and sold.

2. Breakeven Analysis: Cost-Volume-Profit Relationships. Breakeven analysis assesses costs versus revenues for various sales volumes. It shows, at any particular selling price, the financial result—the amount of loss or profit—for each possible volume of sales. The breakeven point is how many of a product must be sold so that total revenues exactly cover both fixed and variable costs.

.

12-4

Breakeven Point =

Total Fixed Cost Price – Variable Cost

KEY TEACHING TIPS •

Reinforce that pricing enables managers to decide what the firm will get in exchange for its products; pricing objectives are the goals they hope to achieve in pricing products.

•

Make sure students understand that cost-oriented pricing considers profit and a firm’s need to cover production costs and the costs of the merchandise.

•

Breakeven analysis can be a tough concept for students so you may want to reinforce the concept and the formula: Breakeven Point (in units) = Total Fixed Cost/Price – Variable Cost.

QUICK QUESTION How do marketers achieve profit-maximizing objectives and market-share objectives?

Use In-Class Activity 1: Ice-Breaker: Why Do They Charge More?

Time Limit: 30 minutes

HOMEWORK Pricing Now might be a good time to assign Application Exercise 9 from the end-of-chapter materials as homework (see page 323 of text). This assignment encourages students to consider the pricing objectives behind familiar products.

At-Home Completion Time: 30 minutes

.

12-5

Learning Objective 2: Discuss pricing strategies that can be used for different competitive situations and identify the pricing tactics that can be used for setting prices.

Pricing Strategies and Tactics Pricing strategies are planned activities that affect the marketing mix. Pricing tactics are ways that managers implement a firm’s pricing strategies.

A. Pricing Strategies 1. Pricing Existing Products. A firm can price existing products above, below, or at or near market price. Marketers that price products above market rely on the assumption that higher prices are accompanied by higher quality. Pricing below the market can succeed if the firm can offer a product of acceptable quality.

2. Pricing New Products. If a marketer can differentiate a product from all others, the marketers may implement price skimming, in which price is initially set high to earn large profits. Such a strategy will attract competitors to enter the marketplace with lower prices. With penetration pricing, price is initially set low to create consumer interest and to stimulate trial purchases. Profit is low; therefore, the marketer relies on raising prices as consumer acceptance grows.

3. Fixed versus Dynamic Pricing for Online-Business. Dynamic pricing works because information flow on the Web notifies buyers of changes in product availability. Examples of dynamic pricing include eBay’s traditional auction bidding while eBay’s Buy It Now is an example of fixed pricing.

B. Pricing Tactics Price lining involves offering all items in certain categories at a limited number of prices. A store predetermines three or four price points at which a particular product will be sold. Price lining involves setting each price level with a specific type of customer in mind and then packaging and promoting products accordingly. Psychological pricing takes advantage of the fact that customers are not completely rational when making buying decisions. One type of psychological pricing, odd-even pricing, is based on the theory that customers prefer prices that are not stated in even dollar amounts. Discounts are price reductions designed to stimulate sales.

KEY TEACHING TIPS •

Students often confuse these terms: With price skimming, price is initially set high to cover costs and generate a profit; with penetration pricing, price is initially set low to establish a new product in the market.

.

12-6

•

Reinforce that price lining offers all items in certain categories at a limited number of prices at price points, whereas odd-even pricing is based on the theory that customers prefer prices that are not stated in even dollar amounts, such as $.99 and $1.99.

QUICK QUESTIONS •

How has dynamic pricing benefited Web users over traditional fixed pricing strategies?

•

When might sellers resort to using discounts?

.

12-7

Learning Objective 3: Explain the meaning of distribution mix, identify the different channels of distribution.

The Distribution Mix The distribution mix is the combination of distribution channels that a firm selects to get a product to final consumers.

A. Intermediaries and Distribution Channels Intermediaries help to distribute a producer’s goods, either by moving them or by providing information that stimulates their movement from sellers to customers. Wholesalers are intermediaries who sell products to other businesses for resale to final consumers. Retailers sell products directly to consumers. The nature of the product and the target market greatly affect whether intermediaries are used.

1. Distribution of Goods and Services. A distribution channel is the path that a product follows from producer to final consumer. a. Channel 1: Direct Distribution. In a direct channel, the product travels from the producer to the consumer or to the industrial buyer, without intermediaries. b. Channel 2: Retail Distribution. In Channel 2, producers distribute consumer products through retailers. c. Channel 3: Wholesale Distribution. Wholesalers enter the distribution network primarily for the purpose of storage. d. Channel 4: Distribution by Agents or Brokers. Channel 4 uses sales agents or brokers who represent producers and sell to consumers, industrial users, or wholesalers. They receive commissions based on the prices of the goods they sell.

Sales agents generally deal in the related product lines of a few producers, and form long-term relationships to represent those producers and meet the needs of steady customers. Brokers match numerous sellers and buyers as needed, often without knowing in advance who they will be.

2. The Pros and Cons of Nondirect Distribution. Nondirect distribution becomes higher priced for end users because each distribution link charges a markup or commission.

However, intermediaries can save consumers time by reducing the number of contacts made, and save consumers money by providing speed of delivery, storability, and less cost by buying cheaply in bulk from manufacturers and then passing savings on to final consumers.

KEY TEACHING TIPS • •

The distribution channel strategy depends on the nature of the product and the target market.

Each of the intermediaries plays a very specific role in distributing the product.

.

12-8

QUICK QUESTIONS •

What are some activities involved between manufacturing and retail? How is value added in these activities? Remind students of the various benefits that intermediaries provide in the distribution process.

•

No intermediaries are involved in a direct channel. What are some products that flow through Channel 2?

•

Channel 3 emerged as a way of reducing the need for floor space among retailers. What products might pass through Channel 3?

.

12-9

Learning Objective 4: Describe the role of wholesalers and explain the different types of retailing.

Wholesaling Wholesalers perform various functions, which may include storing, providing an assortment of products, and offering delivery, credit, and product information.

Retailing Varying greatly in size, retailers represent the end of the distribution channel, making the sale of goods or services to final consumers.

A. Types of Retail Outlets U.S. retail operations vary by type, size, pricing strategies, location, range of services, or range of product lines.

1. Product-Line Retailers. Retailers that feature broad product lines include department stores, which are arranged into specialized departments and handle a wide range of goods; supermarkets, which offer a wide selection at low prices; and, specialty stores, which are small stores that carry a line of related products.

2. Bargain Retailers. Bargain retailers carry wide ranges of products and come in many forms: discount houses, which feature a large number of items at low prices; catalog showrooms, which allow customers to view displays, place orders, and wait briefly while clerks retrieve orders from warehouses; factory outlets, which are manufacturer-owned stores that avoid wholesalers and retailers by selling merchandise directly from factory to consumer; wholesale clubs, which offer large discounts on a wide range of brand-name merchandise to customers who pay annual membership fees.

3. Convenience Stores. Convenience stores offer ease of purchase of a narrow assortment of products with higher prices.

C. Nonstore Retailing Some retailers sell some or all of their products without stores. Major types of nonstore selling include direct-response retailing, in which firms make contact with customers both to inform them about products and to receive sales orders. Mail order (or catalog marketing) is a popular form of direct-response retailing. Less popular in recent years is telemarketing—the use of the telephone to sell directly. In direct selling, companies sell door-to-door or through home-selling parties.

KEY TEACHING TIPS •

Students easily confuse the work of agents and brokers. Agents form long-term relationships to represent just a few producers, while brokers match numerous sellers and buyers.

.

12-10

•

Students often confuse the various types of bargain retailers. It may help to review the functions of each type: discount houses, catalog showrooms, factory outlets, and wholesale clubs.

•

Review the functions of nonstore retailing, including direct-response retailing, mail order, telemarketing, and direct selling.

.

12-11

Learning Objective 5: Describe the role of e-intermediaries and explain how online shopping agents and online retailers add value for advertisers and consumers on the Internet.

A. Online Shopping Agents Shopping agents (e-agents), like PriceScan.com, rapidly gather, sort, and present accurate information to help Internet consumers compare Web sites, stores, prices, and product features. Many consumers use e-agents when purchasing airline tickets.

B. Electronic Retailing Over 85 percent of the world’s online population—over 1 billion customers— have made purchases on the Internet on such sites as eBay.com, iTunes and Amazon.com.

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 Internet products to buyers.

C. Electronic Retailing 1. Electronic Catalogs. Electronic catalogs use the Internet to display products for both retail and business customers.

2. Electronic Storefronts and Cybermalls. Electronic storefronts allow consumers to collect information about products and buying opportunities, whereas cybermalls are collections of virtual storefronts representing diverse products.

3. Interactive and Video Marketing. Interactive marketing allows both retail and B2B customers to interact with multimedia sites using voice, graphics, animation, film clips, and access to live human advice. Video marketing lets viewers shop at home from TV screens by phoning in or e-mailing orders.

KEY TEACHING TIP •

Emphasize the variety of e-intermediaries and the impact on marketing.

QUICK QUESTIONS •

How do online retailers benefit from the use of syndicated sellers?

•

How do online consumers benefit from shopping agents (e-agents)?

•

How do online retailers and consumers benefit from electronic retailing?

•

How can consumers benefit from interactive and video marketing?

.

12-12

Learning Objective 6: Describe the major activities in the physical distribution process.

A. Physical Distribution Physical distribution refers to the activities needed to move products efficiently from manufacturer to consumer. Two primary activities include warehousing and transportation.

1. Warehousing Operations Storing or warehousing, is a major part of distribution management. Private warehouses are owned by a single manufacturer, wholesaler, or retailer that needs storage space on a regular basis; public warehouses are independently owned and rent space to firms that need it.

2. Transportation Operations Factors involved in choosing a transportation method include the nature of the product, the distance it must travel, the speed with which it must be received, and the customers’ wants and needs. a. Transportation Modes. The most common modes are trucks, railroads, planes, water carriers, and pipelines. i. Trucks. The advantages of trucks include flexibility for any-distance distribution, fast service, and dependability. ii. Planes. Air is the fastest mode of transportation for physical goods. However, it is also the most expensive form of transportation. iii. High Speed Digital Transmission. Online transmission is a newer, faster, and the less expensive means of distribution than all other modes. It is restricted to products such as music, images, movies, and software. iv. Water Carriers. Water is the least expensive mode, but also the slowest. v. Railroads. Railroads can economically transport high-volume, heavy, bulky items, such as cars, steel, and coal. However, their delivery routes are limited by fixed, immovable rail tracks. vi. Pipelines. Pipelines are slow and are used to transport liquids and gases. They are also inflexible, but for specialized products they provide economical and reliable delivery.

3. Physical Distribution and E-Customer Satisfaction Any delay in physical distribution is a breakdown in fulfillment; delays in after-sale distribution are a major cause of dissatisfaction.

.

12-13

4. Distribution through Supply Chains as a Marketing Strategy Instead of just offering advantages in product features, quality, price, and promotion, many firms have turned to supply chains that depend on distribution as a cornerstone of business strategy.

QUICK QUESTIONS •

How can intermediaries provide added value to customers?

•

What is the difference between a private warehouse and a public warehouse?

•

What are the advantages and disadvantages of relying on the following modes of transportation: trucks, planes, water carriers, railroads, and pipelines?

Use In-Class Activity 2: Up for Debate: Getting a Stimulus Boost with Pricing and Promotion Time Limit: 30 minutes Use In-Class Activity 3: Supplemental Case Study: Talking ‘bout My Generation Time Limit: 30 minutes

.

12-14

Learning Objective 7: Identify the important objectives of promotion, discuss the considerations in selecting a promotional mix, and discuss advertising promotions.

The Importance of Promotion Promotion is any technique designed to sell a product; it is a message that a marketer sends to consumers about its product(s).

A. Promotional Objectives Marketers may use promotion to accomplish a number of tasks, such as communicating information, positioning products, adding value, or controlling sales volume. Positioning is the process of establishing an easily identifiable product image in the minds of consumers by fixing, adapting, and communicating the nature of the product itself.

B. The Promotional Mix Marketers use four types of promotional tools: advertising, personal selling, sales promotions, and publicity and public relations. The best combination of these tools—the best promotional mix—depends on many factors. A marketer’s product, its target audience, and its budget are all important considerations in building the promotional mix.

1. The Target Audience: Promotion and the Buyer Decision Process. Buyers must recognize the need to make a purchase prior to searching for product or service information. Buyers then compare competing products and services before purchasing one. Buyers then evaluate the purchase. There are five stages to this process: a. When buyers first recognize the need to make a purchase, marketers use advertising and publicity to make sure buyers are aware of their products. b. As buyers search for information about available products, advertising and personal selling are important methods to educate consumers. c. Personal selling can become vital as buyers compare competing products. Sales representatives can demonstrate product quality, features, and performance in comparison with competitors’ product. d. When buyers are ready to purchase products, sales promotion can give consumers an incentive to buy. Personal selling can help by bringing products to convenient purchase locations. e. After making purchases, buyers evaluate products and make a note of their strengths and deficiencies. Advertising and personal selling can remind consumers that they made wise purchase choices.

.

12-15

C. Advertising Promotions Advertising is paid, nonpersonal communication used by an identified sponsor to inform an audience about a product.

1. Advertising Media. Advertising media are specific communication devices for carrying a seller’s message to potential customers; advertising media include newspapers, television, direct mail, radio, magazines, and outdoor advertising. The combination of media through which a company advertises is called its media mix. a. Television. Although TV is the most widely used and expensive medium, the brevity of TV ads makes it a poor medium for educating viewers. b. Direct Mail. Direct-mail advertisements allow a seller to select its audience and personalize its message. However, many people discard it as junk mail. c. Newspapers. Newspapers provide excellent local coverage. However, they are generally thrown out and don’t allow advertisers to target audiences well. d. Magazines. Magazines provide for a high level of market segmentation, allow attractive artwork, and have long lives. However, they must be submitted well in advance, and ads may not appear in the best spots. e. Radio. Radio ads are inexpensive and audiences are largely segmented. However, radio ads go by quickly and people tend to use the radio as background while doing other things. f. Internet. Although Internet advertising has great target marketing potential, consumers don’t want to wade through Web pages cluttered with distracting graphics and pop-ups. g. Outdoor. Outdoor advertising—billboards and so on—are inexpensive, face little competition for consumers’ attention, and provide high repeat exposure. However, they can present only limited information, and advertisers have little control over audiences. h. Other. A combination of other media, including catalogs, sidewalk handouts, skywriting, phone calls, and door-to-door communication, are also available.

2. Real-Time Ad Tracking. Advertisers always want better information about who looks at their ads and for how long. Accurate ad-watching behavior of shoppers in malls, theaters, and grocery stores is on the increase through the introduction of more advanced technology. Companies like Google have become experts at feeding back ad data to their advertisers.

.

12-16

KEY TEACHING TIPS •

Remind students of the elements of the promotional mix and reinforce that many factors determine how a marketer designs its promotional mix, with target audience being the most important.

•

Reinforce that promotion refers to techniques for communicating information about products; it is a part of the communication mix—the total message a company sends to consumers about its products.

•

Point out that when designing the promotional mix, marketers match the best promotional tools with where buyers currently are in the decision-making process.

QUICK QUESTIONS •

What elements make up the media mix?

•

What are some advantages and disadvantages of using newspapers, magazines, radio, Internet, and outdoor advertising?

Use In-Class Activity 4: Business Accountability Handout Discussion: A Quicken Course in Accountability Time Limit: 30 minutes Use In-Class Activity 5: Up for Debate: What’s the Best Way to Reach Them?

Time Limit: 30 minutes

HOMEWORK Advertising Media Now is a good time to assign Application Exercise 10 from the end-of-chapter materials as homework (see page 323 of text). The assignment encourages students to think about the various media options used by marketers with well-known products by selecting a product and identifying as many media used in its promotion as they can.

At-Home Completion Time: 1 hour

.

12-17

Learning Objective 8: Outline the tasks involved in personal selling, describe the various types of sales promotions, and distinguish between publicity and public relations.

A. Personal Selling In personal selling, a salesperson communicates one-to-one with potential customers to identify their needs and to line them up with the seller’s products. Personal selling requires a certain level of trust between buyer and seller, which must be established over time.

1. Personal Selling Tasks. In order processing, a salesperson receives an order and sees to its handling and delivery. Creative selling can help to persuade buyers when the benefits of a product are not entirely clear. A company may use missionary selling when its purpose is to promote itself and its products rather than simply to close a sale.

B. Sales Promotions Sales promotions are short-term promotional activities designed to stimulate consumer buying or cooperation from distributors, sales agents, or other members of the trade. Sales promotions are important because they increase the likelihood that buyers will try products.

1. Types of Sales Promotions. The best known forms of sales promotion are coupons, premiums for free or reduce-priced items, point-of-sale (POS) displays, and trade shows.

C. Publicity and Public Relations Publicity is information about a company, a product, or an event transmitted by the general mass media to attract public attention. Public relations is company-influenced publicity that seeks to build good relations with the public and to deal with the effects of unfavorable events.

KEY TEACHING TIPS •

Personal selling is used to communicate one-on-one with potential customers to identify their needs and align them with the seller’s products.

•

Review the tasks involved in personal selling: order processing, creative selling, and missionary selling.

•

Reinforce that sales promotions include a number of short-term promotional activities designed to encourage consumer buying, industrial sales, or cooperation from distributors.

•

Make sure that students understand the difference between publicity and public relations, as these two concepts are often conflated

.

12-18

QUICK QUESTION What are some types of sales promotions?

VIDEO: JOBY: PRODUCT DISTRIBUTION Run Time: 3:39 This is a good point to play the video that accompanies this chapter as it highlights the topics covered by the previous Learning Objectives, including promotion, the importance of positioning in a product’s marketing, and the role of trade shows and publicity in the promotional mix.

Incorporate Discussion Questions found on page 325 of the text.

BUSINESS PLAN PROJECT: PART 4 The business plan project for Business Essentials is divided into six parts, corresponding to the book’s six main parts. The fourth part of the project is found on the following three pages. It is now time to get students working on Part 4…

.

12-19

PART 4: BUSINESS PLAN PROJECT Assignment Overview: This part of the business plan asks students to think about marketing’s “Four Ps”—product, price, place (distribution), and promotion—and how they apply to their business. Students will list features and benefits as well as the points of difference for their product or service. After describing the product, the student must connect those described features and benefits to a targeted buyer. Once the targeted buyer has been named, students will describe advertising and promotional efforts to get the buyer’s attention.

Files to Provide Students: For this part of the project, students will be asked to complete Part 4: Principles of Marketing. If students have already started working on the business plan project, they should continue using the student template they began working on in Parts 1 to 3. A copy of the marketing template is available on the following page.

Estimated At-Home Completion Time: If done well, this section will require a minimum of 3 to 5 hours. Instructor feedback will improve the quality of student responses, so you may wish to spend class time working on the plan.

Homework Deliverable from Students: The length of student responses in this part of the plan will vary greatly, as critical or creative thinkers will often begin to distinguish themselves. At a minimum, you should expect 3 to 5 pages in this part, with exceptional students writing as many as 8 pages to fully explain all aspects of their marketing program.

.

12-20

STUDENT BUSINESS PLAN PROJECT TEMPLATE PART 4: PRINCIPLES OF MARKETING TARGET MARKET Describe your target market in terms of age, education level, income, and other demographic variables.

Hint: Refer to Chapter 11 for more information on the aspects of target marketing and market segmentation that you may want to consider. Be as detailed as possible about who you think your customers will be.

PRODUCT FEATURES AND BENEFITS Describe the features and benefits of your product or service.

Hint: As you learned in Chapter 11, a product is a bundle of attributes—features and benefits.

What features does your product have—what does it look like, and what does it do? How will your product benefit the buyer?

PRODUCT DIFFERENTIATION How will you make your product stand out in the crowd?

Hint: There are many ways to stand out in the crowd, such as a unique product, outstanding service, or a great location. What makes your “great idea” special? Does it fill an unmet need in the marketplace? How will you differentiate your product to make sure that it succeeds?

PRICING What pricing strategy will you choose for your product, and what are the reasons for this strategy?

Hint: Refer to Chapter 12 for more information on pricing strategies and tactics. Since your business is new, so is the product. Therefore, you probably want to choose between price skimming and penetration pricing. Which will you choose, and why?

PLACE (DISTRIBUTION) ISSUES Where will customers find your product or service? (That is, what issues of the distribution mix should you consider?)

Hint: If your business will sell its product directly to consumers, what types of retail stores will sell your product? If your product will be sold to another business, which channel of distribution will you use? Refer to Chapter 12 for more information on aspects of distribution you may want to consider.

ADVERTISING How will you advertise to your target market? Why have you chosen these forms of advertisement?

Hint: Marketers use several different advertising media— specific communication devices for carrying a seller’s message to potential customers—each having its advantages and drawbacks.

Refer to Chapter 12 for a discussion of the types of advertising media you may wish to consider here.

.

12-21

PROMOTIONS What other methods of promotion will you use, and why?

Hint: There’s more to promotion than simple advertising. Other methods include personal selling, sales promotions, and publicity and public relations. Refer to the discussion of promotion in Chapter 12 for ideas on how to promote your product that go beyond just advertising.

.

12-22

IN-CLASS ACTIVITIES In-Class Activity 1: Ice-Breaker Why Do They Charge More?

Activity Overview: This activity asks students to consider pricing strategies behind some well-known competing products.

Time Limit: 30 minutes What to Do: 1. Divide the class into small groups and ask each group to come up with four sets of competing products or services; in most cases, students will select products that are similar, but carry a different brand name, such as Blue Bonnet Margarine versus Prairie Farms Margarine. (10 minutes) 2. Ask students to discuss the “average” price of each product and be able to explain the reasoning for one brand’s price being higher than the competing brand. (10 minutes) 3. Reassemble the class as a whole and ask for each group’s input. (10 minutes) Don’t Forget: Students will come up with a variety of reasons for differing products’ prices. Some will be more difficult to explain than others. For example, almost everyone knows that a one-night stay at the Holiday Inn Express is less costly than a stay at the Ritz-Carlton because the Ritz-Carlton offers more amenities. Price differences between Del Monte spinach and Jolly Green Giant spinach might be more difficult to explain.

Wrap-Up: Bring the activity to a close by reminding students of the role pricing plays in the marketing mix and the common types of pricing strategies and tactics seen in the marketplace.

.

12-23

In-Class Activity 2: Up for Debate Getting a Stimulus Boost with Pricing and Promotion Activity Overview: This activity asks students to how firms are changing their distribution messages during economic downtimes.

Time Limit: 30 minutes What to Do: 1. Ask students to read the Managing in Turbulent Times feature on page 313 of the textbook, making a list of as many pros and cons of relying on a distributor as possible. (10 minutes) 2. Divide the class into small groups to discuss their pros and cons of price discounts, free shipping, and integrated promotion and distribution. Do the pros outweigh the cons? (10 minutes) 3. Reassemble the class to debate the pros and cons as a group. Do the pros outweigh the cons?

(10 minutes) Don’t Forget: Retailers are constantly looking for ways to get an edge in the market place. Remind students that retailers will use all of the 4 Ps (price, promotion, product, and place) to add value and try to get an edge in competitive markets.

Wrap-Up: Ask students to clip advertisement from newspaper or magazine, or print online advertisements that show how retailers are seeking to use pricing and promotion to boost demand. Get the students to bring them to the next class and vote on the one that is most innovative.

.

12-24

In-Class Activity 3: Supplemental Case Study Discussion Talking ‘bout My Generation Activity Overview: This activity asks students to consider how changes in distribution can change an entire industry Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Supplemental Case Study (on the following pages of this Instructor’s Manual) and distribute them to students.

2. Divide students into groups and ask them to read the case, answering the accompanying questions within their groups. (15 minutes) a. What are the channels of distribution of the music you listen to? What changes have you noticed during the last five years? b. Imagine you are the manager of a record label. What might you do to sell more music? c. Can you think of other industries in which changes in distribution systems have radically changed the industry?

3. Once students have answered the questions, discuss their answers as a class. (15 minutes) Don’t Forget: Students will want to talk about their music likes and dislikes. Use the discussion time to get to know your students a little better.

Wrap-Up: Bring the discussion to a close with a reminder that the music industry is constantly changing and get them to report back any changes they notice in future classes.

.

12-25

HANDOUT: SUPPLEMENTAL CASE STUDY Talking ‘bout My Generation (Distribution Channels in the Music Industry) Have you ever considered that changes in the way that an industry distributes its product can change the entire industry? It’s true. Consider, for example, the music industry and how changes in distribution have changed the entire industry. We will examine the music industry by examining how one family has purchased music over three generations. So meet Sam Filby, a typical music loving teenager living in the United States.

In the 1950s and 60s, Sam Filby’s grandfather had a mono record deck. He bought 45 rpm and 331/3 rpm vinyl records from the local music store. His choice was pretty limited. He was restricted to music that was on the charts, or a small selection of long playing records that the owner might have known about. The store carried a small inventory and if Sam’s grandfather wanted a record that was not stocked by the store, he would have to special order it. It could often take 4–6 weeks to arrive.

In early the 1970s, when Sam Filby’s father was still young, he used the same mono record deck.

His father bought a better stylus, but the sound quality was still poor. When Sam’s father was a teenager he upgraded to a stereo system. Music had never sounded so good. Tower Records opened a store near his town and the choice of music to choose from simply skyrocketed. He could go to Tower and browse through racks of pop, rock, jazz, R&B, blues, and classical records. Sam’s dad had much more music to listen to and buy. Nonetheless, his choice was still limited to bands that had made records. He could still order records from the store and they arrived in a week or two.

For a band to make a record they had to be discovered and developed. A record label would sign up the artist, pay for the band to record their songs in an expensive recording studio, and heavily promote the market the single or album to radio stations and record stores. Unless the record received radio play it was unlikely to be a hit. Record companies and radio stations controlled the industry.

In 2010 Sam Filby buys his music very differently. If he wants to buy a CD he doesn’t go to specialty music stores like Tower. Many of these closed their doors and only maintain an online presence. Instead, he goes to Walmart or Target to buy CDs or DVDs. However, being a teenager, he prefers to stay at home and shop online, where he can compare prices of an album from different online outlets. More often still, he simply downloads music files from iTunes, or listens to music on MySpace.com.

New distribution systems have radically changed the music industry. An artist no longer needs to sign a contract with a record label to be discovered. Lily Allen, the Arctic Monkeys, and the Ting Tings were discovered through MySpace. Daniel Hunter’s MySpace project playradioplay was signed to Island Records. Only to find that working with a label limited his creativity. He subsequently left Island Records to go back to releasing music on MySpace as Analog Rebellion.

Artists no longer need to record at expensive recording studios.

.

12-26

More interesting, Radiohead decided to let consumers decided how much they wanted to pay for the MP3 download of their album In Rainbows. Fans could even download the album for free.

Ironically, Radiohead reportedly made $10 million in their first week of sales and allegedly made more money from this one album than from the royalties of all of their previous albums combined. Radiohead, no longer affiliated with a record label, were able to keep vast majority of the revenue.

New distribution systems have affected the record industry in other ways. Sam Filby now has choices neither his father nor grandfather had. He can buy an album, or decide to buy only a single track from it. ITunes has made this possible. Sam can even record songs on a laptop using a program like GarageBand and share the MP3 file with his friends. Or, he can download the stems from a song and remix it. New technologies and new distribution systems have made all this possible.

New recording technologies have also hit record labels hard. Recording used to be a very expensive business that few bands could afford apart from the support of their record labels.

With the development of low cost recording and mixing computer programs such as GarageBand, bands can now literally record in their garage! The balance of power is shifting in the music industry.

DISCUSSION QUESTIONS 1. What are the channels of distribution of the music you listen to? What changes have you noticed during the last five years?

2. Imagine you are the manager of a record label. What might you do to sell more music?

3. Can you think of other industries in which changes in distribution systems have radically changed the industry?

.

12-27

In-Class Activity 4: Business Accountability Handout Discussion A Quicken Course in Accountability Activity Overview: This activity places emphasis on “knowing the customer” when new products are designed and launched into the market.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Business Accountability article (on the following pages of this Instructor’s Manual) and distribute them to students.

2. Divide the class into three-member groups and ask them to read the article, paying attention to the accompanying questions (15 minutes): a. In what way(s) did Cook pay attention to the characteristics of the target market when designing his computer software? b. What promotional objectives did Cook attempt to fulfill?

3. Regroup and discuss each group’s responses. (15 minutes) Don’t Forget: Remind students to use only the scenario information when formulating their answers.

Wrap-Up: Wrap up the activity with a brief overview of promotional objectives and the role of the target market in designing promotional elements as well as other elements of the marketing mix.

.

12-28

HANDOUT: BUSINESS ACCOUNTABILITY A Quicken Course in Accountability After deciding to hold himself accountable for designing new products, Scott Cook created some unique methods to ensure he’d meet those design obligations when he founded a company in 1983. Cook is the former CEO of Intuit, the $1.7 billion company whose well-known software tools— Quicken and Quickbooks—have changed the way we manage our financial lives.

Cook initially envisioned three core principles for product design that eventually led to superb commercial success: 1. It’s the customer that’s most important. Listen to the customer and design the product for customer value.

2. Be open-minded in identifying all competing ways the customer could perform the task, not just the obvious ways.

3. Simplify and improve the product, so it provides the easiest way for the customer to complete the task to be performed.

