MGM101 Introduction To Management Functions

Instructor: David Swanston September 14, 2011

Today s Agenda
Collect Expectations Forms Announcements Finish Management & Leadership Markets and the Economic Environment Analyzing Industries and Business Ownership

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MGM101

Management
Managers Roles Are Evolving New Approaches: Why?
Global Competition Business Scandals Constant Change Better Educated Workers Downsizing/Rightsizing
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Management
Managers Roles Are Evolving
Managers must practise the art of getting things done through organizational resources. Resources is a general term that incorporates:
human resources (e.g., employees) natural resources (e.g., raw materials) financial resources (e.g., money)
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Management
Management Challenges
Talent Diversity Globalization Technology Ethics Careers

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Management
Organizations
A collection of people working together to achieve a common purpose. Organizations provide useful goods and/or services that return value to society and satisfy customer needs.

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Management
Organizations are open systems
Composed of interrelated parts that function together to achieve a common purpose. Interact with their environments. Transform resource inputs into product outputs (goods and services). Environmental feedback tells organization how well it is meeting the needs of customers and society.

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Management
Organizational performance
Value creation is a very important notion for organizations. Value is created when an organization s operations adds value to the original cost of resource inputs. When value creation occurs:
Businesses earn a profit. Nonprofit organizations add wealth to society.

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Management
The general environment all of the background conditions in the external environment of the organization including: Economic health of the economy Legal-political norms, customs, social values Socio-cultural philosophy/objectives of political party running the government Technological development and availability of technology Natural environment nature and conditions of environment

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Management
Competitive advantage
a core competency that clearly sets an organization apart from competitors and gives it an advantage over them in the marketplace.

Companies may achieve competitive advantage in many ways, including:

Cost efficiency Higher quality Better delivery Greater flexibility
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Management
Environmental uncertainty
a lack of complete information regarding what exists and what developments may occur in the external environment. Two dimensions of environmental uncertainty:
Degree of complexity Rate of change

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Management
Management Functions
Management: The process used to accomplish organizational goals through: Planning
Strategic Tactical Operational Contingency

Directing (leading) Organizing Controlling people and other organizational resources.

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Management
Managers: A Definition PDOC
Planning A management function that includes anticipating trends and determining the best strategies and tactics to achieve organizational GOPST: Goals, Objectives, Plans, Strategies and Tactics.

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Management
Managers: A Definition PDOC
Directing (Leading) Creating a vision for the organization and guiding, training, coaching, and motivating others to work effectively to achieve the organization s goal and objectives.

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Management
Managers: A Definition PDOC
Organizing A management function that includes designing the structure of the organization and creating conditions and systems in which everyone and everything works together to achieve the organization s goals and objectives.

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Management
Managers: A Definition PDOC
Controlling Involves establishing clear standards to determine whether an organization is progressing toward its goal and objectives rewarding people for doing a good job taking corrective action if they are not

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Management
Planning: Create Vision
Set vision, goals, objectives Vision/Mission: why organization exists, purpose of organization Goals: broad, longterm aims Objectives: specific, short-term statements Continuous process (SWOT)

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Management
Planning Strategies

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Management
Decision Making: Process
Define Describe
Develop Alternatives

Do

Decide Determine

Develop Agreement

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Management
Organizing

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Management
Organizing

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Management
Required Management Skills

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Management
Stakeholders
Stakeholders include customers, employees, suppliers, dealers, environmental groups, and the surrounding communities. The consensus seems to be that smaller organizations are more responsive than larger organizations. Therefore, many large firms are being restructured into smaller, more customerfocused units.
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Management
Provide an example of a great leader
In business literature there is a trend toward separating the notion of management from that of leadership. Good leaders motivate workers and create the environment for workers to motivate themselves. Management is the carrying out of the leadership s vision
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Management
Leading
Leaders are motivated by intrinsic values: needs, desires, motive and will power, as opposed to extrinsic values: rewards and recognition.

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Management
Successful Leadership
Vision Communicate Corporate Values and Ethics Don t Fear Change

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Management
Leadership Styles
Autocratic Participative (Democratic) Free-rein

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Management
Managing Knowledge
Knowledge Management Finding the right information, keeping the information in a readily accessible place, and making the information known to everyone in the firm.

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Management
Controlling
Controlling consists of five steps: 1. Establishing clear performance standards. 2. Monitoring and recording actual performance 3. Comparing results against plans and standards. 4. Communicating results and deviations to the employees involved. 5. Taking corrective action when needed and providing positive feedback.
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Economic Environment

How Economic Issues Affect Business

Economic Environment
How Economic Conditions Affect Business
If you want to understand the underlying situation and conditions in which Canadian businesses operate, it is essential that you: have some grasp of economics, be aware of the impact of the global environment, and understand the role of the federal and provincial governments in Canada.

Economic Environment
Economics
There are two major branches of economics:

Macroeconomics looks at the operation of a

nation s economy as a whole.

Microeconomics looks at the behaviour of

people and organizations in particular markets.
Example: Macroeconomics looks at how many jobs exist in the whole economy; microeconomics examines how many people will be hired in a particular industry or in a particular region of the country.

Economic Environment
Economic Links to Business
Economics is the study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals. (p. 44 of text) these resources (land, labour, capital goods, entrepreneurship, and knowledge) are called factors of production.

Economic Environment
Economic Theory of Wealth Creation: Adam Smith
The Wealth of Nations in 1776 defined capitalism as a system of rights and freedoms:
He believed that people will work hard if they have incentives for doing so that is, if they know that they will be rewarded.

Economic Environment