From the beginning, Cook believed these principles would lead to superior user-friendly preferred products that customers would buy and use. Accordingly, customer acceptance of the products would be the ultimate measure of success or failure of product designs for which Cook was accountable.

Although the firm was selling computer software, Cook didn’t restrict his vision to just software competitors. As the second design principle stipulates, Intuit’s products had to perform better than any alternative way of doing the task, including competitors’ software, hand calculators, and pencil-and-paper methods. Otherwise, users wouldn’t prefer Intuit’s products for check writing and the many other financial tasks they had to perform.

Although the initial version of Quicken worked well, Cook’s insistence on pleasing customers wasn’t satisfied when it first came on the market. Seeking user-based improvements, the first design principle was applied by assigning employees in computer stores to observe consumers when they bought Quicken off the shelf. Cook’s imaginative “Follow Me Home” program surprised customers when they were asked if the employee could come home with them to watch their reaction to the software. Everything about the user’s experience was noted, beginning with ease or difficulty in opening the package, reading instructions, installing the software on a computer, using it, and even turning away to write with pencil and paper. Cook insisted that anything preventing ease of use, no matter how small, was Intuit’s fault, not the customer’s. So watching for even the tiniest display of displeasure or frustration, the employee silently observed the user’s facial expressions, body language, vocal reactions, pauses, and re-reading of instructions in each stage from opening the shrink-wrapped package to using the product.

.

12-29

Guided by what was learned from “Follow Me Home,” the third principle was invoked for simplifying and improving Quicken. As word spread about the software’s success with personal finance on PCs at home, entrepreneurs started using it—making changes to suit their needs—for financial management tasks in their companies. Once again, by listening to these new customers, Intuit modified the software into a new product—Quickbooks—especially designed for business financial management. Because these companion tools—Quicken and Quickbooks—are the most popular in the industry, the firm’s $1.7 billion sales revenues and market leadership are evidence that Cook fulfilled the product-design obligations for which he was accountable.

DISCUSSION QUESTIONS 1. In what way(s) did Cook pay attention to the characteristics of the target market when designing his computer software?

2. What promotional objectives did Cook attempt to fulfill?

.

12-30

In-Class Activity 5: Up for Debate What’s the Best Way to Reach Them?

Activity Overview: This activity asks students to think about different ways that a product can be promoted to one specific target market.

Time Limit: 30 minutes What to Do: 1. Divide the class into four-member groups and ask each group to consider marketing a solarpowered vacuum cleaner to working women with fast-paced, on-the-go lifestyles. In their discussions, groups should consider the following: (15 minutes) a. Which elements of the promotional mix should be utilized? b. What are the best ways/places to promote this product to this specific target market?

2. Reassemble the class and discuss each group’s promotion suggestions. (15 minutes) Don’t Forget: Specific promotional mix elements do a better job than others in reaching or attracting specific target markets.

Wrap-Up: Bring the activity to a close by reviewing the elements of the promotional mix and how each element may or may not be suited in this scenario.

.

12-31

ANSWERS FOR END OF CHAPTER ACTIVITIES (Starting on Page 323 of the Textbook) QUESTIONS FOR REVIEW 1. Breakeven analysis and cost-oriented pricing are usually used together to measure the potential impact on pricing objectives and cost prior to deciding on final prices. Both of these tools allow managers to identify prices that enable companies to reach their objectives.

2. Price skimming allows marketers to recoup development costs and/or earn high profits early because the price is set high in the beginning. This strategy may be especially effective for products with few substitutes or competitors. Penetration pricing is an attempt to create awareness and stimulate trial purchases by setting prices low. Once consumer loyalty is built, marketers may be able to raise prices without losing customers.

3. The channels of distribution are as follows: Channel 1 involves direct sales to consumers, without intermediaries; Channel 2 involves a retailer; Channel 3 involves both a retailer and a wholesaler; Channel 4 includes an agent or broker before the wholesalers and retailers.

4. E-agents or brokers assist users in finding products and prices on the Internet, but do not take possession of products.

5. Newspapers provide excellent coverage, but have poor reproduction quality and are highly impermanent. Readership has decreased dramatically. Television provides wide geographic coverage and reaches a number of consumers but is expensive and tends to confuse viewers with many short commercials. Direct mail allows a marketer to select its audience and personalize its message but is expensive and often regarded as junk mail. Radio ads reach a large audience but are inexpensive, are over quickly, and may require repeat exposure to be effective. Magazines have relatively long shelf lives and benefit from pass-along readership, but ads must be prepared long in advance and can appear in unfavorable locations in the magazine. Outdoor ads benefit from high repeat exposure but can present only limited amounts of information. The Internet allows quick, highly targeted access to online subscribers, but many consumers may be annoyed at ads.

QUESTIONS FOR ANALYSIS 6. Breakeven units = Fixed costs/(selling price – variable costs) Breakeven units =$600,000/($6 – $3) = 200,000 books 7. In determining campaign effectiveness, students should consider the intended target audience, the media, the budget, and the creative concept.

8. These are the various kinds of nonstore retailing: • Direct mail marketing: insurance and magazine subscriptions are best suited because consumers can review information and respond easily.

.

12-32

•

Mail order or catalog marketing: clothing and gifts are best suited because the products can be shown, described, and returned if necessary.

•

Telemarketing: telephone service and cable TV are best-suited because sales representatives can describe features and benefits and answer questions.

•

Direct selling: cosmetics and housewares are best suited because someone the consumer knows and trusts can demonstrate them.

APPLICATION EXERCISES 9. Answers will vary, but may include profit-maximizing (a great deal of competitive information, including number of competitors, competitive prices, and so on) and market share (breakeven point).

10. Students will probably find that TV and magazines are heavily used for nationally distributed products. In determining effectiveness, students should consider the target audience. Is the media mix reaching the target audience?

11. As a member of a supply chain, the company’s marketing mix has to be consistent with its partners’ strategy. A company cannot make unilateral decisions without considering the other members of the supply chain. For example, if a member increases its prices what is the impact on the other members. Students should also discuss how the supply chain process needs to be an integrated process.

ANSWERS TO BUILDING YOUR BUSINESS SKILLS FOLLOW-UP QUESTIONS 1. There are many options for buyers who prefer personalized cards. Ready-made cards, however, are easily accessible and can be purchased at the last minute from numerous types of stores; this type of card may be preferred for the less creative buyer.

2. There may still be a stigma against such cards, especially since many people printing the cards will merely use traditional copy paper, which may give the effect of a “cheap” card.

3. Answers will vary. However, many students will recognize that receivers of direct mail can view it at their convenience, which may allow the direct mail to be especially effective in the long run. Personal selling requires the potential buyer’s attention at a given point in time; however, specific questions can be addressed immediately, and the potential buyer will have already developed a relationship with the company through the salesperson presenting.

4. Students’ comments will vary but most will admit that such competition will be possible to overcome if the start-up company can add a special type of artwork, design, humor, or some other catch to attract a specific niche.

.

12-33

ANSWERS TO EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE QUESTIONS TO ADDRESS 1. The responsibilities of each party in this situation are as follows: • Customer: To provide correct delivery information to the store.

• Store: To clearly communicate its delivery policies to consumers.

• Delivery firm: To make timely deliveries to the designated address and to clearly communicate its policies to the store.

2. From an ethical standpoint, the store manager’s action is right and wrong as follows: • Right: Since the store fulfilled its obligation to the customer, fiscal responsibility would suggest that the store manager should not refund the customer’s money.

• Wrong: Since the package was not delivered to the bride, good customer service would suggest that the store manager should refund the money.

3. Answers will vary, but students should recognize that customers typically broadcast a bad experience to many of their friends and colleagues, magnifying the impact of a dissatisfying experience.

EXERCISING YOUR ETHICS: TEAM EXERCISE This team exercise should generate a lot of discussion especially given the recent economy.

Should you contribute or not? Students will probably discuss the reduced income from giving versus the concern about losing your job given the high unemployment rate. The responses to the Action Steps should vary dramatically given the different motivations of each role player.

ACTIVITIES ON MYBIZLAB - INSTRUCTOR TIPS BIZSKILLS 12.1: Pricing Strategies and Objectives Instructor Tips

Available at: mybizlab.com

Brief Synopsis/Objectives: In this BizSkill, students play the role of a consultant who helps businesses price their products competitively. They’re asked to help a number of clients make pricing decisions.

At the end of the BizSkill, students should be able to answer the following questions: 1. What things impact pricing strategies?

2. What pricing strategies are available to marketers?

3. What objectives do companies try to achieve through pricing?

How to Best Use This BizSkill: A great way to use this BizSkill is to assign it as homework before your first lecture on the chapter. Ask students to print out their feedback page, and then have them do the BizSkill again at the end of the week to see whether their scores have improved.

.

12-34

Chapter 13: Information Technology for Business Chapter Overview Information technology (IT) has had a tremendous impact on the business world in the last few years. Think of how much the Internet alone affects your life. Some people feel completely “out of touch” going just one day without it. We are connected to the remotest corners of the world.

Businesses have a variety of IT resources at their disposal, and information systems and how these systems are used play an integral role in businesses.

This chapter provides the latest details on business IT. It discusses the impacts IT has had on the business world and identifies the IT resources businesses have at their disposal. It also describes the role of information systems, the different types of information systems, and how businesses use such systems. Finally, it looks at the various threats and risks IT poses for businesses, as well as the ways in which businesses protect themselves from these threats and risks. Even if you are apprehensive about IT and its uses, this chapter will help you become more familiar with and comfortable with IT.

Learning Objectives 1. Discuss the impacts information technology has had on the business world.

2. Identify the IT resources businesses have at their disposal and how these resources are used.

3. Describe the role of information systems, the different types of information systems, and how businesses use such systems.

4. Identify the threats and risks information technology poses on businesses.

5. Describe the ways in which businesses protect themselves from the threats and risks information technology poses.

.

13-1

Chapter Outline A. IT Impacts 1. Creating Portable Offices: Providing Remote Access to Instant Information 2. Enabling Better Service by Coordinating Remote Deliveries 3. Creating Leaner, More Efficient Organizations 4. Enabling Increased Collaboration 5. Enabling Global Exchange 6. Improving Management Processes 7. Providing Flexibility for Customization 8. Providing New Business Opportunities 9. Improving the World and Our Lives B. IT Building Blocks: Business Resources 1. The Internet and Other Communication Resources 2. Networks: System Architecture 3. Hardware and Software C. Information Systems: Harnessing the Competitive Power of IT 1. Leveraging Information Resources: Data Warehousing and Data Mining 2. Types of Information Systems D. IT Risks and Threats 1. Hackers 2. Identity Theft 3. Intellectual Property Theft 4. Computer Viruses, Worms, and Trojan Horses 5. Spyware 6. Spam E. IT Protection Measures 1. Preventing Unauthorized Access: Firewalls 2. Preventing Identity Theft 3. Preventing Infectious Intrusions: Anti-Virus Software 4. Protecting Electronic Communications: Encryption Software 5. Avoiding Spam and Spyware 6. Ethical Concerns in IT

.

13-2

LIST OF IN-CLASS ACTIVITIES: AUTHOR’S CHOICE Activity

Time Limit

Instructor’s Edition Page Reference

20 min.

13-5, 13-13

30 min.

13-7, 13-14

30 min.

13-9, 13-15 to 13-16

30 min.

13-10, 13-17 to 13-18

30 min.

13-11, 13-19

Completion Time

Instructor’s Edition Page Reference

30 min.

13-5, 13-20

A brief paper detailing their findings.

1 hour

13-9, 13-20

Students can test their business skills in this online simulation.

15 min.

13-22

Description

1. Ice-Breaker: IT Devices

2. Small-Group Discussion: LaidOffCamp

3. Supplemental Case Study Discussion: The Tweet Smell of Success!

4. Business Accountability Handout Discussion: Shipwrecked in Pirate Bay!

5. Up for Debate: Is That Ethical?

Students discuss various ways in which technological devices allow the class as a whole to create, store, exchange, and use information.

Students examine how Americans communicate through e-mail and what people from other countries might observe about us as we continue to rely more on the Internet for communicating.

Students discuss the supplemental chapter case study, which focuses on how technology can replace some of the more traditional ways of doing things.

Students read an article about the use of technology and where exactly accountability falls—with the technology user or with the service provider.

Students are divided into teams to discuss the ethical issues surfacing when an employer has the ability to access and track employees’ computer usage.

LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE At-Home Activity

Description

Deliverable

Application Exercise 9: The Impact of IT

A brief paper detailing the outcome of their assessments.

Application Exercise 10: System Architecture

Students think about how IT systems affect their daily lives and whether their encounters with IT leave them at risk for identity theft.

Students assess the computer network at their school, making an analysis of specific features of the system.

BizSkill

Technology Direction

.

13-3

TEACHING NOTES AND SUGGESTIONS Learning Objective 1: Discuss the impacts information technology has had on the business world.

IT Impacts Information technology (IT) includes the various appliances and devices for creating, storing, exchanging, and using information in diverse modes, including visual images, voice, multimedia, and business data. E-commerce is the use of the Internet and other electronic means for retailing and business-to-business transactions. Businesses are using IT to bolster productivity, improve operations and processes, create new opportunities, and communicate and work in ways not possible before.

A. Creating Portable Offices Technology built into various devices offers businesses powerful tools that save time and travel expenses.

B. Enabling Better Service by Coordinating Remote Deliveries Company activities may be geographically scattered, but remain coordinated through a networked system that also provides better service for customers.

C. Creating Leaner, More Efficient Organizations Networks and technology allow organizations to operate with fewer employees and simpler structures.

D. Enabling Increased Collaboration Collaboration software and other IT communication devices enable greater collaboration among internal units and with outside firms.

E. Enabling Global Exchange The global reach of IT is enabling business collaboration on a huge scale.

F. Improving Management Processes With databases, specialized software, and networks, instantaneous information is now accessible and useful to all levels of management.

G. Providing Flexibility for Customization IT networks and other IT advances create new manufacturing capabilities that enable businesses to offer customers greater variety and faster delivery cycles. Mass-customization allows manufacturers to produce in large volumes, with each unit featuring the unique options the customer prefers.

H. Providing New Business Opportunities IT is creating entirely new businesses where none existed before.

.

13-4

I. Improving the World and Our Lives Numerous businesses across various industries use IT to create improvements that enhance the standard of living.

KEY TEACHING TIPS •

Remind students that information technology (IT) includes the various devices for creating, storing, exchanging, and using information in diverse modes, including visual images, voice, multimedia, and business data.

•

Students need to keep the meaning of standardization separate from mass-customization, which allows companies to produce in large volumes and provide unique features and options for customers.

QUICK QUESTIONS •

How are portable offices bolstering productivity?

•

How has IT allowed marketers to provide better service?

•

How does IT allow firms to create leaner, more efficient organizations?

•

How has IT changed the nature of the management process within organizations?

Use In-Class Activity 1: Ice-Breaker: IT Devices Time Limit: 20 minutes

HOMEWORK The Impact of IT Now might be a good time to assign Application Exercise 9 from the end-of-chapter materials as homework (see page 352 of the text). This assignment asks students to think about how IT systems affect their daily lives, and whether their encounters with IT leave them at risk for identity theft.

At-Home Completion Time: 30 Minutes

.

13-5

Learning Objective 2: Identify the IT resources businesses have at their disposal and how these resources are used.

IT Building Blocks: Business Resources Businesses have numerous IT resources at their disposal.

A. The Internet and Other Communication Resources The Internet is a gigantic system of interconnected computers; the World Wide Web is a standardized code for accessing information and transmitting data over the Internet.

1. Intranets. Intranets are private networks of internal Web sites linked throughout an organization that are accessible only to employees.

2. Extranets. Extranets allow outsiders limited access to a firm’s internal information network.

3. Electronic Conferencing. Electronic conferencing allows groups of people to communicate simultaneously from various locations via e-mail, phone, or video.

4. VSAT Satellite Communications. VSAT satellite communications have a transmitterreceiver that sits outdoors with a direct line-of-sight to a satellite; the hub sends signals to and receives signals from the satellite, exchanging voice, video, and data transmission.

B. Networks: System Architecture A computer network is a group of two or more computers linked together by some form of cabling or by wireless technology to share data or resources, such as a printer; a client-server network is a common type of network used in businesses in which the clients are usually the laptop or desktop computers being used, and the servers are any number of computers that provide services shared by users.

1. Wide Area Networks (WANs). Wide area networks (WANs) are computers linked over long distances (statewide or even nationwide) through telephone lines, microwave signals, or satellite communications.

2. Local Area Networks (LANs). In local area networks (LANs), computers are linked in a smaller area, such as all of a firm’s computers within a single building. The arrangement requires only one computer system with one database and one software system.

3. Wireless Networks. Wireless networks use airborne electronic signals to link network computers and devices. For example, the BlackBerry system consists of devices that send and receive transmissions on wireless wide area networks (WWANS) of more than 100 service providers.

.

13-6

4. Wi-Fi. A Wi-Fi is a hotspot, or access point, for the Internet. Each hotspot is actually its own small network, called a wireless local area network (Wireless LAN or WLAN).

C. Hardware and Software Hardware includes the physical components, such as keyboards, monitors, system units, and printers; software includes the programs that tell the computer how to function.

KEY TEACHING TIP Make sure students understand the distinction between intranets (private networks accessible only to employees) and extranets (networks that allow outsiders limited access to a firm’s internal information).

QUICK QUESTIONS •

For what purposes might data conferencing be used? What about videoconferencing?

•

What are the clients and what are the servers in a client-server network?

•

What is the difference between a wide area network (WAN) and a local area network (LAN)?

•

What are some benefits of Wi-Fi?

•

When does data become information?

Use In-Class Activity 2: Small-Group Discussion: LaidOffCamp Time Limit: 30 minutes

.

13-7

Learning Objective 3: Describe the role of information systems, the different types of information systems, and how businesses use such systems.

Information Systems: Harnessing the Competitive Power of IT An information system is a system that uses IT resources and enables managers to take data— raw facts and figures—and transform that data into information—the meaningful, useful interpretation of data. Information systems managers operate the systems used for gathering, organizing, and distributing information.

A. Leveraging Information Resources: Data Warehousing and Data Mining Data warehousing involves the collection, storage, and retrieval of data in electronic files.

1. Data Mining. Data mining is the application of electronic technologies for searching, sifting, and reorganizing pools of data to uncover useful information.

2. Information Linkages with Suppliers. Coordinated planning avoids excessive inventories, speeds up deliveries, and holds down costs throughout the supply chain.

B. Types of Information Systems Each user group and department in an organization may need a special information system.

1. Information Systems for Knowledge Workers. Knowledge information systems support knowledge workers by providing resources to create, store, use, and transmit new knowledge for useful applications. Computer-aided design (CAD) helps knowledge workers design products by simulating them and displaying them in three-dimensional graphics.

2. Information Systems for Managers. Each manager’s information activities and information system needs vary according to his or her functional area. a. Management Information Systems (MIS). Management information systems (MIS) support managers by providing reports, schedules, plans, and budgets that can then be used for making decisions. b. Decision Support Systems (DSS). Decision support systems (DSS) are interactive systems that create virtual business models and test them with different data to see how they respond.

KEY TEACHING TIPS •

Students often confuse this point: Data warehousing is the collection, storage, and retrieval of data in electronic files; data mining is the application of electronic technologies for searching, sifting, and reorganizing data to uncover useful information.

.

13-8

•

Reinforce that an information system enables managers to collect, process, and transmit that information for use in decision making.

•

Make sure students understand that a management information system provides reports, schedules, plans, and budgets that managers use to make decisions.

QUICK QUESTIONS •

How do knowledge workers benefit from knowledge information systems?

•

What is the role of a decision support system (DSS)?

•

What are some advantages that radio frequency identification can provide to individual stores and to the supply chain as a whole?

Use In-Class Activity 3: Supplemental Case Study Discussion: The Tweet Smell of Success!

Time Limit: 30 minutes

HOMEWORK System Architecture Now might be a good time to assign Application Exercise 10 from the end-of-chapter materials as homework (see page 352 of the text). This assignment asks students to assess the computer network at their school, making an analysis of specific features of the system.

At-Home Completion Time: 1 hour

.

13-9

Learning Objective 4: Identify the threats and risks information technology poses on businesses.

IT Risks and Threats IT has attracted abusers that are set on doing mischief, with severity ranging from mere nuisance to outright destruction.

A. Hackers Hackers are cybercriminals who gain unauthorized access to a computer or network, either to steal information, money, or property or to tamper with data.

B. Identity Theft Identity theft is the unauthorized stealing of personal information to get loans, credit cards, or other monetary benefits by impersonating the victim.

C. Intellectual Property Theft Intellectual property includes products of the minds—something produced by the intellect, with great expenditure of human effort, that has commercial value. Nearly every company faces the dilemma of protecting product plans, new inventions, industrial processes, and other intellectual property.

D. Computer Viruses, Worms, and Trojan Horses A computer virus exists in a file that attaches itself to a program and migrates from computer-to-computer as a shared program or as an e-mail attachment. Worms are a particular kind of virus that travels from computer to computer within networked computer systems, without needing you to open any software to spread the contaminated file. Unlike viruses, a Trojan horse does not replicate itself.

1. Spyware. Spyware is unintentionally downloaded on a computer and crawls around to monitor the host’s computer activities. For example, Internet users open files that promise “free giveaways,” not suspecting that they are downloading spyware onto their systems.

2. Spam. Spam is junk e-mail sent to a mailing list or a newsgroup.

QUICK QUESTIONS • • •

Can hackers ever do good?

How can identity theft be avoided?

What types of damage might a worm and a Trojan horse do?

Use In-Class Activity 4: Business Accountability Handout Discussion: Shipwrecked in Pirate Bay! Time Limit: 30 minutes

.

13-10

Learning Objective 5: Describe the ways in which businesses protect themselves from the threats and risks information technology poses.

IT Protection Measures Businesses guard themselves against intrusion, identity theft, and viruses by using firewalls, special software, and encryption.

A. Preventing Unauthorized Access: Firewalls Firewalls are security systems with special software or hardware devices designed to keep computers safe from hackers. A firewall contains two components for filtering each incoming message: (1) the company’s security policy, which contains access rules; and (b) a router, which involves a “traffic switch” that determines on which network routes or paths to send each message after it is tested against the security policy.

B. Preventing Identity Theft The Fair and Accurate Credit Transactions Act (FACTA) strengthens identity-theft protections by specifying how organizations must destroy information, rather than simply dropping it in a dumpster.

C. Preventing Viruses: Anti-Virus Software Anti-virus software protects systems by searching incoming e-mail and data files for “signatures” of known viruses and virus-like characteristics.

D. Protecting Electronic Communications: Encryption Software An encryption system works by locking an e-mail message to a unique code number for each computer, so only that computer can open and read the message.

E. Avoiding Spam and Spyware Anti-spyware and spam filtering software on business systems helps employees avoid privacy invasion and improves worker productivity.

KEY TEACHING TIP Reinforce that an encryption system works by locking an e-mail message to a unique code number for each computer, so only that computer can open and read the message.

QUICK QUESTION What are a firewall’s two components for filtering incoming messages?

Use In-Class Activity 5: Up for Debate: Is That Ethical?

Time Limit: 30 minutes

.

13-11

VIDEO: ZIPCAR Run Time: 4:44 This is a good point to show this video, as the content discusses the previous Learning Objective topics, including: risks, threats, and ethical concerns; the influences of IT on business; and the ways in which businesses use IT to meet customer needs and support profitable operations.

Incorporate Discussion Questions found on page 354 of the text.

.

13-12

IN-CLASS ACTIVITIES In-Class Activity 1: Ice-Breaker IT Devices Activity Overview: This activity asks students to come up with a list of technological devices that reflect the many ways in which the class as a whole creates, stores, exchanges, and uses information.

Time Limit: 20 minutes What to Do: 1. Ask the class as a whole to brainstorm, coming up with a list of technological devices that they use in their personal lives, at work, or at school to create, store, exchange, and use information.

2. Ask the class to comment on these questions: a. Do students in the class as a whole use more or fewer devices than what you expected prior to brainstorming? b. In what way(s) do you see your individual use of these devices changing in the coming years? c. In what way(s) have these devices impacted your personal lives, such as at school, at the bank, while shopping, and so on?

Don’t Forget: Some people are more technologically savvy than others. Many students will say they take advantage of every gadget available, while others do not have Internet access at home.

Wrap-Up: Bring the activity to a close by reminding students that new technologies are always looming on the horizon and that no one can accurately predict how much IT will change and affect our lives in the future.

.

13-13

In-Class Activity 2: Small-Group Discussion LaidOffCamp Activity Overview: This activity encourages students to think about how information technology can be used to develop new products and services even in difficult economic times.

Time Limit: 30 minutes What to Do: 1. Divide the class into small groups and ask them to read the Entrepreneurship and New Ventures feature on page 342 of the textbook. (10 minutes) 2. Ask students to discuss the following questions within their small groups (10 minutes): a. What do you think about the idea of LaidOffCamp? If you were given the opportunity, would you invest in LaidOffCamp? b. Think of another product of service that information technology might make viable in a sown economy. What would you call the product or service? What would be its unique selling points?

3. Regroup the class as a whole and discuss each group’s conclusions. (10 minutes) Don’t Forget: Information technology is rapidly changing. As new technologies become available so do new possibilities. Encourage your students to keep their eyes on technology blogs to keep abreast of new developments.

Wrap-Up: Bring the activity to a close by reminding students of the vast differences in communication between and among various cultures.

.

13-14

In-Class Activity 3: Supplemental Case Study Discussion The Tweet Smell of Success!

Activity Overview: This activity asks students to think about how Twitter can be used to help promote businesses.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Supplemental Case Study (on the following page of this Instructor’s Manual) and distribute them to students. (10 minutes) 2. Divide students into groups and ask them to read the case, answering the accompanying questions within their groups. (10 minutes) a. How would you feel if a company started to follow you on Twitter? b. Develop a list of fifteen recommendations that you would give to a company just starting to Tweet about how to use Twitter to develop their business. c. Does your College have a Twitter account? What is being said about your College today?

3. Bring the groups back together and gather all the students’ recommendations on how to use Twitter for business. Get the class to vote on which ones are the best. (10 Minutes) Don’t Forget: This activity may also be assigned as homework.

Wrap-Up: Remind students that the U.S. Postal Service is not the only organization suffering from enhanced computer technology. Many businesses at various locations in the supply chain are marketing new offerings to offset technological competition.

.

13-15

HANDOUT: SUPPLEMENTAL CASE STUDY The Tweet Small of Success!

Since its creation in 2006 Twitter has become one of the most popular social networking and microblogging tools in the world. Users send and receive messages of up to 140 characters, known as tweets, through their twitter account. In 2009 Twitter was rated in the top fifty most visited web sites and the American Dialect Society rated it as the word of the year!

Jack Dorsey created Twitter in 2006 during a daylong brainstorming session among board members of the podcast company Odeo. Twitter enables users to keep their “followers” up to date with their current status by way of text messaging, instant messaging, e-mail or the web.

While competitor products like Jaiku and FriendFeed have emerged, Twitter dominates this microblogging niche.

Although the majority of tweets are still users communicating personal opinions, businesses have not been slow in using this new technology. In fact businesses have been fast in seeing the marketing and public relations potential of Twitter. A growing number of companies such as Comcast, Dell, Kodak, and General Motors are keeping track of what is tweeted about them.

And, it is an important thing to do. A single tweet sent in frustration blasting a company’s products or services can be read by millions if it is forwarded from user to user. Equally, tweets from satisfied companies praising a firm’s product or services can have significant public relations value.

Small business owners find it a particularly powerful way of connecting directly with customers.

Here’s one example: Three weeks after Curtis Kimball opened his crème brûlée cart in San Francisco, he noticed a stranger among the friends in line for his desserts. How had the man discovered the cart? He had read about it on Twitter. He has subsequently used Twitter to inform his customers of his changing locations.

There are now Twitter consultants who help firms tweet their way to success. The recommendations of these consultants are plentiful and include such things as building an account and immediately use Twitter Search to see what is being said about your company or your competitors; put up photographs so your customers know what you look like or tweet about the nonwork successes of your employees to show your human side!

Source: Claire Cain Miller, “Marketing Small Businesses with Twitter.” The New York Times, July 22, 2009

DISCUSSION QUESTIONS 1. How would you feel if a company started to follow you on Twitter?

2. Develop a list of fifteen recommendations that you would give to a company just starting to Tweet about how to use Twitter to develop their business.

3. Does your College have a Twitter account? What is being said about your College today?

.

13-16

In-Class Activity 4: Business Accountability Handout Discussion Shipwrecked in Pirate Bay! Activity Overview: This activity asks students to consider where accountability falls—with the technology user or with the service provider.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Business Accountability article (on the following page of this Instructor’s Manual) and distribute them to students.

2. Divide the class into three-member groups and ask them to read the scenario, paying attention to the accompanying questions: (15 minutes) a. In your opinion, have companies like Napster, Kazaa, and Pirate Bay done more good than bad? b. Would you vote for the Pirate Party in your Country? Why or Why not?

3. Regroup and discuss each group’s responses. (15 minutes) Don’t Forget: There are no right or wrong answers to these questions.

Wrap-Up: Bring the activity to a close by briefly discussing how people can and do take advantage of various types of technology, including those who illegally share music, videos, and software through computer programs.

.

13-17

HANDOUT: BUSINESS ACCOUNTABILITY

Shipwrecked in Pirate Bay! New information technologies can force society to consider what is illegal and what should be legal in the business environment. Consider Napster, the peer-to-peer file-sharing software that allowed users to freely share MP3 files with each other. It ran between 1999 and 2001 while its founder, Shawn Fanning was attending Northeastern University. Napster was accused by the music industry of massive copyright violations. Yet, without Napster would we have iTunes or Lala today?

Or what about Kazaa, the most downloaded the peer-to-peer (P2P) file-sharing program in the world that provided a free (but illegal) source of videos, music, software, and pornography?

Kazaa was developed in the Baltics but first offered to consumers through the Dutch company Consumer Empowerment. In 2001, Consumer Empowerment was sued by the Dutch music publishing body, Buma/Stemra, for copyright violations. Initially, the Dutch Court found in favor of Buma/Stemra and ordered Kazaa’s owners to take steps to prevent Kazaa users from violating copyrights. In 2002, a Dutch Court reversed its decision and stated that Kazaa was not responsible for the action of its users. Ultimately, Kazaa had a $100 million settlement with the music industry. However, the developers of Kazaa subsequently developed Skype that uses the same peer-to-peer framework to for voice communication and millions of Skype users benefit from this technology.

Or what about Pirate Bay? Pirate Bay was a Swedish Web site that indexes BitTorrent files and claimed to be “the world’s most resilient BitTorrent site.” It was ranked as the 99th most popular Web site by Alexa Internet. But it was raided several times and was successfully prosecuted in 2009 resulting in a one-year prison sentence for its three developers and one investor with fines of $3.6 million. The trial was controversial. Protestors showed up supporting Pirate Bay at the trial. Even more interestingly, the Pirate Bay trial has led to the creation of a political movement across Europe and farther afield. The Pirate Bay Party was founded in Sweden and received 7.13 percent of the total Swedish votes in the 2009 European Parliament Elections. As a result, the Pirate Bay Party now has two elected Members of the European Parliament. And what does the Pirate Party stand for? It fights under the manifesto to reform the copyright and patent laws and strengthen individual privacy laws. And the movement is growing. Under the Pirate Party International, its umbrella organization, Pirate Parties now exist in Australia, Austria, Spain, Chile, Czech Republic, Slovakia, Finland, France, Germany, Ireland, Luxembourg, Poland, Romania, the United Kingdom, Switzerland, and even the United States.

DISCUSSION QUESTIONS 1. In your opinion, have companies like Napster, Kazaa, and Pirate Bay done more good than bad?

2. Would you vote for the Pirate Party in your Country? Why or Why not?

.

13-18

In-Class Activity 5: Up for Debate Is That Ethical?

Activity Overview: This activity asks students to discuss the ethical issues that may arise from an employer having the ability to access and track employees’ computer usage.

Time Limit: 30 minutes What to Do: 1. Divide the class into small groups and ask them to consider this tidbit that a coworker overheard at the water cooler: “I guess it was as simple as that! Once Jeremy looked into everything Jason had been doing on the Internet, he asked Jason to hit the road. He was playing card games, placing personal stock market transactions, and sending e-mails to his friends and wife. I guess we all need to be more careful.” Ask each group to discuss whether firing an employee based on their Internet activities is ethical; groups should take notes on the pros and cons of such a company policy. (15 minutes) 2. Reassemble the class as a whole and discuss each group’s conclusion. (15 minutes) Don’t Forget: Many companies have such policies stated clearly in the employee handbook; on the other hand, some employers may use such tactics as an excuse to get rid of an employee.

Wrap-Up: Bring the debate to a close by reminding students that company policies stated in the employee handbook must be adhered to. However, one side of the argument is: “If you don’t want me to use the Internet, then don’t give it to me.” The other side of the argument is: “While working on company time, I should do what the employer wants.” Most group comments will fall somewhere between those two extremes.

.

13-19

ANSWERS FOR END OF CHAPTER ACTIVITIES (Starting on Page 352 of the Textbook) QUESTIONS FOR REVIEW 1. Information is an asset. Like any other asset, information must be planned for, developed, and protected.

2. It is easy, quick, and relatively low-cost, eliminating the need for expensive travel for faceto-face meetings.

3. Because they have different responsibilities and different kinds of problems, they need different information to manage their job effectively.

4. The BlackBerry consists of devices that send and receive transmissions on wireless wide area networks (WWANs) of hundreds of service providers in over 40 countries with privacy protection.

5. Intellectual property is a product of the mind, something produced by the intellect, with great expenditure of human effort. Examples include new inventions, product plans, and manufacturing processes.

QUESTIONS FOR ANALYSIS 6. Data warehousing involves the collection, storage, and retrieval of data in electronic files; data mining is the application of electronic technologies for searching, sifting, and reorganizing pools of data to uncover useful information.

7. IT presents opportunities such as online banking and online investing, among other options.

8. Answers will vary, but students should recognize that information networks streamline and automate communications operations and allow firms to accomplish more with fewer resources.

APPLICATION EXERCISES 9. Answers will vary, but most students will mention their access to ATMs and their use of credit cards, often daily, in making consumer purchases. Identity theft can happen at any time, either during or after the sharing of personal information.

10. Answers will vary, but many students will mention their connection to an intranet in the workplace and the possibility of the IT personnel to monitor all activity on that intranet.

Many employees, whether they actively need it in their daily job performances, have e-mail access; this gives hackers plenty of opportunities to steal or monitor information. Most

.

13-20

organizations, on the other hand, have installed encryption software to prevent this from happening.

ANSWERS TO BUILDING YOUR BUSINESS SKILLS FOLLOW-UP QUESTIONS 1. The “Help” function can help students save time by using the site’s specific features and capabilities to narrow the search.

2. Students should relate various ways in which advanced search pages allow them to improve, refine, and expand their searches.

3. The Web has made information more accessible, less expensive, and easier to find, but it has also increased the volume of information that managers must sift through to find what they need and to ensure that their information is reliable, accurate, objective, and timely.

ANSWERS TO EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE QUESTIONS TO ADDRESS 1. Assigned research papers are intended to represent the student’s work, with proper citations included. The Internet provides many informational resources from which we can all benefit.

However, the purpose of a research paper is to compile information, combined with personal interest and knowledge, and create an original piece of work. When completing a research paper for another type of institution, proper citations are necessary.

2. Answers will vary, but many students will recognize that using a prepared research paper, copied from a Web site, is not actually fulfilling the intended use of such a class project.

However, if Option 1 is used, students MUST use citations to give credit to the original author of the work. If Option 2 is used, the student is not personally fulfilling the class requirement.

3. Answers will vary, but many students will suggest that their advice would depend on the situation. Nonetheless, proper credit should be given when sources are cited for such purposes.

EXERCISING YOUR ETHICS: TEAM EXERCISE This exercise should get students to think about some issues that they probably have not considered. Students often think that everything on the Internet is a “free” source. Again, the students’ responses to the Action Steps will vary widely due to differences in perception.

.

13-21

ACTIVITIES ON MYBIZLAB - INSTRUCTOR TIPS BIZSKILL: Technology Direction Instructor Tips

Available at: mybizlab.com

Brief Synopsis/Objectives: In this BizSkill, students play the role of Director of Information Technology of East Coast operations at Magnificent Tees. They’re asked to prove they are worthy of promotion to CIO. At the end of the BizSkill, students should be able to answer the following questions: 1. What is the role of the IT department in a modern business?

2. How are corporate networks used and protected?

3. How are databases and information systems used?

4. What factors play a role in decisions regarding Internet bandwidth and operating system upgrades?

5. How do IT managers contend with email privacy issues?

6. What role does the IT department have in mobile computing?

How to Best Use This BizSkill: A great way to use this BizSkill is to assign it as homework before your first lecture on the chapter. Ask students to print out their feedback page, and then have them do the BizSkill again at the end of the week to see whether their scores have improved.

.

13-22

Chapter 14: The Role of Accountants and Accounting Information Chapter Overview Every organization relies on accounting information and financial statements in order to gauge business activity over periods of time. Accounting information can be thought of as a measuring stick of an organization’s performance in specific periods of time.

This chapter unfolds with a discussion of the role of accountants and an explanation of the types of accountants in the U.S. business system—public accountants, private accountants, management accountants, and forensic accountants. In addition, the chapter discusses the accounting equation as well as the three basic financial statements, showing how they reflect the activity and financial condition of a business. It also looks at the key standards and principles for reporting financial statements and describes how computing financial ratios can help users get more information from financial statements to determine the financial strengths of a business. Finally, the chapter ends with a discussion of the role of ethics in accounting—a subject that has received much press in recent years.

Learning Objectives 1. Explain the role of accountants and distinguish between the kinds of work done by public accountants, private accountants, management accountants, and forensic accountants.

2. Explain how the accounting equation is used.

3. Describe the three basic financial statements and show how they reflect the activity and financial condition of a business.

4. Explain the key standards and principles for reporting financial statements.

5. Describe how computing financial ratios can help users get more information from financial statements to determine the financial strengths of a business.

6. Discuss the role of ethics in accounting.

7. Describe the purpose of the International Accounting Standards Board and explain why it exists.

.

14-1

Chapter Outline A. What Is Accounting and Who Uses Accounting Information?

B. Who Are Accountants and What Do They Do? 1. Financial versus Managerial Accounting 2. Certified Public Accountants 3. Private Accountants and Management Accountants 4. Forensic Accountants 5. Federal Restrictions on CPA Services and Financial Reporting: Sarbox C. The Accounting Equation D. Financial Statements 1. Balance Sheets 2. Income Statements 3. Statements of Cash Flows 4. The Budget: An Internal Financial Statement E. Reporting Standards and Practices F. Analyzing Financial Statements 1. Solvency Ratios: Borrower’s Ability to Repay Debt 2. Profitability Ratios: Earnings Power for Owners 3. Activity Ratios: How Efficiently Is the Firm Using Its Resources?

G. Bringing Ethics into the Accounting Equation 1. Why Accounting Ethics?

H. Internationalizing Accounting 1. International Accounting Standards Board 2. Why One Set of Global Practices?

.

14-2

LIST OF IN-CLASS ACTIVITIES: AUTHOR’S CHOICE Time Limit

Instructor’s Manual Page Reference

20 min.

14-6, 14-16

20 min.

14-10, 14-17

45 min.

14-10, 14-18

Students read and discuss an article about the issues surrounding the outsourcing of financial information processes.

30 min.

14-11, 14-19 to 14-20

Students calculate financial ratios and interpret their results.

30 min.

14-13, 14-20

Activity

Description

1. Ice-Breaker: Do You Use Accounting?

2. Class Discussion: Interpreting Financial Statements 3. Small-Group Discussion: Annual Reports 4. Business Accountability Handout Discussion: Who’s Accountable for Offshore Oversight?

5. Class Discussion: Choose an Investment

Students think about ways in which they use accounting in their personal lives.

Students determine in which financial statement specific pieces of information are included.

Students review financial information from annual reports of real companies.

LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE At-Home Activity Application Exercise 10: Interview an Accountant Business Plan Project Part 5 Application Exercise 11: Interview a Manager

BizSkill

Completion Time

Instructor’s Manual Page Reference

1 hour

14-10, 14-28

3 to 5 hours

14-14, 14-22 to 14-26

A brief paper detailing the results of the interview.

1 hour

14-13, 14-28

Students can test their business skills in this online simulation.

15 min.

14-29

Description

Deliverable

Students interview an accountant and ask how the firm uses budgets.

A brief paper detailing the results of the interview.

Students complete Part 5 of the business plan project, in which they consider the IT needs and costs associated with their companies.

Students interview the manager of a local retailer, wholesale business, or manufacturing firm about the role of ethics in that company’s accounting practices.

OBM & Financial Statements

.

Part 5 of the business plan.

14-3

TEACHING NOTES AND SUGGESTIONS Learning Objective 1 Explain the role of accountants and distinguish between the kinds of work done by public accountants, private accountants, management accountants, and forensic accountants.

What Is Accounting and Who Uses Accounting Information?

Accounting is a comprehensive system for collecting, analyzing, and communicating financial information that is used to prepare financial statements and management reports. Bookkeeping is just one phase of accounting—the recording of transactions. Because businesses engage in thousands of transactions, ensuring consistent, dependable financial information is mandatory.

This is the job of the accounting information system (AIS)—an organized procedure for identifying, measuring, recording, and retaining financial information so that it can be used in accounting statements and management reports. Users of accounting information include business managers, employees and unions, investors and creditors, tax authorities, and government regulatory agencies.

Who Are Accountants and What Do They Do? The controller manages a firm’s accounting activities. As chief accounting officer, the controller ensures that the AIS provides the reports and statements needed for planning, controlling, decision making, and other management activities.

A. Financial versus Managerial Accounting 1. Financial Accounting. A firm’s financial accounting system is concerned with external information users—the firm’s external stakeholders: consumer groups, unions, stockholders, suppliers, creditors, and government agencies.

2. Managerial Accounting. Managerial (management) accounting serves internal users.

Managers at all levels need information to make departmental decisions, monitor projects, and plan future activities.

B. Certified Public Accountants (CPAs) Certified public accountants (CPAs) offer accounting services to the public. They are licensed by a state after passing an exam prepared by the American Institute of Certified Public Accountants (AICPA), which also provides technical support and discipline in matters of ethics.

1. CPA Services. Most CPA firms provide auditing services, tax services, and management services. a. Auditing. An audit examines a company’s AIS to determine whether financial reports reliably represent its operations; an audit must follow generally accepted accounting principles (GAAP), which are the guidelines governing the content and form of financial reports.

.

14-4

b. Tax Services. Tax services include assistance not only with tax-return preparation, but also with tax planning. c. Management Advisory Services. Management advisory services range from personal financial planning to planning corporate mergers.

2. Noncertified Public Accountants. This category includes accountants who do not take the CPA exam, who are preparing for it, or who are waiting for state certification.

3. The CPA Vision Project. The CPA Vision Project is a profession-wide program that was established to assess the future of accounting; a prime reason for the project is the disturbing decline in the number of young people who have entered the profession in recent years. The CPA Vision Project identifies core competencies for accounting that will be necessary for the future CPA. C. Private Accountants and Management Accountants Private accountants are hired as salaried employees of a firm who perform day-to-day activities. Management accountants provide services to support managers in various activities. Many hold the certified management accountant (CMA) designation.

D. Forensic Accountants.

Forensic accountants may be called on for both investigative accounting and litigation support in crimes against companies, crimes by companies, and civil disagreements. Forensic accounting is the use of accounting for legal purposes.

1. Investigative Accounting. Investigative accounting involves the investigation of a trail of financial transactions behind a suspected crime.

2. Litigation Support. Forensic accountants assist in the application of accounting evidence for judicial proceedings by preparing and preserving evidence for judicial proceedings. a. Certified Fraud Examiners. The Certified Fraud Examiner (CFE) designation is administered by the Association of Certified Fraud Examiners; the CFE’s activities focus specifically on fraud-related issues.

E. Federal Restrictions on CPA Services and Financial Reporting: Sarbox The Sarbanes–Oxley Act (2002) was enacted to restore public trust in corporate accounting practices; Sarbox restricts the kinds of nonaudit services that CPAs can provide.

1. Sarbox Compliance Requirements. The CFO and CEO must pledge that the company’s finances are correct and must vouch for the methods and internal controls used to get those numbers; Sarbox covers numerous provisions related to financial reporting.

KEY TEACHING TIPS

.

14-5

•

Remind students that accounting is a comprehensive system for collecting, analyzing, and communicating financial information, whereas bookkeeping is the recording of transactions.

•

Point out that the controller manages a firm’s accounting activities.

•

Make sure students keep these two points separate: Financial accounting is concerned with external information users; managerial accounting serves internal users.

•

Make sure students understand the role of a CPA, who offers accounting services to the public and who is licensed by a state after passing an exam.

•

Reinforce that generally accepted accounting principles (GAAP) are accounting guidelines governing the content and form of financial reports.

•

In contrast to what students learned about the CPA, they should remember that private accountants perform day-to-day activities; most are management accountants who support managers in the organization.

•

Students often see the work of forensic accountants as being especially interesting. You may want to spend some time discussing these accountants to pique their interest.

QUICK QUESTIONS •

Who uses accounting information and for what do they use it?

•

Outside of the company, who might have an interest in a company’s financial situation?

•

What types of services do CPAs perform?

•

What has occurred in the business environment that has prompted the need for forensic accountants and certified fraud examiners?

•

The Sarbanes–Oxley Act of 2002 (Sarbox) is a critical piece of federal legislation enacted to restore public trust in corporate accounting practices. What are some of Sarbox’s provisions?

Use In-Class Activity 1: Ice-Breaker: Do You Use Accounting?

Time Limit: 20 minutes

.

14-6

Learning Objective 2: Explain how the accounting equation is used.

The Accounting Equation Underlying all record-keeping procedures is the most basic tool of accounting—the accounting equation.

The accounting equation states that Assets – Liabilities = Owners’ Equity.

A. Assets and Liabilities An asset is any economic resource that is expected to benefit a firm or an individual who owns it; a liability is a debt that the firm owes to an outside organization.

B. Owners’ Equity Owners’ equity refers to the amount of money that owners would receive if they sold all assets and paid all debts.

KEY TEACHING TIPS •

Make sure that students understand the accounting equation: Assets – Liabilities = Owners’ Equity

•

An asset is any economic resource that is expected to benefit a firm that owns it; a liability is a debt that the firm owes. What are some examples of assets and liabilities found in organizations?

•

Make sure students understand that owners’ equity is the money owners would receive if they sold all a company’s assets and paid all its liabilities.

QUICK QUESTION •

In what way(s) do businesses benefit from intangible assets?

.

14-7

Learning Objective 3: Describe the three basic financial statements and show how they reflect the activity and financial condition of a business.

Financial Statements Accountants summarize the results of a firm’s transactions and issue reports to help managers make informed decisions. Among the most important reports are financial statements, which fall into three broad categories—balance sheets, income statements, and statements of cash flows.

A. Balance Sheets Balance sheets display a firm’s financial condition at one point in time. They supply information about assets, liabilities, and owners’ equity.

1. Assets. An asset is any economic resource that a company owns and from which it expects to get some future benefit. a. Current Assets. Current assets include cash and assets that can be converted into cash within a year. The act of converting something into cash is called liquidating. Assets are normally listed in order of liquidity—the ease of converting them into cash. b. Fixed Assets. Fixed assets, including land, buildings, and equipment, have long-term use or value. Accountants use depreciation to spread the cost of an asset over the years of its useful life. c. Intangible Assets. Intangible assets have monetary value in the form of expected benefits. These usually include the cost of obtaining rights or privileges, such as patents, trademarks, copyrights, and franchise fees. Goodwill is the amount paid for an existing business beyond the value of its other assets.

2. Liabilities. Current liabilities are debts that must be paid within one year. Accounts payable are unpaid bills to suppliers for materials as well as wages and taxes that must be paid in the coming year. Long-term liabilities are debts that are not due for at least a year.

3. Owners’ Equity. Owners’ equity is broken down into paid-in capital and retained earnings. Paid-in capital is additional money invested in the firm by its owners. Retained earnings are net profits kept by a firm rather than paid out as dividend payments to stockholders.

B. Income Statements The income statement is sometimes called a profit-and-loss statement because its description of revenues and expenses results in a figure showing the firm’s annual profit or loss.

1. Revenues. Revenues are funds that flow into a business from the sale of goods or services.

.

14-8

2. Cost of Revenues (Cost of Goods Sold). The cost of revenues section shows the costs of obtaining the revenues from other companies during the year. Cost of goods sold are costs of obtaining materials to make products sold during the year. a. Gross Profit. Gross Profit is calculated by subtracting the cost of revenues from revenues obtained by selling the firm’s products.

3. Operating Expenses. Operating expenses are resources that must flow out of a company if it is to earn revenues.

4. Operating and Net Income. Operating income compares the gross profit from operations against operation expenses. Net income (net profit or net earnings) is calculated by subtracting income taxes from operating income.

C. Statements of Cash Flows Required of all firms whose stock is publicly traded, the statement of cash flow shows a company’s yearly cash receipts and cash payments. This statement shows cash flows from operating, investing, and financing activities.

D. The Budget: An Internal Financial Statement A budget is a detailed statement of estimated receipts and expenditures for a period of time in the future.

KEY TEACHING TIPS •

Reinforce that financial statements include the summaries of a firm’s transactions and help managers make informed decisions; financial statements include balance sheets, income statements, and statements of cash flows. Go over each of the financial statements carefully with students.

•

Make sure that students understand the distinction between current assets and fixed assets and that they can provide examples of each.

•

Make sure students understand the difference between current liabilities and long-term liabilities and that they can provide examples of each.

•

Explain that owners’ equity can be broken down into paid-in capital and retained earnings, and explain each of those concepts.

•

Reinforce that you can find the company’s revenues and expenses in the income statement (or profit-and-loss statement). Revenues – Expenses = Profit (or Loss). Also point out the main areas of the income statement: revenues, cost of revenues, and operating expenses.

.

14-9

•

Reinforce that revenues are the funds that flow into a business from the sale of goods or services; the cost of revenues (or the cost of goods sold) are the costs of obtaining materials to make products sold during the year.

•

Point out that a statement of cash flows describes yearly cash receipts and cash payments; it includes cash flows from operations, investing, and financing activities.

QUICK QUESTIONS •

What are some examples of operating expenses?

•

Who might be interested in the information revealed in a statement of cash flows? Why?

•

What might be included in a budget for a typical household in the United States?

VIDEO: POPS DINER Run Time: 6:29 Now is a good time to play this video as it highlights the equations and purposes of the balance sheet and income statement covered in this Learning Objective, as well as topics covered by the previous Learning Objectives. Incorporate Discussion Questions found on page 383 of the text.

HOMEWORK Using a Budget Now is a good time to assign Application Exercise 10 from the end-of-chapter materials as homework (see page 381 of the text). This assignment asks students to interview an accountant and ask how the firm uses budgets.

At-Home Completion Time: 1 hour

Use In-Class Activity 2: Class Discussion: Interpreting Financial Statements Time Limit: 20 minutes Use In-Class Activity 3: Small-Group Discussion: Annual Reports Time Limit: 45 minutes

.

14-10

Learning Objective 4: Explain the key standards and principles for reporting financial statements.

Reporting Standards and Practices Spelled out in GAAP, these practices and principles cover a range of issues.

A. Revenue Recognition and Activity Timing Revenue recognition is the formal recording and reporting of revenues in financial statements, which takes place after the earnings cycle is completed.

Full Disclosure This indicates that financial statements should not include just numbers; they should include management’s interpretation and explanation of those numbers.

KEY TEACHING TIP Remind students that full disclosure requires that financial statements include both the “numbers” and management’s interpretations/explanations of those numbers.

Use In-Class Activity 4: Business Accountability Handout Discussion: Who’s Accountable for Offshore Oversight?

Time Limit: 30 minutes

.

14-11

Learning Objective 5: Describe how computing financial ratios can help users get more information from financial statements to determine the financial strengths of a business.

Analyzing Financial Statements Financial statements provide data, which can reveal trends and be applied to various ratios.

A. Solvency Ratios: Borrower’s Ability to Re-Pay Debt Solvency ratios provide measures of the firm’s ability to meet its debt obligations.

1. The Current Ratio and Short-Term Solvency. Short-term solvency ratios measure a company’s liquidity and its ability to pay immediate debts. The most commonly used of these is the current ratio, which measures a company’s ability to meet current obligations out of current assets.

2. Long-Term Solvency. Long-term solvency is calculated by dividing debt—total liabilities—by owners’ equity; this ratio illustrates the extent to which a firm is financed through borrowed money. a. Leverage. Leverage refers to the ability to make otherwise unaffordable investments by borrowing funds.

B. Profitability Ratios: Earnings Power for Owners Profitability ratios are used for measuring potential earnings.

1. Earnings per Share. This ratio is calculated by dividing net income by the number of shares outstanding; this determines the size of the dividend that a firm can pay shareholders.

C. Activity Ratios: How Efficiently Is the Firm Using Its Resources?

Activity ratios reveal the efficiency with which firms have used resources; an example is when annual sales revenues can increase without an increase in operating costs.

KEY TEACHING TIPS •

Reinforce that the current ratio measures a company’s ability to meet current obligations out of current assets. The formula is Current Assets/Current Liabilities.

•

Reinforce that long-term solvency indicates a company’s ability to repay debts in future years; the formula is Total Liabilities/Owners’ Equity.

•

Point out earnings per share determines the size of the dividend a firm can pay shareholders; this can be determined using the formula Net Income/Share of Stock.

.

14-12

QUICK QUESTIONS •

What do solvency ratios measure?

•

How can high debt be desirable for a company?

Use In-Class Activity 5: Class Discussion: Choose an Investment Time Limit: 30 minutes

HOMEWORK Interview a Manager Now is a good time to assign Application Exercise 11 from the end-of-chapter materials as homework (see page 381 of the text). This assignment asks students to interview the manager of a local retailer, wholesale business, or manufacturing firm about the role of ethics in that company’s accounting practices.

At-Home Completion Time: 1 hour

.

14-13

Learning Objective 6: Discuss the role of ethics in accounting.

Bringing Ethics into the Accounting Equation A. Why Accounting Ethics?

The purpose of accounting ethics is to maintain public confidence in business institutions, financial markets, and the products and services of the accounting profession.

1. AICPA’s Code of Professional Conduct. The code of professional conduct for public accountants in the United States is maintained and enforced by the AICPA; the following areas are included: responsibilities, the public interest, integrity, objectivity and independence, due care, and scope and nature of services.

2. Violation of Accounting Ethics and GAAP. The majority of recent accounting wrongdoing has related to the six ethics-related areas.

3. Ethics Means Doing the Right Thing. Ethics remains an area where one person who is willing to “do the right thing” can make a difference.

KEY TEACHING TIP It is critical that students recognize the purpose of ethics in accounting: to maintain public confidence in business institutions, financial markets, and the products and services of the accounting profession

QUICK QUESTIONS •

What are the six ethics-related areas outlined by the AICPA in its Code of Professional Conduct?

•

What is the connection between the Sarbanes–Oxley Act of 2002 and the recent widespread violations of accounting ethics?

HOMEWORK Business Plan Now is a good time to assign the Part 5 of the business plan project (see pages 14-22 through 1426 of this IM). In this section, students consider their IT needs and costs and complete a balance sheet and income statement for their business.

At-Home Completion Time: 3 to 5 hours

.

14-14

Learning Objective 7: Describe the purpose of the International Accounting Standards Board and explain why it exists.

A. International Accounting Standards Board Established in 2001 and housed at London, England, the International Accounting Standards Board (IASB) is an independent, nonprofit organization responsible for developing a set of global accounting standards, and for gaining the support and cooperation of the world’s various accounting organizations to implement those standards.

B. Why One Set of Global Practices?

Although more than 100 countries have adopted IASB’s accounting practices, nearly 40 others, including China, Canada, and the United States, continue to use their national GAAPs. Twenty-two U.S.-based global companies such as Google, Caterpillar, and Microsoft may prepare different financial reports using local accounting practices for each country in which they conduct business.

1. Example Areas Targeted for Aligning U.S. GAAP and IASB Among the many differences between the practices of U.S. GAAP and IASB—some reports identify more than 400 such discrepancies—the following examples illustrate some discrepancies and proposals for convergence toward universal standards in financial reporting. a. In valuing assets b. In revenue recognition c. In de-valuing of financial assets 2. Timetable for Implementation The U.S. Securities and Exchange Commission has targeted 2015 as the earliest date that U.S. companies will be required to use IASB procedures for financial reporting.

.

14-15

IN-CLASS ACTIVITIES In-Class Activity 1: Ice-Breaker Do You Use Accounting?

Activity Overview: This activity asks students to think about the ways in which they use accounting in their personal lives.

Time Limit: 20 minutes What to Do: 1. Ask students to make a list of ways in which they use accounting in their personal lives. They might want to consider the following questions when making up their lists: (15 minutes) a. How do you keep track of what money is coming in? b. How do you keep track of what money is going out? c. How do you budget your money? d. How do you plan for unexpected expenditures? e. What types of “tools” do they use to keep track of their financial information? f. At later points in your life, do you think you will account for your money differently? If so, how?

2. Ask students to share any relevant information that might benefit other students in the class.

(5 minutes) Don’t Forget: Everyone has his or her own unique way of keeping track of their financial situation; some will be more effective than others.

Wrap Up: Remind students that we are all accountants to a certain degree. Bring the exercise to a close by briefly outlining accounting and previewing the types of accountants discussed in the chapter.

.

14-16

In-Class Activity 2: Class Discussion Interpreting Financial Statements Activity Overview: This activity asks students to determine in which financial statement specific pieces of information are included.

Time Limit: 20 minutes What to Do: 1. In advance, make a list of revenues, expenses, assets, debts, etc.

2. Ask students to account for each item on a balance sheet or income statement as you reveal the item; for each item, ask, “Where would this go?” (20 minutes) Don’t Forget: Another alternative is to ask students to individually write down their answers and then discuss each item revealed and the rationale for including it in either the balance sheet or income statement.

Wrap-Up: Wrap up the activity by providing a brief overview of the accounting equation, followed by a brief overview of the roles of the financial statements.

.

14-17

In-Class Activity 3: Small-Group Discussion Annual Reports Activity Overview: This activity gives students a chance to review actual financial information from annual reports of real companies.

Time Limit: 45 minutes What to Do: 1. In advance, ask students to bring a copy of a recent annual report to class. Make it clear that many companies post their annual reports online, so they can access the information they need on the Web. You may also want to bring a supply of annual reports in case students can’t get to them.

2. Divide students into groups of two and ask each group to review one of the annual reports. In particular, ask students to identify financial information that has been discussed in this chapter and discuss whether that information coincides with what has been presented in this chapter.

(30 minutes) 3. Reassemble the class as a whole and ask each group to reveal the financial status of their selected company. (15 minutes) Don’t Forget: Remind students to also pay attention to the opinion of each company’s auditing firm as revealed in the annual report.

Wrap-Up: Remind students of the use of the annual report, such as how potential investors in a corporation interpret such data prior to making a stock purchase.

.

14-18

In-Class Activity 4: Business Accountability Handout Discussion Who’s Accountable for Offshore Oversight?

Activity Overview: This activity discusses the issues surrounding the outsourcing of financial information processes.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Business Accountability article (see the following page of this Instructor’s Manual) and distribute them to students.

2. Divide the class into small groups and ask them to read the scenario, paying attention to the accompanying questions (15 minutes): a. What are the pros and cons of using offshore financial data processing? b. What practices should be used with outsourcing to protect clients’ private financial information?

3. Regroup and discuss each group’s suggested answers. (15 minutes) Don’t Forget: This activity can also be used as an Up for Debate activity. Several issues arise in the discussion, such as what assurance clients have or don’t have against unauthorized access, and whether Internet transmissions should be banned and offshore firms given only access to images residing on U.S. servers.

Wrap-Up: Bring the activity to a close by reviewing the pros and cons of this scenario and reminding students that caution is especially critical when using any type of electronic transmission. On the other hand, it is interesting to point out that communication skills and attention to Internet transmissions become even more critical as “onshore” accountants interface more with “offshore” accountants to get their work done.

.

14-19

HANDOUT: BUSINESS ACCOUNTABILITY Who’s Accountable for Offshore Oversight?

As customers, we’re accustomed to U.S. firms using offshore business processes, such as telephone answering centers for call-in purchases from catalogs and airline travel assistance, but how comfortable are we with U.S. accounting firms shipping confidential financial data to be processed in far-off Europe, Asia, or Central America? That’s what’s happening increasingly, as U.S. accounting and financial services firms outsource accounting’s “back-office activities,” including bookkeeping, payroll processing, billing, collecting, and tax return preparation.

For accounting firms, the attractive benefit of offshoring—lower processing costs—is offset by risks of noncompliance with U.S. laws, failure to deliver the service, and a soiled reputation from not meeting expectations. Offshore outsourcing certainly raises the possibility of conflict with the client’s expectations for privacy, security, and confidentiality of its information, for which CPAs are accountable. Fulfillment of these expectations is controlled better using nearby vigilance in traditional in-house processing, under stringent guidelines of the profession’s national association, the American Institute of Certified Public Accountants (AICPA). Under the Code of Professional Conduct, CPAs must maintain client confidentiality in all engagements (in all transactions with and services for clients) and perform professional responsibilities with competence and diligence.

Violations are subject to AICPA sanctions and, even, legal recourse. Beyond legalities, however, CPAs’ staunch code of ethics is a long-standing force for self-governance and ethical conduct in the U.S. accounting Prospects for the safekeeping of information diminish with outsourcing. Transatlantic controversy exists, for example, over who should have oversight responsibilities for professional conduct and accounting regulation. The U.S. requirement that non-U.S. accounting firms register with the U.S. accounting board and submit to its oversight is hotly contested by the European Union (EU), which insists that the Americans rely on “foreign” oversight. But how can a U.S. client rely on quality and privacy from the disparate accounting systems among EU and other countries around the world? Does the Code of Professional Conduct apply to offshore firms? With private information flowing on the Internet, what assurances do clients have against unauthorized access?

Should Internet transmission be banned, and offshore firms have access only to images residing on U.S. servers?

In determining what practices to employ for protecting clients, some advocates suggest, at the very least, that accountants seek clients’ permission for using offshore outsourcing. While the accounting profession searches for answers to these outsourcing-related issues, one principle remains clear: The use of third parties in no way diminishes the CPA’s accountability for privacy, confidentiality, and security to their clients.

DISCUSSION QUESTIONS 1. What are the pros and cons of using offshore financial data processing?

2. What practices should be used with outsourcing to protect clients’ private financial information?

.

14-20

In-Class Activity 5: Class Discussion Choose an Investment Activity Overview: This activity asks students to calculate financial ratios and interpret the results.

Time Limit: 30 minutes What to Do: 1. Ahead of time, ask students to bring an annual report of a corporation of their choice to class.

2. Divide the class into groups of two, asking each group to calculate the following ratios/information based on information they find in the annual report (15 minutes): a. Current ratio b. Long-term solvency c. Earnings per share 3. Ask each group to discuss the following questions (15 minutes): a. What is the company’s ability to meet currency obligations out of current assets? b. Is the company likely to be able to repay debts in future years? c. What might be the size of the dividend that the firm can pay shareholders?

Don’t Forget: Information needed to calculate the above figures should be present in any financial statement.

You may want to bring a supply of annual reports in case students can’t get to them, or make it clear that many companies post their annual reports online so students can access the information they need on the Web. Wrap-Up: Bring the activity to a close by providing a brief overview of short- and long-term solvency, as well as what earnings per share indicate.

.

14-21

PART 5: BUSINESS PLAN PROJECT Managing Information Assignment Overview: The fifth part of the business plan project asks students to think about their business in terms of their business needs and costs. Specifically, students are asked to determine their IT needs and resources and are asked to complete a balance sheet and an income statement for their business.

Many students find this part of the plan especially challenging, and will have trouble estimating their costs. Remind them that the values they calculate in this part of the plan are estimates, and there is no surefire method for accurately measuring how a business may perform. You may want to spend some class time going over each question in this part of the plan and create a list of sources that students can use when calculating their costs.

Files to Provide Students: If you would like students to complete a balance sheet and an income statement for their businesses, a sample spreadsheet file is available for them to consult in the following pages. Full Business Plan templates are also available at www.mybizlab.com.

Part 5 Estimated At-Home Completion Time: If done well, this section will require a minimum of 3 to 5 hours. Instructor feedback is critical in this part of the plan, as most students will need some direction in gathering information that will help answer the questions related to costs.

Homework Deliverable from Students: The length of this section should be somewhat consistent, although some variance can be expected. You should expect about 4 to 5 pages in this section.

.

14-22

STUDENT BUSINESS PLAN PROJECT TEMPLATE PART 5: MANAGING INFORMATION IT RESOURCES What kind of IT resources will your business require?

Hint: Think about the employees in your business and what they will need in order to do their jobs. What computer hardware and software will they need? Will your business need a network and an Internet connection? What type of network? Refer to Chapter 13 for a discussion on IT resources you may want to consider.

CUSTOMER SERVICE How will you use information technology to keep track of your customers and potential customers?

Hint: Many businesses—even small businesses—use databases to keep track of their customers.

Will your business require a database? What about other information systems? Refer to Chapter 13 for more information on these topics.

COST OF DOING BUSINESS What are the costs of doing business? Equipment, supplies, salaries, rent, utilities, and insurance are just some of these expenses. Estimate what it will cost to do business for one year.

Hint: Insert the costs associated with doing business in the table below. The list below provides some hints as to where you can get this information. Note that these are just estimates—just try your best to include accurate costs for the expenses you think will be a part of doing business.

HINTS FOR EACH EXPENSE IN THE TABLE: Rent: Refer to the floor plan. How many square feet is your place of business? What is the “going rate” per square foot for office space in your community? A real estate agent or a local SBA representative (www.sba.gov) can also be helpful in answering this question.

Salaries: Refer to the organizational chart. How much will each employee earn? How many hours will each employee be needed on a weekly basis? Once you’ve determined the weekly cost, expand it to a monthly and a yearly cost.

Supplies: Refer to the floor plan. How much will all the computers, equipment, and furniture cost? What kinds of general office supplies will you need? Most prices for this information can be found on an office supply Web site, such as www.staples.com.

Advertising and Other Promotions: Refer to your marketing section. You have described how you wish to reach your customer—now you need to decide how much it will cost. If you are using television, contact the sales department at a local station. If you are using newspaper, contact their advertising department. Salespeople are usually happy to answer your questions.

Utilities: These amounts will vary, depending on your business and what utilities you will pay. If your business looks like an office, this cost may be similar to what a homeowner pays. However, if your business involves making a product, then the costs will be significant. An SBA

.

14-23

representative can be a good resource.

Insurance: This value will be affected by the nature of the business. More equipment will usually mean higher insurance costs. Again, contact an SBA representative for feedback.

EXPECTED REVENUE How much will you charge for your product? How many products do you believe you can sell in one year (or how many customers do you think your business can attract)? Multiply the price you will charge by the number of products you hope to sell or the amount you hope each customer will spend. This will give you an estimate of your revenues for one year.

Hint: You will use the amounts you calculate in the costs and revenues questions in this part of the plan in the accounting statements in the next part, so be as realistic as you can.

INCOME STATEMENT AND BALANCE SHEET Create a balance sheet and an income statement (profit-and-loss statement) for your business.

This chapter has discussed income statements and balance sheets. This is a good opportunity to show students how to prepare a spreadsheet (see following pages) into which to put the financial information for an income statement and a balance sheet.

.

14-24

Income Statement (Profit-and-Loss Statement) June

July

Aug.

Sept.

Oct.

Nov.

Dec.

……

YEARLY

Revenue (Sales) Category 1 Category 2 Total Revenue (Sales) Cost of Goods Sold Category 1 Category 2 Total Cost of Goods Sold Gross Profit Expenses Rent Expense Salary/Wage Expenses Supplies Expense Advertising Expense Utilities Expense Telephone/Internet Expense Insurance Expense Interest from Loans (if applicable) Other Expenses (specify) Total Expenses Net Profit

.

14-25

Balance Sheet Assets Current Assets Cash Cash Value of Inventory Prepaid Expenses (insurance) Total Current Assets Fixed Assets Machinery and Equipment Furniture and Fixtures Real Estate/Buildings Total Fixed Assets Total Assets

Liabilities and Net Worth Current Liabilities Accounts Payable Taxes Payable Notes Payable (due within 12 months) Total Current Liabilities Long-Term Liabilities Bank Loans Payable (greater than 12 months) Less: Short-Term Portion Total Long-Term Liabilities Total Liabilities Owners’ Equity (Net Worth) Total Liabilities and Owners’ Equity

.

14-26

ANSWERS FOR END OF CHAPTER ACTIVITIES (Starting on Page 381 of the Textbook) QUESTIONS FOR REVIEW 1. Business managers use accounting information to develop goals and plans, set budgets, and evaluate future prospects. Employees and unions use it to plan for and receive compensation and such benefits as health care, vacation time, and retirement pay. Investors and creditors use accounting information to estimate returns to stockholders, determine growth prospects, and decide whether a firm is a good credit risk. Tax authorities use it to plan for tax inflows, determine the tax liabilities of individuals and businesses, and ensure that correct amounts are paid on time. Government regulatory agencies rely on it to fulfill their duties toward the public.

2. The three types of services performed by CPAs are auditing services, tax services, and management services.

3. Financial accounting is concerned with external information users—the firm’s external stakeholders: consumer groups, unions, stockholders, suppliers, creditors, and government agencies. Managerial accounting serves internal users.

4. Forensic accountants may be called on—by law enforcement agencies, insurance companies, law firms, and business firms—for both investigative accounting and litigation support in crimes against companies, crimes by companies, and civil disagreements.

5. The balance sheet reflects a firm’s financial condition at one point in time by supplying detailed information about the firm’s assets, liabilities, and owners’ equity. The income statement reflects a firm’s profit or loss by comparing the firm’s revenues with its expenses.

The statement of cash flows describes a company’s yearly cash receipts and cash payments.

6. Financial ratios allow managers to compare their performance against both their own past history and against comparable companies in their industry.

QUESTIONS FOR ANALYSIS 7. Balance sheets and statements of cash flow both provide a piece of the picture. Balance sheets reveal profitability and the relationship of assets to liabilities and owners’ equity for a given date; while statements of cash flows reveal the firm’s operations through analysis of cash flows.

8. A CPA firm can help design a client’s financial information system, but not if it also does the client’s auditing. The Act prohibits providing auditing and nonauditing services to the same client. Further, the CEO of the company must vouch that the firm’s financial records are correct. The Sarbanes–Oxley Act of 2002 presents many provisions, though not all are directly related to this scenario.

.

14-27

9. Answers will vary but students will probably note the large numbers of countries that have to agree, the impact, cost of implementation, tax laws, shareholder impact, etc.

APPLICATION EXERCISES 10. Answers will vary, but students will probably recognize that firms sometimes develop budgets from scratch, but more often by using previous years’ data. Budgets usually provide control for company spending or resource allocation.

11. Answers will vary, though most managers will attest that ethics are an extremely important consideration in their company’s accounting practices. Likely all those managers interviewed will mention their recipes for ensuring internal ethical practices.

ANSWERS TO BUILDING YOUR BUSINESS SKILLS FOLLOW-UP QUESTIONS 1. An electronic system could eliminate much of the handling required by a paper system. It would also virtually eliminate postage and paper, and it would reduce human error.

2. Most businesses that you deal with would benefit from increased speed and accuracy, but those that provide goods and services that require manual processing would experience reduced demand for their products.

3. The high costs are short term, while savings from the elimination of paper, postage, handling, and error will accumulate over time. Large capital expenditures reflected in the long-term liabilities on the income statement will not affect the current ratio.

4. Answers will vary, but students should note that they would likely receive at least a handful of complaints from each customer group during the transition process. Long-run business customers would be more likely than individual customers to convert completely to the new system.

ANSWERS TO EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE QUESTIONS TO ADDRESS 1. Students may recognize that the ethical issues pertain to the actions of both parties involved.

Tax documents must be filed on time; however, payment for the services rendered should also be arranged so that both parties are satisfied.

2. Aaron asked Katrina to complete the work, which she did; therefore, it may be argued that he owes her the amount of money stated on the bill. He did, however, expect the amount owed to be within an acceptable range and for the work to have been completed in a timely manner.

On the other hand, Katrina was asked to complete the work, which she did. Withholding

.

14-28

someone’s required tax documents due to a disagreement in billing may seem like an excessive action for Katrina to take.

3. Answers will vary, but some students will agree that Katrina completed the work with the assumption that her client would be willing to pay the charged fee. However, other students will recognize that the AICPA aims to protect the image of the accounting profession, which is what happened in this scenario.

EXERCISING YOUR ETHICS: INDIVIDUAL This should be an interesting discussion since most students will focus on the company policy that does not restrict the Head Accountant from taking a position with a competitor. Many of the students will not perceive any ethical dilemma.

ACTIVITIES ON MYBIZLAB - INSTRUCTOR TIPS BizSkills: OBM & Financial Statements Instructor Tips

Available at: mybizlab.com

Brief Synopsis/Objectives: In this BizSkill, students play the owner of a struggling restaurant. They’re asked to figure out ways to turn the restaurant around. They must weigh the pros and cons of opening books, and listen to various suggestions from others about the best ways to improve the numbers.

At the end of the BizSkill, students should be able to answer the following questions: 1. What are the pros and cons of open book management?

2. What are the three main financial statements?

3. What choices can companies make to affect their cash flow statement?

4. What choices can companies make to affect their income statement?

How to Best Use This BizSkill: A great way to use this BizSkill is to assign it as homework before your first lecture on the chapter. Ask students to print out their feedback page, and then have them do the BizSkill again at the end of the week to see whether their scores have improved.

.

14-29

Chapter 15: Money and Banking Chapter Overview Do you remember your first summer job? Whether it was babysitting, delivering papers, or mowing lawns, think of how long it took to save just a few dollars. And most of us learned just how valuable those few dollars were once they were spent on something. Money is discussed in every introductory business class, and it is the one topic with which we are all familiar.

This chapter presents the different forms that money takes in the nation’s money supply and discusses the different types of financial institutions that compose the U.S. financial system. It also looks at how financial institutions create money and describes the means by which they are regulated. The functions of the Federal Reserve System are discussed, as are the tools that it uses to control the money supply. Finally, the chapter identifies three important ways in which the money and banking system is changing and touches on some of the institutions and activities in international banking and finance.

Learning Objectives 1. Define money and identify the different forms that it takes in the nation’s money supply.

2. Describe the different kinds of financial institutions that compose the U.S. financial system and explain the services they offer.

3. Explain how financial institutions create money and describe the means by which they are regulated.

4. Discuss the functions of the Federal Reserve System and describe the tools that it uses to control the money supply.

5. Identify three important ways in which the money and banking system is changing.

6. Discuss some of the institutions and activities in international banking and finance.

.

15-1

Chapter Outline A. What Is Money?

1. The Characteristics of Money 2. The Functions of Money 3. M-1: The Spendable Money Supply 4. M-2: M-1 Plus the Convertible Money Supply B. The U.S. Financial System 1. Financial Institutions 2. The Growth of Financial Services C. Financial Institutions Create Money and Are Regulated 1. Regulation of the Banking System D. The Federal Reserve System 1. The Structure of the Fed 2. The Functions of the Fed 3. The Tools of the Fed E. The Changing Money and Banking System 1. Government Intervention for Stabilizing the U.S. Financial System 2. Anti-Crime and Anti-Terrorism Regulations 3. The Impact of Electronic Technologies F. International Banking and Finance 1. Currency Values and Exchange Rates 2. International Payments Process 3. International Bank Structure

.

15-2

LIST OF IN-CLASS ACTIVITIES: AUTHOR’S CHOICE Activity

Description

Time Limit

Instructor’s Manual Page Reference

1. Ice-Breaker: How Much Would That Be in, Say, Chocolate Bars?

2. Up for Debate: Your Check Is Not in the Mail 3. Business Accountability Handout Discussion: Fixing the System on a National Scale

Students consider the characteristics of money when making purchases using something other than “money.”

30 min.

15-5, 15-14

Students analyze the pros and cons of traditional check writing versus electronic payments.

20 min.

15-5, 15-25

30 min.

15-11, 15-16 to 15-17

Students read and discuss an article about a different type of interest rate–setting policy from Canada.

LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE At-Home Activity

Description

Application Exercise 10: Creating Money

Application Exercise 11: Interview a Manager

Students trace the amount of money created by a banking system after five lending cycles based on hypothetical data.

Students interview the manager of a bank to determine how requirements of the Bank Secrecy Act and the USA Patriot Act have affected the bank.

Adapting to the Economic Environment

BizSkill

.

Deliverable

Completion Time

Instructor’s Manual Page Reference

20 min.

15-11, 15-19

1–2 hours

15-11, 15-19

15 min.

15-20

Student calculations.

A brief paper detailing the outcome of the interview.

Students can test their business skills in this online simulation.

15-3

TEACHING NOTES AND SUGGESTIONS Learning Objective 1: Define money and identify the different forms that it takes in the nation’s money supply.

What Is Money?

A. The Characteristics of Money Money has four main characteristics: 1. Portability 2. Divisibility 3. Durability 4. Stability B. The Functions of Money Money serves three functions: 1. It is a medium of exchange. We use money to buy and sell things.

2. It is a store of value. Money can be saved and used for future purchases.

3. It is a measure of worth. All products can be valued in terms of money.

C. M-1: The Spendable Money Supply The value of money decreases when its supply is high; when the money supply is low, its value increases. A common measurement of the money supply is M-1, which counts only the most liquid forms of money, including currency (cash), checks, and checking accounts (demand deposits).

D. M-2: M-1 Plus the Convertible Money Supply M-2 includes everything in M-1 plus other forms of money that are not quite as liquid— items that are invested for the short term, but are easily converted to spendable forms. The major components of M-2 are M-1, time deposits, money market mutual funds, and savings accounts.

KEY TEACHING TIPS •

Point out that just about any object that can serve as money is portable, divisible, durable, and stable.

•

Explain each of the following characteristics of money: portability, divisibility, durability, and stability.

•

Students often confuse the characteristics of money with the functions of money. At this point, a quick review of both may be helpful.

•

Prior to the discussion of the M-1, M-2, it may be helpful to point out that the value of money depends on its supply—meaning how much is in circulation. For example, the value of money drops when supply is high.

.

15-4

•

Students should keep M-2 separate from M-1. M-2 includes M-1 plus other forms of money that are not quite as liquid, such as time deposits, money market mutual funds, and savings accounts.

QUICK QUESTIONS •

How is it that checking accounts can be counted as part of M-1?

•

Different cultures “put different spins” on monetary transactions. For example, money is exchanged with a good deal of respect, even down to the way it is handled, in Japan.

What are some other ways different cultures “put different spins” on money?

Use In-Class Activity 1: Ice-Breaker: How Much Would That Be in, Say, Chocolate Bars?

Time Limit: 30 minutes Use In-Class Activity 2: Up for Debate: Your Check Is Not in the Mail Time Limit: 20 minutes

.

15-5

Learning Objective 2: Describe the different kinds of financial institutions that compose the U.S. financial system and explain the services they offer.

The U.S. Financial System A. Financial Institutions Financial institutions ease the flow of money from sectors with surpluses to those with deficits.

1. Commercial Banks. Commercial banks are companies that accept deposits that they use to make loans, earn profits, pay interest to depositors, and pay dividends to owners. a. Diversification and Mergers. In recent years, financial industry competitors have grown faster than commercial banks in the United States. In efforts to regain competitiveness, banks were merging at a record-setting pace in the 1990s, a trend that continues today. b. Commercial Interest Rates. Banks can set their own interest rates. Traditionally, the lowest rates were made available to the bank’s most creditworthy commercial customers. That rate is called the prime rate. Most commercial loans are set at markups over prime, like prime +1.

2. Savings Institutions. Savings institutions include mutual savings banks and savings and loan institutions. They are often called thrift institutions.

3. Savings and Loan Associations. Savings and loan associations (S&Ls) accept deposits, make loans, and are owned by investors.

4. Mutual Savings Banks. In mutual savings banks, all depositors are considered owners of the bank. All profits, therefore, are divided proportionately among depositors, who receive dividends.

5. Credit Unions. A credit union is a nonprofit, cooperative financial institution owned and run by its members. Its purpose is to promote thrift—careful management of one’s money or resources—and to provide members with a safe place to save and borrow at reasonable rates.

6. Nondeposit Institutions. A variety of other organizations take in money, provide interest or other services, and make loans. They are called nondeposit institutions because, unlike commercial banks, inflowing funds are intended for purposes other than earning interest for depositors. Four of the most important are pension funds, insurance companies, finance companies, and securities investment dealers (brokers).

.

15-6

B. The Growth of Financial Services 1. Pension and Trust Services. Individual retirement accounts (IRAs) are pension funds that wage earners and their spouses can set up to supplement other retirement funds.

Banks receive funds and invest them as directed by customers and provide information on IRA investment alternatives. Many commercial banks offer trust services—the management of funds left “in the bank’s trust.”

2. International Services. The three main international services offered by banks are currency exchange, letters of credit, and banker’s acceptances. A letter of credit is a promise by the bank to pay a firm a certain amount, if specified conditions are met. A banker’s acceptance promises that the bank will pay a specified amount at a future date.

3. Financial Advice and Brokerage Services. Serving as financial advisors, banks help customers manage their money by recommending different investment opportunities and serving as a securities intermediary.

4. Electronic Funds Transfer. Electronic funds transfer (EFT) systems transfer many types of financial information over wire, cable, or microwave. a. Automated Teller Machines. Automated teller machines (ATMs) allow customers to withdraw money, make deposits, transfer funds, and check on account status.

KEY TEACHING TIPS •

Remind students that financial institutions include commercial banks, savings and loan associations, mutual savings banks, and credit unions.

•

Make sure students understand the distinction between the traditional IRA, the Roth IRA, and the Educational IRA.

QUICK QUESTIONS •

What are ways in which financial institutions have diversified in recent years?

•

What was the traditional purpose of a savings and loan association?

•

Who are considered the owners of mutual savings banks and credit unions?

•

How are nondeposit institutions different from commercial banks?

•

When might a letter of credit be used? When might a banker’s acceptance be used?

•

How do consumers benefit from EFT?

.

15-7

Learning Objective 3: Explain how financial institutions create money and describe the means by which they are regulated.

Financial Institutions as Creators of Money Financial institutions create money by taking in deposits and making loans, which expands the money supply.

1. Regulation of the Banking System. Banks create money; therefore, the government regulates them via the Federal Reserve System and the Federal Deposit Insurance Corporation to ensure a sound financial system. a. Federal Deposit Insurance Corporation (FDIC). The Federal Deposit Insurance Corporation (FDIC) insures deposits in member banks up to $100,000. However, in 2008 this was temporarily increased to $250,000 until 2013 to ensure public confidence in the banking system

KEY TEACHING TIPS •

Make sure students understand that the Federal Reserve System (the Fed) is the central bank of the United States; it is composed of a board of governors, 12 reserve banks, and thousands of member banks.

•

Point out that some financial institutions don’t belong to the Federal Reserve System; however, they are still subject to the Fed’s regulations, pay deposit insurance premiums, and are covered by the FDIC.

•

Assume that Mr. Jones deposits a check from Mr. Smith into his account at his local bank. If they both bank at the same bank, the check is not sent to a reserve bank. Instead, Mr. Jones’s account is increased and Mr. Smith’s account is decreased to make the transaction complete.

.

15-8

Learning Objective 4: Discuss the functions of the Federal Reserve System and describe the tools that it uses to control the money supply.

The Federal Reserve System The Federal Reserve System (the Fed) is the nation’s central bank.

A. The Structure of the Fed The Fed is comprised of a board of governors, a group of reserve banks, and member banks.

1. The Board of Governors. This group is comprised of seven members appointed by the president for 14-year terms; the board plays a major role in controlling the money supply through reserve requirements, discount rates, and open-market operations.

2. Reserve Banks. There are 12 banks in the Fed that hold deposits from and set the discount rate for commercial banks in their respective regions; reserve banks also largely contribute to the country’s check-clearing process.

3. Open Market Committee. The Federal Open Market Committee is responsible for formulating the Fed’s monetary policies to promote economic stability and growth by managing the nation’s money supply.

4. Member Banks. National banks and some state banks are members of the Fed; depositor accounts in member banks are protected by FDIC. 5. Other Depository Institutions. Although many state-chartered banks, credit unions, and S&Ls do not belong to the Fed, they are subject to its regulations, pay deposit insurance premiums, and are covered by the FDIC. B. The Functions of the Fed The Fed functions as the government’s bank and the banker’s bank and control the money supply.

1. The Government’s Bank. The Fed produces the nation’s currency and lends money to the government to finance the national deficit.

2. The Bankers’ Bank. Individual banks that need money can borrow from the Fed and pay interest on the loans. In addition, the Fed provides storage for commercial banks, which are required to keep funds on reserve at a Federal Reserve Bank. a. Check Clearing. The Fed also clears checks. The term float refers to all the checks in the process at any one time. Checks that have been written and are not yet cleared.

3. Controlling the Money Supply. The Fed is responsible for the conduct of U.S. monetary policy—the management of the nation’s economic growth by managing money supply and interest rates.

.

15-9

a. Inflation Management. Because commercial banks are the main creators of money, much of the Fed’s management of the money supply takes the form of regulating the supply of money through commercial banks.

C. The Tools of the Fed In controlling the money supply, the Fed uses four main tools: reserve requirements, discount rate controls, open-market operations, and selective credit controls.

1. Reserve Requirements. The reserve requirement is the percentage of its deposits that a bank must hold, in cash or on deposit, with a Federal Reserve bank. High reserve requirements reduce the money available to lend; low requirements allow the money supply to expand.

2. Interest Rate Controls. As the bankers’ bank, the Fed loans money to banks. The discount rate is the interest rate that the Fed charges on loans made to member banks.

An increased discount rate reduces the money supply; a low rate encourages borrowing and lending.

3. Open-Market Operations. Open-market operations refer to the Fed’s sale and purchase of securities (usually U.S. Treasury notes and bonds) in the open market, as directed by the open-market committee.

4. Fed uses massive bond purchases to stem recession. In 2009, the Fed launched its most aggressive buying of long term Treasury bonds in history—$300 billion—to fight the recession. The purchase was intended to push up market prices of Treasury bonds and therefore lower interest rates. The fall in long term interest rates was followed by a fall in other rates, including those for home loans.

KEY TEACHING TIPS •

Reinforce that monetary policy is the management of the nation’s economic growth by managing money supply and interest rates; the Fed is responsible for monetary policy.

•

Students often forget that selective credit controls allow the Fed to set special requirements for consumer stock purchases, as well as credit rules for other consumer purchases.

•

Remind students that the discount rate is the interest rate charged by the Fed for loans made to banks.

QUICK QUESTIONS •

How does the Fed serve as the “government’s bank”?

•

How does the Fed serve as the “bankers’ bank”?

.

15-10

•

What typically happens to demand for goods and services, and their prices, during inflationary times?

•

How does increasing the reserve requirement help to reduce inflation?

•

Remind students that the discount rate is the interest rate charged by the Fed for loans made to banks.

•

How does the Fed control the nation’s money supply through open-market operations?

Use In-Class Activity 3: Business Accountability Handout Discussion: Fixing the System on a National Scale Time Limit: 30 minutes

VIDEO: BANCFIRST: FINANCIAL MANAGEMENT Running Time: 5:42 This is a good point to play this video as it highlights the topics covered in this and the previous Learning Objectives, including: the characteristics of money in the U.S. currency system; the functions of money and the role of financial institutions; and the role of the Fed in regulating the money supply. Incorporate Discussion Questions found on page 410 of the text.

HOMEWORK Creating Money Now is a good time to assign Application Exercise 10 from the end-of-chapter materials of the textbook as homework (see page 408 of the text). This assignment asks students to trace the amount of money created by a banking system after five lending cycles based on hypothetical data.

At-Home Completion Time: 20 minutes HOMEWORK Interview a Manager Now is also a good time to assign Application Exercise 11 from the end-of-chapter materials of the textbook as homework (see page 408 of the text). This assignment asks students to interview the local manager of a bank and determine how requirements of the Bank Secrecy Act and the USA PATRIOT Act have affected the bank.

At-Home Completion Time: 1–2 hours

.

15-11

Learning Objective 5: Identify two important ways in which the money and banking system is changing.

The Changing Money and Banking System A. Anti-Terrorism Regulations: Bank Secrecy Act (BSA) and USA PATRIOT Act The Bank Secrecy Act requires financial institutions to formulate methods, such as monitoring and keeping records of customer transactions, to deter funding of crimes.

1. USA PATRIOT Act and the Customer Identification Program (CIP). The USA PATRIOT Act requires that financial institutions obtain and verify four pieces of information for every customer: name, address, date of birth, and social security number.

A customer identification program (CIP) verifies identities, keeps records of customer activities and, for new customers, compares identities with government lists of terrorists.

B. The Impact of Electronic Technologies Investing in new technologies allows banks to improve their efficiency and customer service levels.

1. Check 21: Making the Paper Check Go Away. Check 21 allows banks to present a substitute check for payment instead of the original check.

2. Blink Credit Cards. This “contactless” payment system allows consumers to wave a card in front of the merchant’s terminal and be on his or her way.

3. Debit Cards. Debit cards allow the transfer of money between accounts and can be used to make retail purchases. In stores with point-of-sale (POS) terminals, customers insert cards that transmit information relevant to their purchases to terminals.

4. Smart Cards. Smart cards are plastic cards with an embedded computer chip that can be programmed with “electronic money.”

5. E-Cash. E-cash is money that moves via digital transmissions on the Internet, outside the established network of banks, checks, and paper currency overseen by the Fed. Traditional currency is used to buy these electronic funds.

QUICK QUESTIONS •

How might check writers benefit from Check 21? How might financial institutions benefit from Check 21?

•

What are some of the potential drawbacks of using e-cash?

.

15-12

Learning Objective 6: Discuss some of the institutions and activities in international banking and finance.

International Banking and Finance A. The International Payments Process International payments are simplified through the services provided by their local banks.

When money inflows and outflows remain equal for both countries, as a result of international transactions, money does not have to “flow” between the two countries. Within each bank, dollars spent by local importers affect dollars received by local exporters.

B. International Bank Structure Worldwide banking stability relies on a loose structure of agreements among individual countries.

1. The World Bank. The World Bank provides only a very limited scope of services, such as funding national improvements by making loans to build roads, schools, power plants, and hospitals.

2. The IMF. The International Monetary Fund (IMF) promotes the stability of exchange rates, provides temporary loans to member countries, encourages members to cooperate on international monetary issues, and encourages the development of a system for international payments.

QUICK QUESTION •

For what purposes has the International Monetary Fund been designed?

.

15-13

IN-CLASS ACTIVITIES In-Class Activity 1: Ice-Breaker How Much Would That Be in, Say, Chocolate Bars?

Activity Overview: This exercise asks students to consider the characteristics of money when making purchases using something other than “money.”

Time Limit: 30 minutes What to Do: 1. Divide the class into groups of two.

2. Ask each group to consider making the following purchases: a. X number of cans of soda for X number of gallons of gasoline b. X number of hours of overtime for X number of extra vacation days per year c. X number of days without the use of a cell phone for X number of days use of a car 3. Ask each group member to interview his or her partner to determine just how many cans of soda he or she would be willing to “pay” for a gallon of gas; how many hours of overtime would be worth an extra one day of vacation from work; and how many days he or she would be willing to give up the use of a cell phone in order to have access to a car. (15 minutes) 4. Ask each group to discuss whether any “characteristics” of money are evident in these transactions. (5 minutes) 5. Reassemble to class and share some of the groups’ responses. (10 minutes) Don’t Forget: Students’ perceived values in each of the above transactions will vary greatly; for example, a student without a cell phone would not miss it much, etc.

Wrap Up: Bring the activity to a close by providing a brief overview of the characteristics of money, relating them to the previous transactions.

.

15-14

In-Class Activity 2: Up for Debate Your Check Is Not in the Mail Activity Overview: This activity asks students to consider the advantages and disadvantages of replacing traditional check writing with electronic payments.

Time Limit: 20 minutes What to Do: 1. Ask students to work independently to make a list of pros and cons of using traditional check writing and a list of pros and cons of using debit cards. (10 minutes) 2. Bring the class together to discuss the pros and cons of each option. Which option does the class prefer? Why? (10 minutes) Don’t Forget: To come up with an overall class preference, you may want to take a vote. Note: Using debit cards might allow for an easier comparison, since many students are more likely to use debit cards than checks.

Wrap Up: Bring the debate to a close by highlighting some of the advantages and disadvantages mentioned for each option; remind students that check writing is expected to be completely replaced by electronic payments.

.

15-15

In-Class Activity 3: Business Accountability Handout Discussion Fixing the System on a National Scale Activity Overview: This activity asks students to consider a different type of interest rate-setting policy from Canada.

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Business Accountability article on the following page of this Instructor’s Manual and distribute them to students.

2. Divide the class into three-member groups and ask them to read the scenario, paying attention to the following questions: (15 minutes) a. What are the advantages of Canada’s fixed-date system? b. What are the disadvantages of Canada’s fixed-date system?

3. After groups have had a chance to discuss their answers among themselves, reassemble the class and compare each group’s input. (15 minutes) Don’t Forget: This activity can also be completed as a homework assignment.

Wrap Up: Close the activity with an overview of the role of monetary policy.

.

15-16

HANDOUT: BUSINESS ACCOUNTABILITY Fixing the System on a National Scale Bankers and economists recently did a follow-up evaluation of the Bank of Canada’s fixed-date system, launched in December 2000, for announcing its key policy interest rate—the overnight rate that individual banks pay to borrow from one another. The overnight rate is among the bank’s strongest tools for influencing short-term interest rates that, in turn, affect mortgage rates, prime rates charged by commercial banks, and other asset prices in Canada’s financial markets.

Under the old system, the bank’s monetary policy decisions could be made on any business day, without warning, and was governed largely by tactical considerations. That’s quite different from today’s announcements on eight pre-specified or “fixed” dates each year.

The changeover to fixed dates was launched with four objectives in mind, including one that involves the bank’s accountability. First, policy makers wanted to reduce uncertainty in Canada’s financial markets by eliminating investors’ guesswork about when rate changes would be announced. Knowing that the bank would make changes only on specific dates would allow financial institutions to plan ahead without fear of unexpected rate changes. A second objective would overcome an unfavorable public perception that Canada was taking its cues for monetary policies from those of the U.S. Fed. The new system would provide greater focus on Canada’s economic context rather than its relationship to U.S. conditions. Another objective would increase the public’s awareness of the forward-looking nature of monetary policy, requiring 18 to 24 months to have its full impact on the economy, instead of thinking only of its short-term results. The final objective concerns the bank’s accountability to the public. In addition to making monetary policy understandable by explaining clearly to Canadians the how’s and why’s of its decisions, the bank has an obligation to let citizens know how well it’s doing its job and report its progress in meeting the objectives.

Follow-up evaluations on the first objective indicate a reduction of economic uncertainties resulting from reduced volatility of interest rates under the fixed-date system. For the second objective—greater focus on Canada’s economic con-text—media coverage has shifted more onto Canadian economic issues as separate from U.S. conditions. Writing in the Globe and Mail on monetary policy two years into the fixed-date system, for example, Bruce Little commented, “Our economy has followed a different path than that of the United States... What happens in the U.S. affects Canada, but Canada’s economy is not a clone of the U.S. economy.” Shifting of the public’s perspective from short- to medium-term still poses a significant challenge because the public tends to be impatient about looking beyond a week or month for monetary policy to take effect.

Source: Bank of Canada Website at www.bankofcanada.ca/en/monetary/monetary.html.

DISCUSSION QUESTIONS 1. What are the advantages of Canada’s fixed-date system?

2. What are the disadvantages of Canada’s fixed-date system?

.

15-17

ANSWERS FOR END OF CHAPTER ACTIVITIES (Starting on Page 408 of the Textbook) QUESTIONS FOR REVIEW 1. Money must be portable or light to carry. Money must be divisible, meaning that it can be divided into smaller parts—such as four quarters or ten dimes to equal one dollar. Money must also be durable and stable, giving it somewhat limited capability to fluctuate.

2. M-1 consists of currency, demand deposits, and other checkable deposits. M-2 includes M-1 as well as time deposits, money market mutual funds, savings deposits, and overnight transactions.

3. Commercial banks use deposits to make loans and to earn profits. Savings and loan associations accept deposits and make loans primarily for home mortgages. Nondeposit institutions, including pension funds, insurance companies, finance companies, and securities investment dealers, take in money, provide interest, and/or make loans.

4. The Fed is made up of a board of seven governors, twelve Reserve Banks, and member banks.

5. The Fed regulates the supply of money, decreasing the discount rate to keep the economy from slowing down too much, or increasing it to stimulate the economy.

QUESTIONS FOR ANALYSIS 6. Answers may vary, but students should indicate that credit cards are portable, divisible, durable, and stable and serve as a medium of exchange, a store of value, and a unit of account, even though they represent borrowed money, which students may feel prevents them from fitting the definition of money.

7. Answers will vary. This is a particularly good question to ask in light of the 2008 Government bail-out of the banking sector.

8. Online banks can offer higher returns because they do not have the same fixed assets required by main street banks. They also have the opportunity to offshore significant portions of their processes, thus keeping costs to a minimum. The disadvantage is that it is not possible to meet a bank representative face-to-face to discuss issues of personal finance.

.

15-18

APPLICATION EXERCISES 9. The value would be 77.6500 yen to $1 from 2007—2011

6.3454 Chinese Yuan to $1 10. Cycle 1: $1,000.00

Cycle 1 $1,000 X 0.85 = $850.00 Cycle 2: $850.00 X 0.85 = $722.50 Cycle 3: $722.50 X 0.85 = $614.12 Cycle 4: $614.12 X 0.85 = $522.00 Cycle 5: $522.00 X 0.85 = $443.70 TOTAL = $3,152.32

11. Answers will vary, but most managers willing to discuss this topic will mention how the Bank Secrecy Act requires financial institutions to formulate methods to deter funding of crimes. The USA PATRIOT Act requires that bank know customers’ true identities.

ANSWERS TO BUILDING YOUR BUSINESS SKILLS FOLLOW-UP QUESTIONS 1. The Fed uses the discount rate to enhance or inhibit the economy to control inflation and resulting interest rates. It also determines a reserve requirement that reduces or expands the money supply. The Fed may also stipulate selective credit controls.

2. Answers will vary, but students should recognize that economics is part art and part science, and unforeseen events can disrupt the most careful analysis and predictions.

ANSWERS TO EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE QUESTIONS TO ADDRESS 1. From an economic standpoint, the fees can be justified since the bank is offering a service to noncustomers, and should be compensated for the cost of that service plus a fair profit margin.

.

15-19

2. Answers will vary, but potential ethical issues revolve around the bank’s responsibility to the communities in which it operates. Questions might include: • Is it right to charge people exorbitant fees (from a percentage standpoint) to access their own money?

• What if no other ATMs were available in certain communities?

3. Answers will vary, but students will likely point out that ATM fees are legal and that banks must make money in order to operate. On the other hand, some students will mention how officers in a bank may be concerned with the bank’s image in the community and industry as a result of being targeted by groups, such as the U.S. Public Interest Research Group.

EXERCISING YOUR ETHICS: TEAM EXERCISE This could be a really interesting discussion. Many students are very passionate about the privacy issue. Other students recognize that it is a fine line that financial institutions tread when dealing with security and government reporting requirements.

ACTIVITIES ON MYBIZLAB - INSTRUCTOR TIPS BizSkill: Adapting to the Economic Environment Instructor Tips

Available at: mybizlab.com

Brief Synopsis/Objectives: In this BizSkill, students are asked to play the part of the owner of a chain of regional bakeries. It’s their job to stay up to date on business news and keep track of how fiscal and monetary policy changes and other external events might affect the company. The challenge is to make sense of what’s going on in the world and keep the company afloat.

At the end of the BizSkill, students should be able to answer the following questions: 1. How can the ups and downs of the business cycle affect a company?

2. What economic indicators are used to measure the business cycle?

3. In what ways can fiscal policy decisions affect a business?

4. In what ways can monetary policy decisions affect a business?

5. How can companies scan the environment to adapt effectively?

How to Best Use This BizSkill: A great way to use this BizSkill is to assign it as homework before your first lecture on the chapter. Ask students to print out their feedback page, and then have them do the BizSkill again at the end of the week to see whether their scores have improved.

.

15-20

Chapter 16: Managing Finances Chapter Outline Retirement! Now there’s something that most students do not think about, yet it is something that we all must strategically plan for. This chapter introduces us to the concept of the time value of money and the principle of compound growth that is central to our creation of wealth—wealth that we will need to fund our retirements!

The chapter introduces the student to the investment opportunities offered by mutual funds and exchange-traded funds. It describes the role of securities markets and identifies the major stock exchanges in the world. The chapter introduces students to the concept of the risk-return relationship and discusses the value of diversifying an investment portfolio. Finally, the chapter examines how a firm can raise funds through equity or debt financing.

Learning Objectives 1. Explain the concept of the time value of money and the principle of compound growth.

2. Identify the investment opportunities offered by mutual funds and exchange-traded funds.

3. Describe the role of securities markets and identify the major stock exchanges and stock markets.

4. Describe the risk-return relationship and discuss the use of diversification and asset allocation for investments.

5. Describe the various ways that firms raise capital and identify the pros and cons of each method.

6. Identify the reasons a company might make an initial public offering of its stock and explain how stock value is determined.

7. Explain how securities markets are regulated.

.

16-1

Chapter Outline A. Maximizing Capital Growth 1. The Time Value of Money and Compound Growth 2. The Rule of 72 3. Common Stock Investments B. Investing to Fulfill Financial Objectives 1. Reasons for Investing 2. Most Mutual Funds Don’t Match the Market 3. Exchange-Traded Fund C. The Business of Trading Securities 1. Primary and Secondary Securities Markets 2. Stock Exchanges 3. Non-Exchange Trading: Electronic Communication Networks 4. Individual Investor Trading 5. Tracking the Market Using Stock Indexes D. The Risk–Return Relationship 1. Investment Dividends (or Interest), Appreciation, and Total Return 2. Managing Risk with Diversification and Asset Allocation E. Financing the Business Firm 1. Secured Loans for Equipment 2. Working Capital and Unsecured Loans from Banks 3. Angel Investors and Venture Capital 4. Sale of Corporate Bonds F. Becoming a Public Corporation 1. Going Public Means Selling Off Part of the Company 2. Stock Valuation 3. Market Capitalization 4. Choosing Equity versus Debt Capital G. Regulating Securities Markets 1. The Securities and Exchange Commission 2. Regulations Against Insider Trading

.

16-2

LIST OF IN-CLASS ACTIVITIES: AUTHOR’S CHOICE Activity

Description

1. Ice-Breaker: What Should I Buy?

Students make preliminary purchasing decisions about stocks based on what they already know about the companies and the stock market in general.

Students are divided into teams to debate the ethics of insider trading.

2. Up for Debate: What’s Wrong with a Little Inside Scoop?

3. Business Accountability Handout Discussion: Accountability Goes Professional 4. Supplemental Case Study Discussion: How Much Is That Violin in the Window?

Students read and discuss an article about the importance of financial designations among financial advisors.

Students discuss the supplemental chapter case study, which focuses on types of investments other than securities.

Time Limit

Instructor’s Manual Page Reference

30 min.

16-5, 16-19

30 min.

16-5, 16-20

30 min.

16-10, 16-21 to 16-22

30 min.

16-12, 16-23 to 16-24

LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE At-Home Activity

Description

Deliverable

Application Exercise 9: The approval of new securities

Students explore the www.sec.gov site to see the process through which new securities are approved.

A brief paper detailing the outcomes of their research.

A brief paper including their mock portfolio and discussion of their risk-return balance.

Students develop a mock portfolio and discuss their approach to asset allocation and diversification.

Application Exercise 10: Building an investment portfolio

BizSkill

.

Instructor’s Manual Page Reference 16-10, 16-28

30 min.

1 hour

16-12, 16-28

The final section of the business plan project (the entire plan).

1–3 hours

16-25, 16-26

Students can test their business skills Conducting a SWOT Analysis in this online simulation.

15 min.

16-29

Students complete the final portion of their business plan; this segment of the plan focuses on financing the business and writing the executive summary.

Business Plan Project Part 6

Completion Time

16-3

TEACHING NOTES AND SUGGESTIONS Learning Objective 1: Explain the concept of the time value of money and the principle of compound growth.

Maximizing Capital Growth Wise investment is the key to growing your money, especially if you are seeking to build capital to start your own business. A number of concepts come into play when we are searching for investment opportunities: A. The Time Value of Money The time value of money is a concept that recognizes that if we invest money, it makes more money over time through the addition of compound interest.

1. Making Better Use of Your Money. Each year, interest is added to our investments. If we continually reinvest the principal amount and the interest, the growth of our money will become larger each year.

2. The Rule of 72 is a handy rule of thumb to estimate how long it will take to double an investment. You can find the number of years it will take to double an investment by dividing 72 by the annual interest rate of the investment (in percent). Thus, a 10 percent investment will take 7.2 years to double.

B. Common Stock A stock is a portion of the ownership of a corporation. The company’s total ownership is divided into small parts, called shares, which can be bought and sold to determine how much of the company (how many shares of stock) is owned by each investor.

1. Common Stock. A share of common stock is the most basic form of ownership in a company. Individuals and other companies purchase a firm’s common stock in the hope that it will increase in value, provide dividend income, and enable shareholders to vote on major issues that are brought before the shareholders. a. Market value is the current share price in the stock market. b. Book value of common stock is stockholders’ equity divided by the number of outstanding shares.

2. Investment Traits of Common Stock. Growth prospects in various industries change from time-to-time. Blue chip stocks are stocks of well-established firms that consistently provide investors with secure income from dividend payouts.

3. Dividend. A dividend is a payment to shareholders, on a per-share basis, out of the company’s earnings

.

16-4

KEY TEACHING TIPS •

Remind students that compound interest will either work for them or against them. It works for them when they invest, but against them when they borrow

•

Reinforce the point that a stock is a portion of the ownership of a corporation. Common stocks represent the most basic form of ownership in a company.

•

Common stocks are risky securities, but blue chip stocks are issued by the strongest, most financially sound firms that provide investors with steady income.

QUICK QUESTIONS •

What is meant by the time value of money?

•

What is common stock?

•

What is different about the market value and the book value of a share?

•

What is a dividend? Why do some investors receive dividends?

Use In-Class Activity 1: Ice-Breaker: What Should I Buy? Time Limit: 30 minutes Use In-Class Activity 2: Up for Debate: What’s Wrong with a Little Inside Scoop?

Time Limit: 30 minutes

.

16-5

Learning Objective 2: Identify the investment opportunities offered by mutual funds and exchange-traded funds.

Mutual Funds Mutual funds are created by companies such as T. Rowe Price and Vanguard that pool cash investments from individuals and organizations to purchase a portfolio of stocks, bonds, and other securities. The portfolio is expected to increase in value.

A. Reasons for Investing Mutual funds are flexible in their investment goals. It is relatively easy to open a mutual fund account. The three most common objectives for opening a mutual fund account are: 1. Stability and Safety. Funds stressing safety include money market mutual funds and other funds that preserve the fund holders’ capital and reliably pay current income.

2. Conservative Capital Growth. Preservation of capital and current income, alongside some capital appreciation, can be gained through balanced funds.

3. Aggressive Growth. Aggressive growth funds seek maximum long-term capital growth; they sacrifice current income and safety by investing in stocks of new and sometimes troubled companies, firms developing new products and technologies, and other high-risk securities.

B. Most Mutual Funds Don’t Match the Market Most, but not all, mutual funds are managed by “experts” who select the stocks, bonds, and securities in which the fund will invest. Some estimates indicate that up to 80 percent of mutual funds underperform a market’s average return. This has led to the development of passively managed or index funds to reduce the management costs of funds.

C. Exchange Traded Funds An exchange traded fund (EFT) is a bundle of stocks (or bonds) that are in an index that tracks the overall movement of a market. EFTs can be traded like a stock.

1. Advantages of EFTs. EFTs offer three advantages over mutual funds: a. They can be traded throughout the day like a stock. b. They have low operating costs. c. They do not require high initial investments.

D. The Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is the regulation and enforcement agency that oversees the markets’ activities, including the ways securities are issued. The SEC was created in 1934 to prevent the kinds of abuses that led to the stock market crash in 1929. The SEC also enforces laws against insider trading—the use of special knowledge

.

16-6

about a firm for profit or gain. It is illegal, for example, for an employee of a firm to tell others about an anticipated event that may affect the value of the film stock.

KEY TEACHING TIPS •

Students often confuse mutual funds and exchange-traded funds. EFTs can be traded like a stock. Each share of the EFT rises and falls as the market process changes.

•

Remind students that securities include stocks as well as bonds and mutual funds; they represent secured, financially valuable claims on the part of investors.

•

Reinforce that mutual funds are an attractive investment since a drop in the price of one or two stocks in the pool is likely to have little impact on the total value of the fund.

QUICK QUESTIONS •

What are mutual funds?

•

Why might an investor find mutual funds attractive?

•

What are the advantages of EFTs?

•

In light of the crash in 2009, do you think the SEC is doing a good job regulating financial markets?

.

16-7

Learning Objective 3: Describe the role of securities markets and identify the major stock exchanges and stock markets.

Securities Markets Stocks and bonds are referred to as securities because they represent secured claims on the part of investors. Shares of stock represent ownership, whereas bonds represent financial liability for money owed to bondholders by a company or the government. Stocks and bonds are sold in securities markets.

A. Primary and Secondary Securities Markets Newly issued stocks and bonds are bought and sold in primary securities markets. To bring a new security to market, the issuing firm must get approval from the Securities and Exchange Commission (SEC)—the government agency that regulates U.S. securities markets.

B. Investment Banks Investment banks issue and resell new securities, as well as create the distribution networks for selling the securities. Investment banks provide three important services: 1. They advise companies on the timing and financial terms of new issues.

2. They underwrite (assume liability for) new securities, providing an issuing firm with 100 percent of the money (less commission and fees).

3. They create distribution networks to move new securities through groups of banks and brokers to individual investors.

C. Stock Exchanges A stock exchange is an organization of individuals that provides an institutional setting in which stock can be bought or sold. Exchange members purchase “seats” that allow them to make trades. Seats may be bought or sold.

1. The Trading Floor. Each exchange governs the places and times when trading occurs.

Trading is allowed only on the trading floor. Trading floors today are equipped with a vast array of electronic communication equipment to display buy and sell data. In addition, a variety of news services provide up-to-the-minute information relevant to the business world. Any change in world events may affect share prices.

2. The Major Exchanges and Markets. Among the stock exchanges that operate on trading floors in the United States, the New York Stock Exchange is the largest. It faces stiff competition from the NASDAQ, electronic trading, and large foreign exchanges such as in London and Tokyo.

.

16-8

a. The New York Stock Exchange (NYSE). The NYSE is a hybrid market that utilizes both electronic transfers as well as a trading floor in New York. Many firms list their stocks regionally, as well as on one of the national exchanges. b. Global Stock Exchanges. The value of shares listed on foreign exchanges continues to grow major overseas stock exchanges are found in Brazil, Tokyo, London and Hong Kong. c. The NASDAQ. The NASDAQ is a telecommunications system that broadcasts trading information on an intranet to 350,000 terminals. NASDAQ is an electronics network that can replace trading floors of traditional exchanges. d. International Consolidation and Cross-Border Ownership. Analysts expect technological advances and regulatory factors to drive together the separate stock markets in various parts of the world. Stock markets that are not able to cope with voluminous electronic trades are likely to be forced out of business (or be taken over) as competitive pressures intensify.

3. Non-Exchange Trading: Electronic Communication Networks. ECNs are electronic systems that bring buyers and sellers together at specified prices. Their popularity has grown rapidly, primarily because they have made the transfer for shares easier and less costly.

4. Individual Investor Trading.

While many investors rely heavily on the advice they receive from brokers, more experience and well-informed investors often prefer to invest independently without outside guidance. Regardless of experience, however, investors will use one of the following services to buy and sell stock or mutual funds. a. Stock Brokers. Stock brokers receive and execute orders from non-exchange members and earn commissions as a result. b. Discount Brokers. These brokers are fast and low-cost, providing no advice or sales consultations. c. Full-Service Brokers. Consulting advice and financial planning are provided here. d. Online Investing. This is possible via convenient access to the Internet; this is ideal for self-directed investors.

KEY TEACHING TIPS •

Remind students that a stock exchange is an organization of individuals formed to provide an institutional setting in which stock can be bought and sold.

.

16-9

•

Students may not know that each stock exchange regulates the places and times at which trading may occur; the trading floor is the physical location where trading takes place.

•

Make sure students understand the distinction between stock brokers, discount brokers, and full-service brokers.

QUICK QUESTIONS •

What is the role of an investment bank with regard to new issues of stock?

•

What type of investor is most likely to be attracted to online trading?

•

What type of investor would prefer the services of a full-service broker?

•

Reinforce that the NASDAQ system gathers and executes orders on an intranet connecting more than 350,000 terminals worldwide; NASDAQ offers no trading floor.

•

What are some differences between the NYSE and NASDAQ?

•

What are the primary roles of the Securities and Exchange Commission?

Use In-Class Activity 3: Business Accountability Handout Discussion: Accountability Goes Professional Time Limit: 30 minutes

HOMEWORK The Securities and Exchange Commission Now is a good time to assign Application Exercise 9 from the end-of-chapter materials in the textbook as homework (see page 439 of the text). This assignment asks students go to www.sec.gov and research how a new security is approved by the Securities and Exchange Commission.

Home Completion Time: 30 minutes

.

16-10

Learning Objective 4: Describe the risk–return relationship and discuss the use of diversification and asset allocation for investments.

The Risk–Return Relationship Each type of investment has a risk–return relationship, which reflects the notion that safer investments tend to offer lower returns, and riskier investments tend to offer higher returns.

A. Investment Dividends, Appreciation, and Total Return. Investors invest for different reasons. In evaluating a potential investment, investors examine returns from dividends, price appreciation, and total returns.

1. Dividends. The return from stock dividends is known as the current dividend yield. The return from a loan is known as an interest dividend yield. This figure is generated by dividing the yearly dollar amount of the dividend yield by the investment’s current market value. The dividend yield is expressed as a percentage.

2. Price Appreciation. Price appreciation is an increase in the dollar value (share price) of an investment.

3. Total Returns. Total returns are the sum of the dividend yield plus the stock’s price appreciation. It is calculated by the formula: Total Returns = (current dividend payment + capital gain) / original investment X 100 B. Reducing Risk with Diversification and Asset Allocation 1. Diversification. Through diversification, investors buy several kinds of investments rather than one kind; this strategy reduces investor risk by “not having all eggs in one basket.”

2. Asset Allocation. Asset allocation is the proportion of funds invested in each of the investment alternatives.

3. Performance Difference for Different Portfolios. A portfolio is the combined holdings of all financial investments of an individual or a company. These investments include stocks, bonds, mutual funds, and real estate. Investment portfolios have different objectives ranging from aggressive high growth portfolios to stable income/low volatility portfolios.

KEY TEACHING TIP Reinforce that safer investments tend to offer lower returns; riskier investments tend to offer higher returns.

.

16-11

Use In-Class Activity 4: Supplemental Case Study Discussion: How Much Is That Violin in the Window?

Time Limit: 30 minutes HOMEWORK Building Your Investment Portfolio Now might be a good time to assign Application Exercise 10 from the end-of-chapter materials in the textbook as homework (see page 439 of the text). This assignment asks students to create a mock portfolio of stocks and discuss how they would apply asset allocation and diversification.

At Home Completion Time: 1 hour

.

16-12

Learning Objective 5: Describe the various ways that firms raise capital and identify the pros and cons of each method.

Financing the Business Firm Although the business owner’s savings may be enough to get a firm up and running, businesses depend on sales revenue to survive. When current sales are insufficient to cover expenses, firms turn to other sources of funding. These typically begin with the owner’s personal savings, but often involve borrowing from banks, soliciting cash from private investors, or selling bonds to the public.

A. Secured Loans for Equipment Money to purchase new equipment often comes in the form of loans from commercial banks.

Collateral is offered by the firm to the lending institution in exchange for a secured loan’ 1. Principal and Interest Rates. The amount of money that is loaned and has to be repaid is called the principal. Borrowers will also pay interest, expressed in the form of an annual percentage rate (APR).

B. Working Capital and Unsecured Loans from Banks Firms need more than fixed assets; they also need current, liquid assets available to meet short-term operating expenses. The firm’s ability to meet these expenses is measured by its working capital. Working capital is calculated as follows: Working capital + Current assets – current liabilities When the firm has negative working capital, it may need to borrow money from a commercial bank in the form of an unsecured loan. With an unsecured loan, the borrower does not have to put up collateral.

C. Angel Investors and Venture Capital When a firm needs additional sources of funds to pay for growth, it often seeks out angel investors. An angel investor invests some money in the firm, typically expecting a sizable ownership in the company in return for the investment. Angel investors can help firms grow rapidly by providing venture capital.

D. Sale of Corporate Bonds Corporations can also raise funds by issuing corporate bonds. A corporate bond is an IOU guaranteeing the payment of interest during the life of the bond and the repayment of the principal when the bond matures (on a pre-set date).

1. Characteristics of Corporate Bonds. Each new bond has specific terms and conditions spelled out in the bond indenture. The conditions include the maturity date when the bond’s face value must be repaid. A bond does not give the lender any ownership in the borrowing firm.

.

16-13

2. Default and Bondholder’s Claim. If the borrower fails to make a payment then the bond is said to be in default. The lender may request a court order to enforce the terms of the bond. This is known as a bondholder’s claim. If a firm cannot pay the lender, it may have to file for bankruptcy.

3. Risk Ratings. To aid investors, companies are rated on the likelihood that they will keep to the terms of the bond. A rating of AAA is the best rating. Lower ratings do not necessarily mean that the bond issue will not be successful, but the lower the rating the higher the interest rate charged is likely to be. a. Flawed ratings misread recession risks. The financial crisis of 2008 has raised many questions about whether the credit rating agencies are serving any good purpose. The nation’s largest public pension fund, the California Public Employees Retirement Fund (Calpers) has filed a suit against the top three agencies—Moody’s, Standard & Poor’s and Fitch. Calpers’ officials relied on these credit ratings to make investments that toured sour. Furthermore, the collapse of highly rated institutions such as Lehman Brothers, Goldman Sachs, and Citigroup has again raised questions about the credit rating agencies. b. Highly-rated securities turn toxic mortgage backed securities became a trillion dollar investment industry prior to the 2007 housing market boom. Financial institutions bundled home mortgages into packages and resold them as securities.

These investments were given favorable risk ratings by credit rating agencies.

Unbeknown to investors, some $3 trillion of mortgage backed securities contained subprime mortgages—high risk loans to applicants with bad credit, low income, and low down payments. When significant number of these mortgage holders defaulted in the housing market crash, investors were left with little or nothing for their investment, leading to a collapse of worldwide financial markets.

KEY TEACHING TIPS •

Students often confuse stocks and bonds. A stock represents ownership in a corporation.

A bond represents debt, an issuer’s promise to pay the buyer a certain amount of money by a specified future date.

•

Make sure that students understand the differences between government bonds, municipal bonds, and corporate bonds.

•

Point out that secured bonds are “backed” by company assets in case of default, whereas unsecured bonds—or debentures—pledge no property as security.

QUICK QUESTION What are some circumstances under which a firm might want to issue bond?

.

16-14

Learning Objective 6: Identify the reasons a company might make an initial public offering of its stock and explain how stock value is determined.

Becoming a Public Corporation An Initial Public Offering (IPO) is a firm’s first sale of its stock to the public. Corporations consider various issues before deciding to take the firm public.

A. Going Public Means Selling Off Part of the Firm Private owners lose some control when shares are sold to the public. This is particularly seen if the stock price falls and another investor (a corporate raider) mounts a hostile takeover.

Corporations are vulnerable to hostile takeovers if their stock prices become undervalued and the firm has a large supply of cash in hand.

B. Stock Valuations Most investors look for long-term value in stocks, rather than their short- term price. In determining long-term value, investors typically examine the company’s financial health, its past history of results and future forecasts.

1. Why Shares Differ in Price. Share prices can differ substantially from one stock to another for various reasons. These include the supply and demand of the stock and the desire of corporations to have their shares sell within certain price ranges.

C. Market Capitalization Market capitalization is the total value of the company’s outstanding shares. It is calculated by the current stock price multiplied by the number of outstanding stocks.

D. Choosing Equity versus Debt Capital Firms can meet their capital needs through equity or debt financing. These both have pros and cons.

1. Pros and Cons of Debt Financing: a. Long-term Loans. Long-term loans are attractive because the number of parties involved is limited, and there is no need for public disclosure to account for how the loan is being used. On the other hand, long-terms loans have the disadvantage that borrowers may not easily be able to find lenders and may face some restrictions as a condition for the loan. b. Corporate Bonds. The advantage of bonds is that they can raise large amounts of money when the company needs it. The disadvantage is that they can incur high administration cost and stiff interest payments.

2. Pros and Cons of Equity Financing. Equity financing is sometimes a favorable option for companies. Equity financing includes issuing common stock or using the company’s retained earnings. Issuing new stock can be expensive when dividend payments need to

.

16-15

be made. Using retained earnings for capital projects means that this money is not available for dividend payments; this may reduce the stock price and the total market capitalization.

QUICK QUESTIONS •

What is market capitalization?

•

When might a fall in market capitalization leave a company open to a hostile takeover?

VIDEO: CAPITAL ADVISORS Run Time: 5:42 This is a good point to play this video because it highlights this Learning Objective’s topics, including stocks, bonds, and securities investments, as well as topics from previously covered Learning Objectives. Incorporate Discussion Questions found on page 441 of the text.

.

16-16

Learning Objective 7: Explain how securities markets are regulated.

Tracking the Market Using Stock Indexes Investors have used stock indexes to track market performance for decades. Market indexes provide some summaries of overall market price trends.

A. Bull and Bear Markets 1. Bull Markets. Bull markets are periods of rising stock prices in which investors are motivated to buy because they are confident of continuing rising prices.

2. Bear Markets. Bear markets are periods of falling stock prices during which investors sell anticipating lower prices in the future.

B. The Dow Jones Industrial Average The Dow Jones Industrial Average (simply referred to as the Dow) is the oldest and most widely used index. It tracks the performance of the U.S. industrial sector by focusing on 30 blue-chip, large-cap companies. However, the Dow is limited because it considers only 30 companies.

C. The S&P 500 The S&P 500 is a broader index that tracks 500 large-cap companies from a number of sectors including IT, industrials, financials, health care, consumer staples, and telecommunications.

D. The NASDAQ Composite Unlike the DOW and the S &P 500, the NASDAQ Composite includes all NASDAQ companies, totaling some 3,200 in its index.

E. The Russell 2000 The Russell 2000 is a specialized index that tracks the performance of the smallest U.S. companies based on their market capitalization.

F. Index-Matching EFTs EFTs are available that track the performance of various indexes. For example, the Fidelity NASDAQ Composite Index Tracking Stock holds a portfolio of equities for tracking the NASDAQ Composite Index.

KEY TEACHING TIP Point out that some investors believe that the NASDAQ is a better predictor of market conditions than other indexes because the NASDAQ Composite Index includes all NASDAQ-listed companies.

.

16-17

QUICK QUESTIONS • •

In what way do the media play a role in affecting consumer confidence in investing in securities?

What are stock price trends in a bull market? What are stock price trends in a bear market?

.

16-18

IN-CLASS ACTIVITIES In-Class Activity 1: Ice-Breaker: What Should I Buy? Activity Overview: This activity asks students to make preliminary purchasing decisions about stocks based on what they already know about the companies and the stock market in general.

Time Limit: 30 minutes What to Do: 1. Ask students to assume that they are being given $20,000 to invest in four company stocks, but that they must choose from the following companies: • McDonald’s Corporation • Microsoft • Corning • Chesapeake Energy • Marketing Technologies, Inc. • JDS Uniphase • Walmart • Amazon.com • Google 2. Divide the class into three-member groups so students can discuss these companies before making their investment decisions. As students make their decisions, ask them to write down their rationale for selecting the stocks they did as well as how much they invested in each one. (15 minutes) 3. Assemble the class as a whole to discuss their choices: (15 minutes) a. How did students select their stocks? b. How much did they know about the companies in which they invested? c. Did the discussion with other group members affect their decisions? d. What factors affected the allocation of the $20,000?

Don’t Forget: Some students will know more about investing than others.

Wrap-Up: Bring the activity to a close by discussing the importance of doing “homework” on a particular company before investing in it. Very few students (or potential investors) would know enough about any of the above companies to make a sound investment. Company reputation can mean a lot when an individual chooses to make an investment, but this type of investing is not always prudent.

.

16-19

In-Class Activity 2: Up for Debate: What’s Wrong with a Little Inside Scoop?

Activity Overview: This activity asks students to debate the pros and cons and the key issues surrounding insider trading.

Time Limit: 30 minutes What to Do: 1. Divide the class into four-member groups and ask each group to make a list of the disadvantages of insider trading. Then ask each group to make a list of the advantages facing the market, brokers, and stockholders if insider trading were to be declared legal. Students can consider the following questions as conversation starters in their groups: (15 minutes) a. Would insider trading actually make the market more efficient? b. Who is really hurt in most cases of insider trading? c. Why is insider trading illegal?

2. Assemble the class as a whole and debate the pros and cons of insider trading. (15 minutes) Don’t Forget: In advance, consider giving students some time to research specific cases of insider trading as a supplement to this debate. The class can then discuss specific cases and the levels of perceived fairness in the results of each case.

Wrap-Up: Bring the debate to a close by outlining some of the major arguments presented in the debate.

Then, provide reasons for the illegal nature of insider trading.

.

16-20

In-Class Activity 3: Business Accountability Handout Discussion Accountability Goes Professional Activity Overview: This activity asks students to consider the importance of professional designations among financial advisors.

Time Limit: 30 minutes 30 minutes What to Do: 1. In advance, make copies of the Business Accountability article (on the following page of this Instructor’s Manual) and distribute them to students.

2. Divide the class into groups of three and ask them to read the Business Accountability scenario, focusing on answering the following questions (20 minutes): a. What might the CFA designation indicate to clients? b. How might a financial advisor benefit from having the CFA designation?

3. After the groups have had a chance to discuss their answers among themselves, reassemble the class and compare each group’s input. (10 minutes) Don’t Forget: This activity can also be assigned as homework.

Wrap-Up: Wrap up the exercise by highlighting the purpose of the CFA designation and how a financial advisor might benefit from having it.

.

16-21

HANDOUT: BUSINESS ACCOUNTABILITY Accountability Goes Professional Investment recommendations by financial advisors offer clients possibilities of both dire losses and hoped-for financial gains. As professionals, advisors should be, but sometimes haven’t been, trustworthy stewards of clients’ private information. That’s why the financial industry, as early as 1947, began establishing societies that later merged to become the CFA Institute. Today, its members include more than 78,000 investment practitioners—securities analysts, portfolio managers, financial strategists—and educators in more than 120 countries. The CFA Institute serves three broad areas for which members are accountable—continuing education, conduct and ethics, and standards of practice—to maintain high standards of professionalism in their field.

The association’s flagship activity is the Chartered Financial Analyst (CFA) program. Regarded as the industry’s premier certification, the CFA designation has been earned by more than 78,000 investment professionals. The basic requirements for participation in the CFA program include holding or being in the final year of a university degree (or equivalent as assessed by CFA Institute), or having four years of qualified, professional work experience in an investment decision-making process. To obtain the charter, however, a candidate must have completed a university degree (or equivalent) and four years of qualified, professional work experience, in addition to passing the three exams that test the academic portion of the CFA program.

Earning a charter involves a progression of postgraduate tests and three years of professional experience. The program’s three levels of study each requires 250 hours of preparation and an examination covering a broad-based “Body of Knowledge” for the investment community. Level 1 includes tools and concepts for determining the value of investments, portfolio management, and CFA Institute’s code of ethics and professional conduct. Level 2 applies the tools from Level I in analyzing investments and applies the code of ethics and conduct in practical situations.

Level 3 explores the portfolio management process, including ethics and conduct, in thorough detail. After meeting these requirements and signing a professional conduct statement, the CFA Institute’s member has the right to use the CFA designation.

While the testing hurdle is a one-time requirement, professional accountability is a never-ending obligation. Every year, members must disclose any customer complaints or disciplinary procedures about their professional conduct. The public, too, may file complaints against a CFA Institute’s member for unethical behavior, misconduct, or incompetence. Officials review each disclosure or complaint and conduct inquiries that could lead to disciplinary actions.

Punishments range from letters of caution to public censure, and even removal from membership or revocation of the CFA charter. Continuous accountability is a cornerstone for maintaining ethical and professional standards.

DISCUSSION QUESTIONS 1. What might the CFA designation indicate to clients?

2. How might a financial advisor benefit from having the CFA designation?

.

16-22

In-Class Activity 4: Supplemental Case Study Discussion How Much Is That Violin in the Window?

Activity Overview: This activity familiarizes students with types of investments other than securities that share some similar “features.”

Time Limit: 30 minutes What to Do: 1. In advance, make copies of the Supplemental Case Study (on the following page of this Instructor’s Manual) and distribute them to students.

2. Divide students into groups and ask them to read the case and answer the questions in their small groups (15 minutes): a. How is the 1735 del Gesù Partners’ investment different from a traditional investment in securities like stocks or bonds? How is it the same? b. How much of a risk do you think the investors are taking? What do you think they hope to get back for their money? c. Can you think of any other applications for this model of investing?

3. Once students have answered the questions, discuss their answers as a class. As students discuss their answers, make sure they bring up the following points (15 minutes): a. It is different in that it is a partnership, it is an investment in a rare object, and it is also, in part, an investment in the violinist’s career, which has intangible returns. It is the same in that it is for a specified time limit and entails both risk and the opportunity for monetary return. b. Students’ views of the risk will vary. The investors hope to get back their money and a considerable profit; those who are close to Mr. McDuffie also hope to further his career. c. Answers will vary, but students will mention various investment options that are not included in securities markets.

Don’t Forget: There are many forms of investments whose market values fluctuate based on a variety of factors.

Wrap-Up: Wrap up the activity by mentioning that each student’s assessment of the risk inherent in the case will vary, just as is the case in investing in market securities.

.

16-23

HANDOUT: SUPPLEMENTAL CASE STUDY How Much Is That Violin in the Window?

If a wooden object appreciates in value from $1.2 million to $3.5 million, it must be very special indeed. Robert McDuffie, a rising U.S. violinist, would call it “an extension of my musical personality”—a rare 1735 Guarneri violin that he yearned to own but knew he would never be able to afford.

Mr. McDuffie finally found a way to play the treasured instrument when he put together a group of 16 investors who call themselves the 1735 del Gesù Partners LP. The 16 partners purchased the violin from its owner, Dietmar Machold, of Machold Rare Violins in New York, as an investment, by pooling shares in the venture of $100,000 each. They are leasing it to Mr. McDuffie, but instead of paying monetary rent, he will play the violin, which enables it to maintain its value and continue to appreciate, and he will also pay for maintenance and insurance, totaling between $15,000 and $20,000 per year. At the end of the 25-year lease, the violin must be returned to the partnership, which will then sell it for a profit. One conservative estimate of the violin’s future value, if it appreciates at a reasonable 5.5 percent per year, is close to $10.3 million.

Mr. Machold holds 3.5 of the shares. “Prices never go down for these instruments,” he said.

“They only go up.” While that has been true in the past, not all the investors are in the partnership for the money. “That really isn’t what it’s about for me,” says John Townsend, another of the partners. “It’s about my friendship with Bobby [Mr. McDuffie] and my interest in his career.”

The financial prospects are certainly bright, however. And the investors have the satisfaction of seeing Mr. McDuffie further his budding musical future, in addition to which they can expect to hear two private concerts a year, receive a newsletter about the musician’s other performances, and attend an annual event at Mr. Machold’s castle in southern Austria. The arrangement is a bit unusual; in Europe, the Middle East, and Japan, musicians who play such venerated instruments are able to borrow them for little or no money from the governments and businesses that own them. But Mr. McDuffie hopes his idea catches on.

Source: Susan Elliott, “Investment Opportunity. Strings Attached,” The New York Times, February 6, 2001, E1, E8.

DISCUSSION QUESTIONS 1. How is the 1735 del Gesù Partners’ investment different from a traditional investment in securities like stocks or bonds? How is it the same?

2. How much of a risk do you think the investors are taking? What do you think they hope to get back for their money?

3. Can you think of any other applications for this model of investing?

.

16-24

BUSINESS PLAN PROJECT PART 6 Assignment Overview: The final part of the business plan project asks students to consider how they’ll finance their business as well as how to create an executive summary for their plan. Remind students that although the executive summary is the final step in the project, it should be placed at the beginning of their completed business plans. Encourage your students to be concise as they write the executive summary, as investors look at the summary before reading the details of the plan.

Because this is the final part of the plan, you will probably want to ask students to submit not just Part 6, but the entire plan at this point.

Files to Provide Students: For this part of the project, students will be asked to complete Part 6: Financial Issues. The template is found on the following pages and at www.mybizlab.com

.

16-25

STUDENT BUSINESS PLAN PROJECT TEMPLATE PART 6: FINANCIAL ISSUES STARTUP COSTS How much money will you need to get your business started?

Hint: Refer back to Part 5 of the plan, where you analyzed the costs involved in running your business. Approximately, how much will you need to get your business started?

FINANCING How will you finance your business? For example, will you seek out a bank loan? Borrow from friends? Sell stocks or bonds initially or as your business grows?

Hint: Refer to Chapter 16 for information on securities, such as stocks and bonds. Refer also to Appendix I: Financial Risk and Risk Management and Chapter 3 for more information on sources of short-term and long-term funds.

EXECUTIVE SUMMARY Now, create an executive summary for your business plan. The executive summary should be brief—no more than two pages long—and should cover the following points: • • • • • • • •

The name of your business Where your business will be located The mission of your business The product or service you are selling Who your ideal customers are How your product or business will stand out in the crowd Who the owners of the business are and what experience they have An overview of the future prospects for your business and industry

Hint: At this point, you’ve already answered all these questions so what you need to do here is put the ideas together into a “snapshot” format. The executive summary is really a sales pitch— it’s the investor’s first impression of your idea. Therefore, as with all parts of the plan, write in a clear and professional way.

Once you have written the executive summary, copy it and paste it at the beginning of your business plan—as the very first element.

.

16-26

ANSWERS FOR END OF CHAPTER ACTIVITIES (Starting on Page 438 of the Textbook) QUESTIONS FOR REVIEW 1. The time value of money stems from the principle of compound growth. With each additional time period, interest payments accumulate and earn more interest, thus multiplying the earning capacity of the investment.

2. Mutual funds and EFTs offer an alternative to investing in individual stocks. Mutual funds pool cash and investments from individuals and organizations to purchase a portfolio of stocks, bonds and other securities. Unlike most mutual funds that are actively managed, EFTs are a bundle of stocks (or bonds) that are in an index that tracks the overall market performance.

3. Corporate bonds have a number of characteristics. The bond indenture spells out the conditions of the bond. The maturity date is the bonds due date, the face (or par) value is the amount that has been borrowed and needs to be repaid at maturity.

4. The book value of a stock is determined by dividing the shareholders’ equity in the firm by the number of outstanding shares. The market value is the current price of the share in the stock market. Investors hope that the market value is above the book value.

5

In order to fund expansion, firms might use debt or equity financing. Debt financing is when a firm enters into a long term loan or issues a corporate bond. Equity financing is where the firm uses retained earnings or offers additional stock for sale.

QUESTIONS FOR ANALYSIS 6. Stock prices can vary enormously depending upon a number of factors, including the company’s recent performance, future expectations, changes in the company’s competition, inflation rates, and general economic expectations for the economy. Market price is only one factor to be considered in a stock purchase. Investors also look at the track record of the company.

7. Answers will vary. Some students will favor EFTs because of their lower administration costs. Others will favor well-managed mutual funds because they may be in the 20 percent of mutual funds that do better than market performance.

8. A business owner in need of capital can either opt for debt financing or equity financing.

Debt financing includes taking on long-term loans or issuing corporate bonds. The advantage of long-term loans is that there are relatively few parties involved, so they can be often quickly arranged. Bonds are slower to arrange, and can have high service interests rates depending upon the firm’s credit rating. If the firm opts for equity financing, it might issue

.

16-27

new stock or use retained earnings. The advantage of bonds is that they can give the organization funds over a long period of time.

APPLICATION EXERCISES 9. When a corporation wants to offer a new security, it must file a registration statement with the SEC that contains the following information: the name and description of the corporation; a biography of directors and officers (President, CEO, CFO, etc.); the financial stakes of all insiders, directors, and officers and anyone holding more than 10 percent of the corporation’s securities; full and complete financial statements; the type of security for sale and how the money raised will be used; and disclosure of any previous legal proceedings that may impact the company. The SEC will review the registration to make sure there has been full disclosure and then allow the corporation to sell the security. The SEC Web site (www.sec.gov) shows that this is often a speedy process.

As an alternative to getting individual students to contact brokers, you might want to invite a broker to make a presentation to the class. Many brokers will enjoy this, and it gives students a great opportunity for Q&A with financial professionals.

10. Student responses will vary. The SEC has an excellent Web site for educators and students that addresses this issue, and we recommend that you send students to this site (www.sec.gov/investor/pubs/assetallocation.htm).

ANSWERS TO BUILDING YOUR BUSINESS SKILLS FOLLOW-UP QUESTIONS 1. Many factors, both internal and external, affect stock prices, such as the firm’s earnings, layoffs, labor problems, management issues, and mergers, as well as the state of the industry in general and any threats of political crisis, weather conditions, interest rate changes, and inflation and unemployment data and forecasts.

2. Answers will vary. Global corporations are often affected by numerous external factors, sometimes including factors that have little impact on our own domestic market. Some external factors, such as oil prices, can impact stock in the very long run. In some cases, however, a mere change in CEO can impact the price of a stock; and, this impact is likely to be shorter-lasting. Various actions from competitors—external factors—can be both longand short-lasting, depending on those actions.

3. Answers will vary, but students should acknowledge the difficulty of knowing all possible information about factors that affect stock price and judging accurately what kind of affect those factors will have.

.

16-28

ANSWERS TO EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE QUESTIONS TO ADDRESS 1. The choice might be different, since the ultimate goal of a business is to maximize profit, while the ultimate goal of a nonprofit organization is to provide a service efficiently.

2. The main ethical issues in this situation are how to best fulfill YDC’s responsibility to the students it serves, while most effectively stewarding the money entrusted to the organization through charitable donations.

3. Answers will vary. Given the purpose of the organization and the intrinsic value of the funds being invested, many students may opt to remain conservative in their investment strategies.

EXERCISING YOUR ETHICS: INDIVIDUAL EXERCISE Given the recent turmoil and news stories about the securities market, this exercise should generate a lot of discussion. Although most of the students will not have faced this exact conflict of interest dilemma, they will certainly relate to the situation George faces. The different perspectives should give the students tremendous insight to the ethical situations that they could face in their careers.

ACTIVITIES ON MYBIZLAB - INSTRUCTOR TIPS BizSkill: Conducting a SWOT Analysis Instructor Tips

Available at: mybizlab.com

Brief Synopsis/Objectives: Recently, you and a fellow engineer friend have been working with hybrid cars to boost their performance. As you’ve learned more about the hybrid car industry, you’ve discovered a potential unmet need for the service and replacement of batteries for these vehicles. Although some dealerships offer these services, you think there may be an opportunity for a specialty shop in your area that focuses solely on the batteries. Apply what you’ve learned throughout this course to see if you can you become the Donald Trump of hybrid car batteries.

At the end of the BizSkill, students should be able to answer the following questions: 1. What factors are involved in conducting a SWOT analysis?

2. What are some important risks to consider when starting and running a business?

3. What are some short- and long-term financing options to consider in funding a business?

How to Best Use This BizSkill: A great way to use this BizSkill is to assign it as homework before your first lecture on the chapter. Ask students to print out their feedback page, and then have them do the BizSkill again at the end of the week to see whether their scores have improved.

.

16-29

APPENDIX I Risk Management APPENDIX OUTLINE A. Coping with Risk 1. Step 1: Identify Risks and Potential Losses 2. Step 2: Measure the Frequency and Severity of Losses and Their 3. Step 3: Evaluate Alternatives and Choose the Techniques That Will Best Handle the Losses 4. Step 4: Implement the Risk-Management Program 5. Step 5: Monitor Results B. Insurance as Risk Management 1. Insurable versus Uninsurable Risks a. Predictability b. Casualty c. Unconnectedness d. Verifiability 2. Special Forms of Insurance for Business a. Liability Insurance b. Property Insurance c. Business Interruption Insurance d. Key Person Insurance e. Business Continuation Agreements

.

APPENDIX II The Legal Context of Business APPENDIX OUTLINE A. The U.S. Legal and Judicial Systems 1. Types of Law a. Common Law b. Statutory Law c. Regulatory Law d. Keeping an Eye on Business e. Trends in Deregulation and Regulation 2. The U.S. Judicial System a. The Court System B. Business Law 1. Contract Law 2. Tort Law 3. Property Law 4. Agency Law 5. Commercial Law 6. Bankruptcy Law C. The International Framework of Business Law

.

APPENDIX III Managing Your Personal Finances APPENDIX OUTLINE A. Building Your Financial Plan 1. Assessing Your Current Financial Condition 2. Develop Your Financial Goals B. Making Better Use of the Time Value of Money 1. Planning for the Golden Years 2. Time Value as a Financial-Planning Tool C. Conserving Money by Controlling It 1. Credit Cards: Keys to Satisfaction or Financial Handcuffs?

2. Save Your Money: Lower Interest Rates and Faster Payments 3. Declining Asset Value: A Borrower’s Regret D. Financial Commitments of Home Ownership 1. How Much House Can You Afford?

E. Cashing Out from Tax Avoidance (Legally) 1. The IRA Tax Break F. Protecting Your Net Worth

.

The Business Plan Project

Why Do the Business Plan?

If you take a poll of your class it is likely that a good number of students are interested in starting their own business at some point in their careers. By guiding them through the business planning process you will be helping students to develop skills that will be very helpful during the initial stages of their new ventures.

Table of Contents: Business Plan Sample syllabus ………………………………………………………….pp. 2–3 Student FAQs for the Business Plan Project…………………………………………….....pp. 4 Student Business Plan Project Template: Part 1…………………………………………pp. 5–6 Student Business Plan Project Template: Part 2…………………………………………pp. 7–8 Student Business Plan Project Template: Part 3……………………………………......pp. 9–10 Student Business Plan Project Template: Part 4………………………………………pp. 11–12 Student Business Plan Project Template: Part 5………………………………………pp. 13–16 Student Business Plan Project Template: Part 6…………………………………………..p. 17 Sample Business Plan: The Friendly Café II……………………………………….....pp. 18–34 With the exception of the sample business plan (pages 18–34), the other sections have been also included in the relevant chapters of the instructor materials to reduce preparation time for instructors.

.

1

SAMPLE SYLLABUS BUSINESS PLAN PROJECT OUTLINE PART 1

THE CONTEMPORARY BUSINESS ENVIRONMENT

This part of the business plan asks students to come up with a “great idea” for a business, creating an identity and forming a concrete notion of what the business will do. The first part of the plan also asks students to identify the type of ownership the business will take and briefly looks at who the firm’s ideal customers are. This part of the plan also looks at how the business will interact with the community and demonstrate social responsibility, and includes a perspective on the impact of global business.

Suggested 12-week quarter due date: End of week four Suggested 16-week semester due date: End of week five PART 2

THE BUSINESS OF MANAGING

This part of the business plan asks students to think about goals of their business, some internal and external factors the affecting the business, as well as the organizational structure of the business. As part of the assignment, students will perform a basic SWOT analysis for their business and create an organizational chart to show the framework of the business. Students will also explain the role of each employee, and how each relates to the others. Finally, students are asked to examine various factors relating to operating their business.

Suggested 12-week quarter due date: End of week six Suggested 16 week semester due date: End of week seven PART 3

PEOPLE AND ORGANIZATIONS

This part of the business plan asks students to think about their employees, the jobs they will be performing, and the ways in which they can lead and motivate them. Students take the different job titles they created in the organizational chart in Part 2 and give thought to the skills that employees will need to bring to the job before they begin. They also consider the training they’ll need to provide employees after they are hired, as well as how they’ll compensate their employees. Part 3 of the business plan also asks students to consider how they’ll lead employees and keep them happy and motivated.

Suggested 12-week quarter: End of week seven Suggested 16-week semester due date: End of week eight PART 4

PRINCIPLES OF MARKETING

This part of the business plan asks students to think about marketing’s “Four Ps”—product, price, place (distribution), and promotion—and how they apply to their business. Students will list features and benefits as well as the points of difference for their product or service. After describing the product, the student must connect those described features and benefits to a targeted buyer. Once the targeted buyer has been named, students will describe advertising and promotional efforts to get the buyer’s attention.

.

2

Suggested 12-week quarter due date: End of week nine Suggested 16-week semester due date: End of week ten PART 5

MANAGING INFORMATION

This part of the business plan asks students to think about their business in terms of IT needs and costs. Students are also asked to complete a balance sheet and income statement for their businesses.

Suggested 12-week quarter due date: End of week ten Suggested 16-week semester due date: End of week twelve PART 6

FINANCIAL ISSUES

This part of the business plan asks students to consider how they’ll finance their business as well as create an executive summary for their plan.

Suggested 12-week quarter due date: End of week eleven Suggested 16-week semester due date: End of week fourteen

.

3

STUDENT FAQs FOR THE BUSINESS PLAN PROJECT 1. Where do I begin?

This project will challenge you to think about all the parts that are necessary for a business to succeed. You should start by thinking of a business that you would like to begin. Do not use a product that already exists, such as Coca-Cola. Learning comes through the process of using your own ideas, not by imitating others. Each section of the business plan connects with the information that is discussed in class and in the textbook.

2. What should my business plan look like?

There are six parts to the business plan. Your instructor will provide you with the “Business Plan Project Student Template” file that you’ll need to complete each part. Answer the questions that make up each part in the order that they are shown. Note that the template includes hints that will help you answer each question. Once you are done answering the question, you can delete the question and the tip, leaving just your answer behind.

Your instructor may also provide you with a sample business plan for you to use as a guide.

Note that your plan does not have to look exactly like the sample, but you need to show good organizational skills. Note that each of the six parts of the business plan project is fully explained in your textbook. These assignment instructions fall at the end of Chapters 4, 7, 10, 12, 14, and 16.

3. After I finish each part of the plan, what do I do with my assignment?

Your instructor will give you instructions as to how he or she would like you to submit each part of the plan. You will most likely be given a chance to make improvements to your plan throughout the grading period. Note that you will be using the same student template file to complete the entire plan. Therefore, after completing each part of the plan, you need to save the file on a disk or to your hard drive.

4. How will I know if I’m doing the plan correctly?

Your instructor will provide feedback to you about your plan. Students who successfully complete the plan have these two qualities in common: 1. They do not procrastinate. A well-written business plan cannot be written overnight, as they require a good deal of thought and creativity.

2. They ask a lot of questions. If a term is used in the business plan template that confuses you, check in your textbook or ask your instructor for an explanation.

5. How many pages are needed for a good grade?

It depends on the business that you will be starting. A good explanation normally requires between 12 to15 pages. This sounds like a lot, but most sections will average 2 to 3 pages.

.

4

STUDENT BUSINESS PLAN PROJECT TEMPLATE PART 1: THE CONTEMPORARY BUSINESS ENVIRONMENT BUSINESS NAME What is the name of your business?

Hint: When you think of the name of your business, make sure it captures the spirit of the business you’re creating. Note to students: Once you have inserted your answer, delete the question and the tip provided here and leave just the heads so your business plan will look more professional.

DESCRIPTION OF BUSINESS What will your business do?

Hint: Imagine you are explaining your business to a family member or a friend. The business should be easy to explain. Keep your description here to about 30 words or less.

FORM OF BUSINESS OWNERSHIP What form of business ownership (sole proprietorship, partnership, or corporation) will your business take? Why did you choose this form?

Hint: For more information on the types of business ownership, refer to the discussion of the different forms of business ownership in Chapter 3.

IDEAL CUSTOMER Briefly describe your ideal customer. What are they like in terms of age, income level, and so on?

Hint: You don’t have to give too much detail in this part of the plan; you’ll provide more details about customers and marketing in later parts of the plan.

OUR ADVANTAGES Why will customers choose to buy from your business, instead of your competition?

Hint: In this section, describe what will be unique about your business. For example, is the product special, will customer service be exceptional, or will you offer the product at a lower price?

ETHICAL ISSUES All businesses have to deal with ethical issues. One way to address these issues is to create a code of ethics. List three core (unchanging) principles that your business will follow.

Hint: To help you consider the ethical issues that your business might face, refer to the discussion in Chapter 2.

.

5

SOCIAL RESPONSIBILITY A business shows social responsibility by respecting all its stakeholders. What steps will you take to create a socially responsible business?

Hint: To help you consider issues of social responsibility, refer to the discussion of social responsibility in Chapter 2. What steps can you take to be a good citizen in the community?

Consider also how you may need to be socially responsible toward your customers and, if applicable, investors, employees, and suppliers.

GLOBAL ISSUES Do you think that you’ll sell your product in another country? If so, what countries would you choose, and why? What challenges will you face?

Hint: To help you consider issues of global business, refer to Chapter 4. Consider how you will expand internationally (i.e., independent agent, licensing, etc.). Do you expect global competition for your product? What advantages will foreign competitors have?

.

6

STUDENT BUSINESS PLAN PROJECT TEMPLATE PART 2: THE BUSINESS OF MANAGING

MISSION STATEMENT Provide a brief mission statement for your business Hint: Refer to the discussion of mission statements in Chapter 5. Be sure to include the name of your business, how you will stand out from your competition, and why a customer will buy from you.

BUSINESS GOALS Consider the goals for your business. What are three of your business goals for the first year? What are two intermediate to long-term goals?

Hint: Refer to the discussion of goal setting in Chapter 5. Be as specific and realistic as possible with the goals you set. For example, if you plan on selling a service, how many customers do you want by the end of the first year, and how much do you want each customer to spend? If you plan on selling a good, how many do you hope to sell?

SWOT ANALYSIS Perform a basic SWOT analysis for your business, listing its main strengths, weaknesses, opportunities, and threats.

Hint: We explained previously what factors you should consider in your basic SWOT analysis.

Look around at your world, talk to classmates, or talk to your instructor for other ideas in performing your SWOT analysis.

Strengths Weaknesses Opportunities Threats MANAGEMENT Who will manage the business?

Hint: Refer to the discussion of managers in Chapter 5. Think about how many levels of management as well as what kinds of managers your business needs.

ORGANIZATION CHART Show how the “team” fits together by creating a simple organizational chart for your business. Make sure your organizational chart indicates who will work for each manager as well as each person’s job title.

Hint: Most businesses start off quite small. However, as you create your organizational chart, consider what your business will look like in the future. What different tasks are involved in the business? Who will each person report to in the organizational structure? Refer to the discussion of organizational structure in Chapter 6 for information to get you started.

.

7

FLOOR PLAN Create a floor plan of the business. What does it look like when you walk through the door?

Hint: When sketching your floor plan, consider where equipment, supplies, and furniture will be located. Ask your instructor how he or she would like you to submit the floor plan for your business.

RAW MATERIALS AND SUPPLIES Explain what types of raw materials and supplies you will need to run your business. How will you produce your good or service? What equipment do you need? What hours will you operate?

Hint: Refer to the discussion of operations in Chapter 7 for information to get you started.

QUALITY ASSURANCE What steps will you take to ensure that the quality of the product or service stays at a high level? Who will be responsible for maintaining the quality of the product or service (or both)?

Hint: Refer to the discussion of quality improvement and Total Quality Management in Chapter 7 for information to get you started.

.

8

STUDENT BUSINESS PLAN PROJECT TEMPLATE PART 3: PEOPLE IN ORGANIZATIONS

CORPORATE CULTURE What do you see as the “corporate culture” of your business? What types of employee behaviors, such as organizational citizenship, will you expect?

Hint: Will your business demand a casual environment or a more professional environment?

Refer to the discussion on employee behavior in Chapter 8 for information on organizational citizenship and other employee behaviors.

LEADERSHIP PHILOSOPHY What is your philosophy on leadership? How will you manage your employees day-today?

Hint: Refer to the discussion on leadership in Chapter 9 to help you formulate your thoughts.

JOB DESCRIPTIONS Looking back at your organizational chart in Part 2, briefly create a job description for each team member.

Hint: As you learned in Chapter 10, a job description lists the duties and responsibilities of a job; its working conditions; and the tools, materials, equipment, and information used to perform it. Imagine your business on a typical day. Who is working and what are each person’s responsibilities? (Note that if your business is very large, you should ask your instructor how many positions he or she would like you to create job descriptions for.)

JOB SPECIFICATIONS Next, create a job specification for each job, listing the skills, credentials, and qualifications needed to perform the job effectively.

Hint: As you write your job specifications, consider what you would write if you were making an ad for the position. What would the new employee need to bring to the job in order to qualify for the position?

Insert Job Title #1: Insert Needed Skills/Credentials/Qualification for Job: Insert Job Title #2: Insert Needed Skills/Credentials/Qualification for Job: Insert Job Title #3:

.

9

Insert Needed Skills/Credentials/Qualification for Job: TRAINING EMPLOYEES What sort of training, if any, will your employees need once they are hired? How will you provide this training?

Hint: Refer to the discussion of training in Chapter 10. Will you offer your employees on-the-job training? Off-the-job training? Vestibule training?

COMPENSATION A major factor in retaining skilled workers is a company’s compensation system—the total package of rewards that it offers employees in return for their labor. Part of this compensation system includes wages/salaries. What wages or salaries will you offer for each job? Why did you decide on that pay rate?

Hint: Refer to Chapter 10 for more information on forms of compensation. You may also want to check out sites like www.salary.com, which includes a salary wizard you can use to determine how much people with different job titles are making in your area and across the United States.

INCENTIVES As you learned in Chapter 10, incentive programs are special programs designed to motivate high performance. What incentives will you use to motivate your workforce?

Hint: Be creative and look beyond a simple answer, such as giving pay increases. Ask yourself, who are my employees and what is important to them? Refer to Chapter 10 for more information on the types of incentives you may want to consider.

.

10

STUDENT BUSINESS PLAN PROJECT TEMPLATE PART 4: PRINCIPLES OF MARKETING

TARGET MARKET Describe your target market in terms of age, education level, income, and other demographic variables.

Hint: Refer to Chapter 11 for more information on the aspects of target marketing and market segmentation that you may want to consider. Be as detailed as possible about who you think your customers will be.

PRODUCT FEATURES AND BENEFITS Describe the features and benefits of your product or service.

Hint: As you learned in Chapter 11, a product is a bundle of attributes—features and benefits.

What features does your product have—what does it look like, and what does it do? How will your product benefit the buyer?

PRODUCT DIFFERENTIATION How will you make your product stand out in the crowd?

Hint: There are many ways to stand out in the crowd, such as a unique product, outstanding service, or a great location. What makes your “great idea” special? Does it fill an unmet need in the marketplace? How will you differentiate your product to make sure that it succeeds?

PRICING What pricing strategy will you choose for your product, and what are the reasons for this strategy?

Hint: Refer to Chapter 12 for more information on pricing strategies and tactics. Since your business is new, so is the product. Therefore, you probably want to choose between price skimming and penetration pricing. Which will you choose, and why?

PLACE (DISTRIBUTION) ISSUES Where will customers find your product or service? (That is, what issues of the distribution mix should you consider?)

Hint: If your business will sell its product directly to consumers, what types of retail stores will sell your product? If your product will be sold to another business, which channel of distribution will you use? Refer to Chapter 12 for more information on aspects of distribution you may want to consider.

.

11

ADVERTISING How will you advertise to your target market? Why have you chosen these forms of advertisement?

Hint: Marketers use several different advertising media—specific communication devices for carrying a seller’s message to potential customers—each having its advantages and drawbacks.

Refer to Chapter 12 for a discussion of the types of advertising media you may wish to consider here.

PROMOTIONS What other methods of promotion will you use, and why?

Hint: There’s more to promotion than simple advertising. Other methods include personal selling, sales promotions, and publicity and public relations. Refer to the discussion of promotion in Chapter 12 for ideas on how to promote your product that go beyond just advertising.

.

12

STUDENT BUSINESS PLAN PROJECT TEMPLATE PART 5: MANAGING INFORMATION

IT RESOURCES What kind of IT resources will your business require?

Hint: Think about the employees in your business and what they will need in order to do their jobs. What computer hardware and software will they need? Will your business need a network and an Internet connection? What type of network? Refer to Chapter 13 for a discussion on IT resources you may want to consider.

CUSTOMER SERVICE How will you use information technology to keep track of your customers and potential customers?

Hint: Many businesses—even small businesses—use databases to keep track of their customers.

Will your business require a database? What about other information systems? Refer to Chapter 13 for more information on these topics.

COST OF DOING BUSINESS What are the costs of doing business? Equipment, supplies, salaries, rent, utilities, and insurance are just some of these expenses. Estimate what it will cost to do business for one year.

Hint: Insert the costs associated with doing business in the table below. The list below provides some hints as to where you can get this information. Note that these are just estimates—just try your best to include accurate costs for the expenses you think will be a part of doing business.

Hints for each expense in the table: • • • •

•

Rent: Refer to the floor plan. How many square feet is your place of business? What is the “going rate” per square foot for office space in your community? A real estate agent or a local SBA representative (www.sba.gov) can also be helpful in answering this question.

Salaries: Refer to the organizational chart. How much will each employee earn? How many hours will each employee be needed on a weekly basis? Once you’ve determined the weekly cost, expand it to a monthly and a yearly cost.

Supplies: Refer to the floor plan. How much will all the computers, equipment, and furniture cost? What kinds of general office supplies will you need? Most prices for this information can be found on an office supply Web site, such as www.staples.com.

Advertising and Other Promotions: Refer to your marketing section. You have described how you wish to reach your customer—now you need to decide how much it will cost. If you are using television, contact the sales department at a local station. If you are using newspaper, contact their advertising department. Salespeople are usually happy to answer your questions.

Utilities: These amounts will vary, depending on your business and what utilities you will pay. If your business looks like an office, this cost may be similar to what a homeowner pays.

.

13

•

However, if your business involves making a product, then the costs will be significant. An SBA representative can be a good resource.

Insurance: This value will be affected by the nature of the business. More equipment will usually mean higher insurance costs. Again, contact an SBA representative for feedback.

EXPECTED REVENUE How much will you charge for your product? How many products do you believe you can sell in one year (or how many customers do you think your business can attract)? Multiply the price you will charge by the number of products you hope to sell or the amount you hope each customer will spend. This will give you an estimate of your revenues for one year.

Hint: You will use the amounts you calculate in the costs and revenues questions in this part of the plan in the accounting statements in the next part, so be as realistic as you can.

INCOME STATEMENT AND BALANCE SHEET Create a balance sheet and an income statement (profit-and-loss statement) for your business.

Hint: You will have two options for creating these reports. The first option is to use the Microsoft Word versions that are found within this “Business Plan Student Template” (which follow).

The second option is to use the specific templates created for each statement in Microsoft Excel.

If you make adjustments, these calculations will be performed automatically for you.

.

14

Income Statement (Profit-and-Loss Statement) June

July

Aug.

Sept.

Oct.

Nov.

Dec.

……

YEARLY

Revenue (Sales) Category 1 Category 2 Total Revenue (Sales) Cost of Goods Sold Category 1 Category 2 Total Cost of Goods Sold Gross Profit Expenses Rent Expense Salary/Wage Expenses Supplies Expense Advertising Expense Utilities Expense Telephone/Internet Expense Insurance Expense Interest from Loans (if applicable) Other Expenses (specify) Total Expenses Net Profit

.

15

Balance Sheet Assets Current Assets Cash Cash Value of Inventory Prepaid Expenses (insurance) Total Current Assets Fixed Assets Machinery and Equipment Furniture and Fixtures Real Estate/Buildings Total Fixed Assets Total Assets Liabilities and Net Worth Current Liabilities Accounts Payable Taxes Payable Notes Payable (due within 12 months) Total Current Liabilities Long-Term Liabilities Bank Loans Payable (greater than 12 months) Less: Short-Term Portion Total Long-Term Liabilities Total Liabilities Owners’ Equity (Net Worth) Total Liabilities and Owners’ Equity .

16

STUDENT BUSINESS PLAN PROJECT TEMPLATE PART 6: FINANCIAL ISSUES STARTUP COSTS How much money will you need to get your business started?

Hint: Refer back to Part 5 of the plan, where you analyzed the costs involved in running your business. Approximately, how much will you need to get your business started?

FINANCING How will you finance your business? For example, will you seek out a bank loan?

Borrow from friends? Sell stocks or bonds initially or as your business grows?

Hint: Refer to Chapter 16 for information on securities, such as stocks and bonds. Refer also to Appendix I: Financial Risk and Risk Management and Chapter 3 for more information on sources of short-term and long-term funds.

EXECUTIVE SUMMARY Now, create an executive summary for your business plan. The executive summary should be brief—no more than two pages long—and should cover the following points: • • • • • • • •

The name of your business Where your business will be located The mission of your business The product or service you are selling Who your ideal customers are How your product or business will stand out in the crowd Who the owners of the business are and what experience they have An overview of the future prospects for your business and industry

Hint: At this point, you’ve already answered all these questions so what you need to do here is put the ideas together into a “snapshot” format. The executive summary is really a sales pitch— it’s the investor’s first impression of your idea. Therefore, as with all parts of the plan, write in a clear and professional way.

Once you have written the executive summary, copy it and paste it at the beginning of your business plan—as the very first element.

.

17

SAMPLE BUSINESS PLAN THE FRIENDLY CAFÉ II Executive Summary The Friendly Café II will be located in the town of Mt. Vernon, a city of approximately 12,000 people. The café will offer a nostalgic atmosphere for people of all ages. We will serve a large variety of home-cooked meals and desserts.

The mission of The Friendly Café II is to provide a quality product at a quality price served by quality people. We will demonstrate our devotion to the community through customer service and community relations.

Our ideal customers are many. Some of them will be middle-class families with young children.

These are people who earn a modest income. Our prices and convenience are reasons to visit our café. Our other ideal customers will be retirees. These are folks who may drop in for lunch or an early dinner. Some retirees have a good income from their retirements, but some may be on a fixed income.

Customers will visit us for several reasons. First is the quality of the food at an affordable price.

People want to believe that they are getting a good deal. We are dedicated to serving hot, delicious meals at a fair price.

Our café is also part of the local history. The original Friendly Café was owned by my greatgrandfather and was open from the 1940s until the late 1960s. We plan to rent the old building that housed the original café. Visitors will remember the original café and be curious to see the new version. We will have pictures from the old café on the walls, which will take diners on a trip down memory lane.

Our business will be a partnership. My family members and I will run the café together. We are a close family, and we work well together. Financially, we could not open the café without each other.

Each partner will serve as a manager in the café. My mother will be the floor manager, my aunt will be the grill manager, and I will handle the accounting for the café.

Our business will thrive for a number of reasons. First, the city of Mt. Vernon has a stable population, with a number of healthy industries. Second, the local population is somewhat older than the national average. We believe that this segment of the population longs for “days gone by.” Our nostalgic theme will appeal to this particular segment of the population.

Our skills and knowledge in food service, combined with our connections to the community, will make this business a sound investment.

.

18

PART 1 THE CONTEMPORARY BUSINESS ENVIRONMENT Business Name The Friendly Café II Description of Business The Friendly Café II will be located in the small town of Mt. Vernon, where I grew up. The café will offer a nostalgic atmosphere for people of all ages and will serve a large variety of homecooked meals and desserts.

Form of Business Ownership The business will be a partnership, meaning that my family members and I will run the café together. Each partner will also serve as a manager and has special skills that they can bring to the business. My mother will be the floor manager. She has work experience in this area, and she knows how to organize floor space and is good with customers. My aunt has worked at a number of restaurants in the grill area and will, therefore, serve as grill manager. She will handle orders and manage all backroom employees. These two managers can substitute for one another so that they both do not have to be in the café every day. Finally, I will handle the accounting responsibilities for the café. I am currently completing my degree in accounting, and I will also have two clerks that will help me keep all accounts up-to-date and accurate.

Ideal Customer Our ideal customers are many. Some will be middle-class families with young children. These customers will visit our café for its reasonable prices and convenience. Our other ideal customers will be retirees who may drop in for lunch or an early dinner. We will have special promotions focused on each of these two groups that will be discussed later.

Our Advantages Customers will visit us for several reasons. First is the quality of the food and the affordable price. People want to believe that they are getting a good deal. We are dedicated to serving hot, delicious meals at a fair price.

Our café is also part of the local history. The original Friendly Café was owned by my greatgrandfather and was open from the 1940s until the late 1960s. We plan to rent the old building that housed the original café. Visitors will remember the original café and be curious to see the new version. We will have pictures from the old café on the walls, which will take diners on a trip down memory lane.

Ethical Issues Most restaurants deal with suppliers. We will be no different. Many restaurants must make a choice between buying higher-priced produce and supplies or buying lower-priced produce and supplies. The ethical issue facing The Friendly Café II, therefore, is the choice between buying quality products and earning a little less money, or buying lower-quality products and perhaps earning a higher profit.

.

19

SWOT Analysis for The Friendly Café II

In the long run, we believe that a higher-quality product will lead to higher profits because our customers will notice the difference and come back for more.

We also believe we must behave ethically to our employees, treating them fairly at all times.

Social Responsibility Our business is in a small town. My family grew up in this town so we feel an obligation to “give back” to the community. Our family owns a farm so we all feel a strong bond with animals.

Because of this, we are actively involved with the local humane society. And because our business is selling food, we believe that the best way to connect our business with our hometown is to provide free, hot meals to a local charity during the holiday season.

Global Issues The business will be a local one so at this point in time, we do not foresee there being any global issues we will need to address.

.

20

PART 2 THE BUSINESS OF MANAGING Mission Statement The mission of The Friendly Café II is to provide a quality product at a quality price served by quality people. We will demonstrate our devotion to the community through customer service and community relations

Organizational Chart for The Friendly Café lI

Business Goals First Year Goals: 1. To break even 2. To build a strong customer base 3. To minimize employee turnover Intermediate to Long-Term Goals: 1. To earn net profits of $25,000 within five years 2. To open a second restaurant in a neighboring community within five years See SWOT analysis chart above.

Management There is one level of management in the restaurant, with three different types of managers as follows: • Floor Manager • Grill Manager • Accounting Manager (all managers are also co-owners).

.

21

Organizational Chart The organizational chart, see below, for The Friendly Café II is quite simple given that it contains, see below, only one level of management. As the business grows, further levels of management and more employees may be added.

.

22

Floor Plan for The Friendly Café lI

Floor Plan Because we are planning on occupying the space that was previously used for the original Friendly Café, we will be keeping the basic layout of the café intact, see exhibit above. The café will include a counter area for those who wish to sit facing the kitchen, as well as a number of booths and tables to fit different-sized parties.

.

23

Raw Materials and Supplies If we are able to lease the space used by the original Friendly Café, we will use the existing tables and chairs. These may be in need of slight repair, but are in good condition at present.

They carry the nostalgic look and feel we are striving for so we prefer not to replace them.

The café will also need the following initial inventory: 2 Cash registers @ $225 each........................................ $450 Squirrel POS system......................................................1,500 3 Microwave ovens @ $150 each ................................... 450 Deep Fryer......................................................................2,500 Refrigeration Unit .........................................................2,000 Freezer ...........................................................................4,000 Dishwashing Unit ..........................................................2,000

(100) Small Glasses @ $1.00 each....................................100 (100) Large Glasses @ $1.25 each....................................125 (100 sets) Plates, Bowls, Mugs @ $10.00 each .............1,000 (100 sets) Silverware @ $12 per set...............................1,200 Total.............................................................................$15,325 Most of our food products will be made fresh in the store so we do not plan to carry much in the way of food inventory. We will stock some canned sauces, but most food will be shipped fresh.

Our inventories will not be affected by change in seasons or holidays. We plan to be open from 6 A.M. to 10 P.M., Monday through Saturday, and 8 A.M. to 6 P.M. on Sunday.

Quality Assurance All employees will have some responsibility to ensure quality, but we believe quality begins with the management team. The floor manager will be responsible for the appearance of the café and the performance of the servers and hosts. The floor manager is responsible for pleasing the customer. The grill manager will ensure that quality food is purchased from distributors and prepared for customers. The entire management team will work to ensure that our café is synonymous with quality.

.

24

PART 3 PEOPLE IN ORGANIZATIONS Corporate Culture Our culture is reflected in our mission statement. We want excellence in every part of our restaurant, and every employee must understand how to achieve this standard once they have completed their training. Every employee must have a commitment to pleasing the customer, both in the quality of the food and in the overall experience they will have once they are inside the store.

Our employees will be encouraged to improve the quality of the restaurant through their own suggestions and input.

We are also committed to improving our community through participation in events that make our hometown a better place to live.

Leadership Philosophy We believe that a participative approach will work well with our family-oriented business.

Because each family member will have an equal stake in the restaurant, each family member (manager) will have an equal input into the operation of the store. Each manger will have an area of specialty, which will allow them to have control over their assigned functional area. We will also encourage input from our employees, inviting them to participate in some of the decision making.

Job Descriptions The job descriptions at the Friendly Café II will be as follows: Floor Manager: The floor manager will be responsible for the “front end” of the café. This includes the staffing and training of servers and hosts. The floor manager will also be involved with customer relations. The floor manager will also help coordinate and work with those in the grill area to ensure customer satisfaction. Finally, the floor manager will be responsible for ordering any new non-kitchen inventory that the café needs, including new tables, chairs, dishes, and so on.

Grill Manager: The grill manager will be responsible for the “back end” of the café. This includes the staffing and training of cooks and dishwashers. The grill manager will also be involved with customer relations in overseeing that all the food served is of high quality. The grill manager will also work with the floor manager to help coordinate with those on the floor to ensure customer satisfaction. Finally, the grill manager will be responsible for ordering any foodrelated and cooking-related inventory that the café needs, including produce, cooking equipment, and so on.

Accounting Manager: The accounting manager will be responsible for the financial side of the business and for the hiring and training of accounting clerks. Most importantly, the accounting manager will be responsible for interacting with suppliers and managing the accounts payable that the business incurs and all other matters relating to taxes and finances.

Servers/Hosts: The servers/hosts will be responsible for serving food to customers and

.

25

responding to their needs. This includes keeping their sections of the café clean and orderly and bussing dishes back to the grill area for cleaning. They will also be responsible for “side work,” such as rolling silverware and refilling the condiments on their tables. These employees will spend most of their time serving meals, but some of their time will be spent as hosts, greeting and seating customers.

Cooks: These employees will be responsible for meal preparation. They will have to “prep” everything needed for business on any given day. This includes mixing salads, estimating the amount of different foods needed for the given day, and making desserts. The closing cook will also be responsible for cleaning the kitchen so that the café will be ready for the next day’s business.

Dishwashers: The dishwashers will be responsible for washing all dishes and placing them in the correct racks. If the café is busy, they will help servers bus the tables. Dishwashers will also be responsible for cleaning the restrooms each morning and for taking out the trash at closing time. Finally, dishwashers will help the closing cook prep the back of the restaurant for the next day. This “prep” includes washing/scrubbing floors and cleaning all the food preparation tabletops.

Accounts Payable Clerks: The clerks will assist the accounting manager in recording and organizing the accounts payable that the café will assume during the course of business.

Job Specifications The job specifications for the three managers at The Friendly Café II will be as follows: Job Title: Floor Manager Needed Skills/Credentials/Qualification for Job: The floor manager must have strong human relations skills. These skills will be needed to deal with customers and employees. The floor manager must be energetic and willing to work long hours on his or her feet. The floor manager will be responsible for training servers and hosts. To be a successful floor manager, one must have at least two years of work experience in management, preferably in restaurant management.

Job Title: Grill Manager Needed Skills/Credentials/Qualification for Job: The grill manager must have strong human relations skills. These skills will be needed to deal with customers and employees. The grill manager must be energetic and willing to work long hours on his or her feet. The grill manager will be responsible for training cooks and dishwashers. To be a successful grill manager, one must have at least two years of work experience as a restaurant cook.

Job Title: Accounting Manager Needed Skills/Credentials/Qualification for Job: The accounting manager will need good human relations skills. These skills will be needed to deal with the clerks and with the café’s creditors. The accounting manager will also be responsible for training the accounts payable clerks. This position will require a degree in accounting or a minimum of two years of work experience in accounts payable or receivable.

Training Employees Our employees will have a variety of skills that they will bring to the workplace. However, it will sometimes be necessary to train new employees so they can be successful at work. Most of

.

26

the training will focus on performing the specific tasks needed to do each job efficiently. The managers of each area will be responsible for seeing that the training program is completed but may assign team members to lead that training. In many cases, the new hire will simply “shadow” the training employee for a few days to get an idea of how to do the job.

Compensation Each of the managers will earn $22,500 per year as salary. The food service industry does not tend to pay high salaries. Because the managers are also the owners, they will hope to earn more beyond their salary from the profits of the café. Compensation for all in-store personnel will begin at $8.00 per hour, with pay increases scheduled every 120 days. These increases will be connected to performance reviews. By having reviews three times per year, we hope to create greater incentive for our team members. Compensation for the accounts payable clerks will begin at $8.50 per hour. Because the clerks will need a higher level of skill and training, their compensation will be a bit higher.

Incentives We know that pay alone does not create incentive with our workers. The thrill of a pay raise does not last long. First and foremost, we want to offer a fun workplace to our employees, and we want them to feel like extended members of our family. We will be loyal and fair to good employees and offer them benefits. We would also like to build relationships with other local businesses to exchange rewards for each business’s employees. Our community has florists, golf courses, salons, and a number of other small businesses. We believe that by trading with these businesses, each employer can benefit, and the employees will also benefit.

.

27

PART 4 PRINCIPLES OF MARKETING Target Market Our café will have two markets: The first target market is the seniors in our community. Many of these have retired with a comfortable pension from the local industries. They do not necessarily have a high education level since it was not needed in that time. Retirees will tend to have a good deal of discretionary income and also time to socialize in the morning and lunchtime hours.

The second target market is middle-class families with younger children. These families will be looking for a well-cooked dinner after work. They will likely have a higher education level than the retirees, but will have a modest income. Dining out is probably a once-a-week event for these families.

Product Features and Benefits The Friendly Café II is a small café that will serve a variety of home-cooked meals in a nostalgic atmosphere. It is a place where friends can gather over a cup of coffee, or a family can sit down for a well-cooked meal. We will strive to serve the best meals in a happy and familiar place.

Product Differentiation People have a lot of choices when it comes to dining out. We know that we have to offer a product that stands out from the competition. We will have two major differences from our local competitors. The first is the quality of the food. Without good meals, nothing else will matter.

Diners will place the highest importance on the meal itself and so will we. By providing good meals at reasonable prices, word-of-mouth advertising will take care of itself. However, the food is only part of the dining experience. Our nostalgia theme will connect well with the local population. Our community is small and tightly-knit. Our older citizens grew up with the original Friendly Café, and they have happy memories of the local diner. We hope that our décor will help to build a bond with the older members of our community and create a new one with younger members.

Pricing Our pricing strategy is fairly simple. Because our target markets are seniors (who remember how much things used to cost) and young families, we will focus on keeping prices low. The food will be simple, home-cooked meals. The pricing will reflect the simplicity of the café. We will also offer coupons to encourage visits by customers who are price conscious.

Place (Distribution) Issues Our family (and our business) is connected to this small community and offers a family-oriented setting and a connection to history and nostalgia. The small-town setting allows us to emphasize our strengths, and we foresee no distribution issues. In the future, we hope to expand into other communities like ours.

Advertising .

28

Because we have two target markets, we will have two advertising approaches. For the seniors market, we will advertise in the local newspaper and in the retirement center in our town. These advertisements will include coupons for discounts on our morning and afternoon menus.

Coupons will also allow us to track the success of the advertising. We will also attempt to advertise on local radio stations that feature news and talk. These are stations that have a strong senior listening audience.

To get the attention of the middle-class family market, we will hang door flyers that feature our menus in the two local housing subdivisions. Many young families in our community live in these subdivisions. The flyers will also contain coupons, which will allow us to track the success of the advertising.

We will also be listed in the local phone book and will have a small site on the Internet.

These ideas are fairly inexpensive ways to get our message out to our target markets.

Promotion Because we have two main target markets, we will have two types of promotions. For the senior market, we will have 2-for-1 priced coffee on weekday mornings. Coffee is not a great expense, but can be a great draw into the café for other items in the morning. We will also offer breakfast specials Monday through Wednesday since these are the days with the least amount of customer traffic.

For the young family market, we will have a “Kids Eat Free” special on Monday nights. Again, the goal is to get the family into the café on a slow night.

We will also have promotions during the fall, when our community has a street festival. This festival attracts visitors from outside our community. These promotions will build attention (and word-of-mouth) from those who live in nearby towns.

.

29

PART 5 MANAGING INFORMATION IT Resources We plan to use technology to create a small Web site about the café and to help us keep track of our customers. Specifically, we believe that we can use the coupons we offer to measure the success of our advertising and to create a database of customers. We will ask customers who use coupons to fill in their name and address when redeeming the coupon. We will then create an address list to make customers aware of special promotions for our preferred customers.

Customer Service Like any good restaurant, our café will be customer centered. We believe that customer satisfaction begins with a well-trained staff. First and foremost, as members of the community ourselves, we will keep in close contact with our customers, getting to know them and their families and finding out what they are looking for in an eating establishment.

Our managers will also be dedicated to a strong employee training program to ensure that our focus on customers is part of every job. Our “front-end” staff will “shadow” train for at least three days before they are allowed to work on their own. It is not enough to simply know how to take an order; employees must also understand policies and procedures that are unique to our café. The training for cooks will take approximately ten days. The time spent with the cooks is longer because we aim to ensure the quality standards of the variety of dishes they will prepare.

We will also keep a suggestion box at the front of the store to be used for customer feedback. We will encourage customers to submit ideas by rewarding them for their suggestions. Their incentive will be free appetizers, free drinks, and so on. We hope to use their input to improve our café.

Cost of Doing Business

Expenses Rent Salaries and Wages Supplies Advertising and Other Promotions Utilities: Heat, Electricity, etc.

Telephone and Internet Insurance Total

.

Expected Monthly Cost

Expected Yearly Cost

$500

$6,000

10,000 167

120,000 2,000

167

2,000

500

6,000

100

1,200

333 $11,767

4,000 $141,200

30

Expected Revenue We believe that we can average 100 customers per day. However, the café will experience different traffic for each day of the week and during different times of the year. We believe that the average meal ticket will be approximately $5.00 per customer. This number will also vary, depending on the time of day that the customer enters the café. This will provide our café with revenues of $500 per day. We plan to be closed on Christmas. This will lead to yearly revenues of approximately $182,000 per year.

.

31

PART 6 FINANCIAL ISSUES 12-Month Income Statement (Profit-and-Loss Statement) The Friendly Café II (amounts in dollars) 2012 Jun11

Jul11

Aug11

Sep11

Oct11

Nov11

Dec11

Jan11

Feb11

YEARLY

Revenue (Sales) Food Sales Category 2 Total Revenue (Sales) Cost of Goods Sold Food Purchases Category 2 Total Cost of Goods Sold Gross Profit

15,166 15,166 15,166 15,166 15,166 15,166 15,166 15,166 15,166 182,000 15,166 15,166 15,166 15,166 15,166 15,166 15,166 15,166 15,166 182,000

3,333

3,333

3,333

3,333

3,333

3,333

3,333

3,333

3,333

39,996

3,333

3,333

3,333

3,333

3,333

3,333

3,333

3,333

3,333

39,996

11,833 11,833 11,833 11,833 11,833 11,833 11,833 11,833 11,833 142,004

Expenses Rent Expense 500 500 500 500 500 500 500 500 500 6,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 120,000 Salary/Wage Expense Supplies Expense 167 167 167 167 167 167 167 167 167 2,004 167 167 167 167 167 167 167 167 167 2,004 Advertising Expense Utilities Expense 500 500 500 500 500 500 500 500 500 6,000 100 100 100 100 100 100 100 100 100 1,200 Telephone/Internet Expense 333 333 333 333 333 333 333 333 333 3,996 Insurance Expense Interest from Loans Other Expenses (specify) Total Expenses Net Profit

0

0

0

0

0

0

0

0

0

0

11,767 11,767 11,767 11,767 11,767 11,767 11,767 11,767 11,767 141,204 66

.

66

66

66

66

66

66

66

66

800

32

Balance Sheet Assets Current Assets Cash Inventory Prepaid Expenses (insurance) Total Current Assets

$25,000 3,000 4,000 $32,000

Fixed Assets Machinery and Equipment Furniture and Fixtures Real Estate/Buildings Total Fixed Assets

$12,900 8,000 0 $20,900

Total Assets

$52,900

Liabilities and Owners’ Equity Current Liabilities Accounts Payable Taxes Payable Notes Payable (due within 12 months) Total Current Liabilities Long-Term Liabilities Bank Loans Payable (greater than 12 months) Less: Short-term Portion Total Long-term Liabilities

.

$3,000 6,000 0 $9,000

$0 0 $0

Total Liabilities

$9,000

Owners’ Equity (Net Worth)

$43,900

Total Liabilities and Owners’ Equity

$52,900

33

Start-up Costs Our balance sheet shows total assets of $52,900. By subtracting the $25,000 that our three managers will invest, we will require start-up costs of $27,900.

Financing The three managers will put a total of $25,000 into the startup of this business. The remaining $27,900 is the amount that we are requesting for bank financing.

.

34

Introduction to Business Essentials 9e Instructor’s Manual Welcome to Business Essentials 9e. Whether you are an experienced instructor or an adjunct teaching Business Essentials for the very first time, one thing is clear: Students will learn better if you tie your instruction to identifiable learning goals. Doing so will also make your course embedded assessment easier to monitor and measure. This instructor material has been written to make your lecture preparation easier, to provide you with some tips and resources to make you look good in front of the classroom, and above all else, to help you to teach in such a manner that students learn the valuable information contained in each chapter of Business Essentials.

How do I use this Instructor’s Manual?

Instructor resources have been carefully developed for each chapter of Business Essentials. We begin each chapter with a list of the Chapter Learning Objectives.

• •

• • •

•

•

Chapter Learning Objectives give you an overview of the key concepts covered in the chapter.

Detailed Teaching Notes and Suggestions addressing each of the learning objectives.

This section includes: o References to the appropriate in-class activities and homework assignments for each objective, including Videos that are located in this text’s MyBizLab and on DVD (ISBN 0132807270 or 0133043517). o Key Teaching Tips to help you emphasize essential information. o Quick Questions to focus the class’s attention on specific issues.

In-Class Activities and Homework Assignments, including a description of the activity, the time that it will take to complete, and a page reference to additional details and solutions in this Instructor’s Manual.

Case Studies to help students apply the course material to real business situations. Each activity provides an overview, detailed instructions for conducting the exercise, and any handouts that may be required Answers to the End of Chapter Activities, including: o Questions for Review o Questions for Analysis o Applications Exercises o Building Your Business Skills Follow Up Questions o Exercising Your Ethics (Individual and Team Exercises) Embedded Business Plan Project Information. A separate file containing the entire Business Plan project can be found on Pearson’s online Instructor Resource Center (www.pearsonhighered.com/educator) and in this book’s MyBizLab. However, the relevant pages have also been inserted into the instructor notes for Chapters 4, 7, 10, 12, 14 and 16. This reduces your preparation time and makes it easier to incorporate the business plan project into your syllabus.

BizSkills: Online interactive simulations that let students “perform” in many common business situations in an online environment. These BizSkills are scorable, and include reinforcement quizzes, outlines, glossaries, and book page remediation.

.

1

In additional to this instructor material, there is also a wealth of material available at Pearson’s online Instructor Resource Center (www.pearsonhighered.com/educator) and at www.mybizlab.com. Here you will find: • • • •

Test Item Files TestGen® Computerized Testbank Instructor PowerPoint Presentations (image-rich Dynamic PPTs and traditional lecture sets) Image Library: Contains all the art, tables, and photos from the text that instructors can use to create their own presentations.

For students, we offer the following study tools at www.mybizlab.com: • • • • • •

Study Guide (also available in print, ISBN 0132664100) Self-Check Review Questions Pre/Post-Tests: Each chapter offers a chance for students to gauge their current level of knowledge and get remediated to a customized study plan to maximize their time preparing for exams.

Student PowerPoints: Students can follow your lecture and take notes on these PowerPoints during class. eBook Flashcards of key terms

What if my course is online?

If you are teaching an online course, we have provided some additional tips and resources.

Annotated Online Syllabi, for both 10- and 16-week courses. This provides a sample syllabus annotated with tips for using our vast bank of media assets in a manner appropriate for online delivery of course materials.

Tips for Online Courses Several instructors have offered additional suggestions for enriching your students’ online experience. These include: 1. Set up discussion forums.

• You might, for example, ask a critical thinking question on one of the key chapter topics. Your students will have a certain amount of time to (1) post an answer to your question, and (2) post a response or comment on the answer of another student. You can offer extra credit for the “best” response.

• You might ask students to answer one of the end of chapter or additional online questions/case problems within a set period of time. The first one to respond can get an extra credit point. Then the first student who “adds value” to the answer can also get an extra point.

.

2

2. Set up online group competitions.

• Divide your online class into teams. Assign a problem or a current event situation (something regarding current economic problems, an ethical dilemma, etc.) for which students will need to conduct research, answer your questions, and post an analytical response. Assign extra credit points for the first complete response; a few less for the second response, etc.

• Ask each team to develop a scenario, list of questions, and responses for an additional class project. Reward those teams who submit activities that you deem suitable for use in the course.

.

3

INTRODUCTION TO BUSINESS BUSG 1301 SYLLABUS

COURSE DESCRIPTION The course introduces the student to the contemporary business world, the business of managing, people in organizations, the principles of marketing, managing information, and financial issues.

INSTRUCTOR INFORMATION Professor: Phone: E-mail: Office Hours: TBA TEXTBOOK INFORMATION: Ebert and Griffin. Business Essentials 9e, Prentice Hall, 2013 SEMESTER/LOCATION/TIME Spring College Campus: M and W, 11:30 AM to 1:00 PM 16 Weeks: January 17 to May 14, 200X CRN 30792 CREDIT: 3 SEMESTER HOURS PREREQUISITES None COURSE GOALS The primary objective is to give the student an understanding of basic business principles. Global business, entrepreneurship, management, marketing, information technology, and financial management will be discussed. Another purpose of this course is to provide an opportunity for the student to learn first-hand about a business through the interview process.

.

1

COURSE CONTENT STUDENT LEARNING OUTCOMES Upon completion of this course, the student should be able to: 1.

2.

3.

4.

5.

6.

Discuss how businesses achieve success by demonstrating ethical behavior.

Explain the strategies for business success in the relationship era.

Demonstrate the use of empowerment in management.

Describe the elements of customer-driven marketing.

Demonstrate the use of technology in business.

Discuss the basic elements of financial management and investing.

STATEMENT OF FOUNDATION SKILLS AND WORKPLACE COMPETENCIES (SCANS SKILLS) XYZ College/University is committed to preparing every student with the knowledge and skills needed to succeed in today’s dynamic work environment. Toward this end, the following foundation skills and workplace competencies have been designed into the curriculum for this course: Foundation Skills • Demonstrates Basic Skills—Reading (F1), Writing (F2), Arithmetic (F3), Mathematics (F3), Listening (F4), Speaking (F5) • Demonstrates Thinking Skills—Creative (F6), Decision making (F7), Problem solving (F8), Seeing things through the mind’s eye (F9), Knowing how to learn (F10), Reasoning (F11) • Exhibits Personal Qualities—Responsibility (F12), Self-esteem (F13), Social (F14), Self-management (F15), Integrity/Honesty (F16), Workplace Competencies • Manages Resources—Allocates time (C1), Allocates money (C2), Allocates material and facility resources (C3), Allocates human resources (C4) • Exhibits Interpersonal Skills—Participates as team member (C5), Teaches others (C6), Serves clients/customers (C7), Exercises leadership (C8), Negotiates to arrive at decisions (C9), Works with cultural diversity (C10) • Manages Information—Acquires and evaluates (C11), Organizes and maintains (C12), Interprets and Communicates (C13), Uses computers to process (C14) • Uses Systems and Technology—Understands systems (C15), Monitors and corrects performance (C16), Improves and designs systems (C17), Selects technology(C18), Applies technology to task (C19), Maintains and troubleshoots (C20) LAB REQUIREMENTS None STUDENTS WITH DISABILITIES ADA STATEMENT ACADEMIC HONESTY

.

2

SCHOLASTIC DISHONESTY (STUDENT HANDBOOK) Students are responsible for conducting themselves with honor and integrity in fulfilling course requirements. Penalties and/or disciplinary proceedings may be initiated by College System officials against a student accused of scholastic dishonesty.

“Scholastic dishonesty” includes, but is not limited to, cheating on a test, plagiarism, and collusion. “Cheating” on test includes: • • • • • • •

Copying from another student’s test paper.

Working collaboratively in tests, which are supposed to be submitted individually.

Using materials during a test that are not authorized by the person giving the test.

Collaborating with another student during a test without authority.

Knowingly using, buying, selling, stealing, transporting, or soliciting in whole or in part the contents of an unadministered test.

Bribing another person to obtain a test that is to be administered.

Purchasing a test and submitting it.

“Plagiarism” means the appropriation of another’s work and the unacknowledged incorporation of that work in one’s own written work offered for credit.

“Collusion” means the unauthorized collaboration with another person in preparing written work offered for credit.

ATTENDANCE AND WITHDRAWAL POLICIES COURSE REQUIREMENTS Students will complete a group project, three essay exams, one final examination, team exercises, an online presentation, and discussion questions.

GRADING POLICY The student will be evaluated as follows: Major exam 1 Major exam 2 Major exam 3 Group project Presentation (online) Final exam Homework Total

.

15% 15% 15% 15% 10% 15% 15% 100%

3

Grading Scale: A = 90–100 B = 80–89 C = 70–79 D = 60 – 69 F = Below 60 A grade of “I” (incomplete) is conditional and the student receiving this grade must arrange with the instructor to complete the work for the course within six months after the end of the term.

This requires a document signed by the student prior to the final exam.

EXTRA CREDIT Students who are failing may speak to the instructor about extra credit, which may be assigned at the instructor’s discretion.

TESTING There will be three major exams, a final, and a group project/presentation. The final will be comprehensive. There will be many small online activities which will make up the equivalent of one exam grade and will also be counted as participation. In addition, there may be several unannounced quizzes during the semester if students come to class unprepared. Tests are not accepted late.

MAKE-UP POLICY It is expected that assignments, including the term project, will be completed on time. Late work will NOT be accepted. Projects must be e-mailed to the professor within the time frame and online tests will be removed from the course platform after the listed date. Students should coordinate with the instructor should the student miss a major component of the grade.

PROJECT, ASSIGNMENTS, PORTFOLIO, AND PRESENTATION PERFORMANCE OBJECTIVES Given the specifications for a semester project, the guidelines for a class presentation, in-class team exercises, class assignments, class reports, quizzes and exams, and exercises should be typed. Projects are not accepted late.

.

4

Week 1

Date

Lecture topic and selected In-Class Exercises Course introduction and overview The U.S. Business Environment What do you know about business?

Scanning the environment Comparing economic systems VIDEO: BancFirst: Economics & Banking

2

3

Chapter 1

Business Ethics and Social Responsibility What’s ethical in business?

Ethical judgment making Can ethics be taught?

VIDEO: Jones Soda

2

Entrepreneurship, New Ventures, and Business Ownership The role of small business The wide world of risk Entrepreneurship and the growth of business VIDEO: Wild Planet

3

The Global Context of Business Shoes in the global marketplace Assessing your own culture VIDEO: Mini

4

Business Plan Part 1 4

5

Business Management The management process Sam Adams makes headway How do your goals stack up?

VIDEO: Pizza Hut

5

Organizing the Business Organizational structure Centralization versus decentralization Making the grade VIDEO: MyGym

6

TEST 1 Chapters 1–6

.

5

Week

Date

Topic Operations Management and Quality Are you getting what you paid for?

Do you really have to be on time for that meeting in Cairo?

VIDEO: Method

Chapter 7

Business Plan Part 2 6

7

Employee Behavior and Motivation Balancing inducements and contributions What are you looking for in a job?

Motivation in global firms VIDEO: Whole Foods

8

Leadership and Decision Making Are you a leader or a manager?

Transformational vs. transactional Was Steve Jobs a charismatic leader?

VIDEO: Southwest Airlines

9

Human Resource Management and Labor Relations Writing a job description Working with friends What motivates employees?

VIDEO: Patagonia

10

Business Plan Part 3 8

Marketing Processes and Consumer Behavior Assessing the marketing environment Data mining Social networking and job seeking VIDEO: DC Shoes

11

TEST 2: Chapters 7–11 Pricing, Distributing, and Promoting Products Why do they charge more?

Getting a stimulus boost with pricing and promotion What’s the best way to reach them?

VIDEO: Joby

9

.

12

6

Business Plan Part 4 Information Technology for Business IT devices LaidOffCamp Is that ethical?

VIDEO: Zip Car 10

The Role of Accountants and Accounting Information Do you use accounting?

Interpreting financial statements Annual reports VIDEO: POPS Diner

13

14

Business Plan Part 5 11

12

Money and Banking How much would that be in, say, chocolate bars?

Your check is not in the mail Fixing the system on a national scale VIDEO: BancFirst: Financial Management

15

Managing Finances What should I buy?

What’s wrong with a little inside scoop?

Accountability goes professional VIDEO: Capital Advisors

16

TEST 3: Chapters 12–16 Business Plan Part 6 FINAL EXAM

.

7

INTRODUCTION TO BUSINESS BUSG 1301 SYLLABUS

COURSE DESCRIPTION The course introduces the student to the contemporary business world, the business of managing, people in organizations, the principles of marketing, managing information, and financial issues.

INSTRUCTOR INFORMATION Professor: Phone: Email: Office Hours: TBA TEXTBOOK INFORMATION: Ebert and Griffin. Business Essentials 9e, Prentice Hall, 2013 SEMESTER/LOCATION/TIME Spring College Campus: M and W, 11:30 AM to 1:00 PM 16 Weeks: January 17 to May 14, 200X CRN 30792 CREDIT: 3 SEMESTER HOURS PREREQUISITES None COURSE GOALS The primary objective is to give the student an understanding of basic business principles. Global business, entrepreneurship, management, marketing, information technology, and financial management will be discussed. Another purpose of this course is to provide an opportunity for the student to learn first-hand about a business through the interview process.

.

1

COURSE CONTENT STUDENT LEARNING OUTCOMES Upon completion of this course, the student should be able to: 1.

2.

3.

4.

5.

6.

Discuss how businesses achieve success by demonstrating ethical behavior.

Explain the strategies for business success in the relationship era.

Demonstrate the use of empowerment in management.

Describe the elements of customer-driven marketing.

Demonstrate the use of technology in business.

Discuss the basic elements of financial management and investing.

STATEMENT OF FOUNDATION SKILLS AND WORKPLACE COMPETENCIES (SCANS SKILLS) XYZ College/University is committed to preparing every student with the knowledge and skills needed to succeed in today’s dynamic work environment. Toward this end, the following foundation skills and workplace competencies have been designed into the curriculum for this course: Foundation Skills • Demonstrates Basic Skills—Reading (F1), Writing (F2), Arithmetic (F3), Mathematics (F3), Listening (F4), Speaking (F5) • Demonstrates Thinking Skills—Creative (F6), Decision making (F7), Problem solving (F8),Seeing things through the mind’s eye (F9), Knowing how to learn (F10), Reasoning (F11) • Exhibits Personal Qualities—Responsibility (F12), Self-esteem (F13), Social (F14), Self-management (F15), Integrity/Honesty (F16), Workplace Competencies • Manages Resources—Allocates time (C1), Allocates money (C2), Allocates material and facility resources (C3), Allocates human resources (C4) • Exhibits Interpersonal Skills—Participates as team member (C5), Teaches others (C6), Serves clients/customers (C7), Exercises leadership (C8), Negotiates to arrive at decisions (C9), Works with cultural diversity (C10) • Manages Information—Acquires and evaluates (C11), Organizes and maintains (C12), Interprets and Communicates (C13), Uses computers to process (C14) • Uses Systems and Technology—Understands systems (C15), Monitors and corrects performance (C16), Improves and designs systems (C17), Selects technology(C18), Applies technology to task (C19), Maintains and troubleshoots (C20) LAB REQUIREMENTS None STUDENTS WITH DISABILITIES ADA STATEMENT ACADEMIC HONESTY

.

2

SCHOLASTIC DISHONESTY (STUDENT HANDBOOK) Students are responsible for conducting themselves with honor and integrity in fulfilling course requirements. Penalties and/or disciplinary proceedings may be initiated by College System officials against a student accused of scholastic dishonesty.

“Scholastic dishonesty” includes, but is not limited to, cheating on a test, plagiarism, and collusion. “Cheating” on test includes: • • • • • • •

Copying from another student’s test paper.

Working collaboratively in tests, which are supposed to be submitted individually.

Using materials during a test that are not authorized by the person giving the test.

Collaborating with another student during a test without authority.

Knowingly using, buying, selling, stealing, transporting, or soliciting in whole or in part the contents of an unadministered test.

Bribing another person to obtain a test that is to be administered.

Purchasing a test and submitting it.

“Plagiarism” means the appropriation of another’s work and the unacknowledged incorporation of that work in one’s own written work offered for credit.

“Collusion” means the unauthorized collaboration with another person in preparing written work offered for credit.

ATTENDANCE AND WITHDRAWAL POLICIES COURSE REQUIREMENTS Students will complete a group project, three essay exams, one final examination, team exercises, an online presentation, and discussion questions.

GRADING POLICY The student will be evaluated as follows: Major exam 1 Major exam 2 Major exam 3 Group project Presentation (online) Final exam Homework Total

15% 15% 15% 15% 10% 15% 15% 100%

.

3

Grading Scale: A = 90–100 B = 80–89 C = 70–79 D = 60 – 69 F = Below 60 A grade of “I” (incomplete) is conditional and the student receiving this grade must arrange with the instructor to complete the work for the course within six months after the end of the term.

This requires a document signed by the student prior to the final exam.

EXTRA CREDIT Students who are failing may speak to the instructor about extra credit, which may be assigned at the instructor’s discretion.

TESTING There will be three major exams, a final, and a group project/presentation. The final will be comprehensive. There will be many small online activities which will make up the equivalent of one exam grade and will also be counted as participation. In addition, there may be several unannounced quizzes during the semester if students come to class unprepared. Tests are not accepted late.

MAKE-UP POLICY It is expected that assignments, including the term project, will be completed on time. Late work will NOT be accepted. Projects must be emailed to the professor within the time frame and online tests will be removed from the course platform after the listed date. Students should coordinate with the instructor should the student miss a major component of the grade.

PROJECT, ASSIGNMENTS, PORTFOLIO, AND PRESENTATION PERFORMANCE OBJECTIVES Given the specifications for a semester project, the guidelines for a class presentation, inclass team exercises, class assignments, class reports, quizzes and exams, and exercises should be typed. Projects are not accepted late.

.

4

Week 1

Date

Lecture topic and selected In-Class Exercises Course introduction and overview The U.S. Business Environment For the online course, use: What do you know about business Scanning the environment Comparing economic systems VIDEO: BancFirst: Economics & Banking BizSkill: Supply and Demand

Chapter 1

2

Business Ethics and Social Responsibility For the online course, use: What’s ethical in business?

Ethical judgment making Can ethics be taught?

VIDEO: Jones Soda BizSkill: Ethics & Social Responsibility

2

3

Entrepreneurship, New Ventures, and Business Ownership For the online course, use: The role of small business The wide world of risk Entrepreneurship and the growth of businesses VIDEO: Wild Planet BizSkill: Are You an Entrepreneur?; Getting Your Business Off the Ground

3

4

The Global Context of Business For the online course, use: Shoes in the global marketplace Assessing your own culture VIDEO: Mini BizSkill: Going Global

4

Business Plan Part 1 5

Business Management For the online course, use: The management process Sam Adams makes headway How do your goals stack up?

VIDEO: Pizza Hut BizSkill: Plan for Success

5

.

5

6

Organizing the Business For the online course, use: Organizational structure Centralization versus decentralization Making the grade VIDEO: MyGym

6

TEST 1 Chapters 1–6 7

Operations Management and Quality For the online course, use: Are you getting what you paid for?

Do you really have to be on time for that meeting in Cairo?

VIDEO: Method BizSkill: Improving a Business

7

Business Plan Part 2 8

Employee Behavior and Motivation For the online course, use: Balancing inducements and contributions What are you looking for in a job?

Motivation in global firms VIDEO: Whole Foods BizSkill: Team Management

8

9

Leadership and Decision Making For the online course, use: Are you a leader or a manager?

Transformational vs. transactional Was Steve Jobs a charismatic leader?

VIDEO: Southwest Airlines

9

10

Human Resource Management and Labor Relations For the online course, use: Writing a job description What motivates employees?

Working with friends VIDEO: Patagonia BizSkill: HR Manaugement/Hiring a New Employee

10

Business Plan Part 3 11

Marketing Processes and Consumer Behavior

.

11

6

For the online course, use: Assessing the marketing environment Data mining Social networking and job seeking VIDEO: DC Shoes BizSkill: Product Development TEST 2: Chapters 7–11 12

Pricing, Distributing, and Promoting Products For the online course, use: Why do they charge more?

Getting a stimulus boost with pricing and promotion What’s the best way to reach them?

VIDEO: Joby BizSkill: Pricing Strategies and Objectives

12

Business Plan Part 4 13

Information Technology for Business For the online course, use: IT devices LaidOffCamp Is that ethical?

VIDEO: Zip Car BizSkill: Technology Direction

13

14

The Role of Accountants and Accounting Information For the online course, use: Do you use accounting?

Interpreting financial statements Annual reports VIDEO: POPS Diner BizSkill: OBM & Financial Statements

14

Business Plan Part 5 15

Money and Banking For the online course, use: How much would that be in, say, chocolate bars?

Your check is not in the mail Fixing the system on a national scale VIDEO: BancFirst: Financial Management BizSkill: Adapting to the Economic Environment

.

15

7

16

Managing Finances For the online course, use: What should I buy?

What’s wrong with a little inside scoop?

Accountability goes professional VIDEO: Capital Advisors BizSkill: Conducting a SWOT Analysis

16

TEST 3: Chapters 12–16 Business Plan Part 6 FINAL EXAM NOTE: In an online course, frequent “checks” are particularly important. To test student comprehension of chapter material, create a test in your course management system that will pull a random block of 15 to 25 questions from the Test Bank questions for each chapter. (Only show the students their score and their submitted answers. Do not show correct answers in the feedback). Allow your students to take the quiz up to three times, and report their highest grade.

This forces students to look critically through the chapter.

.

8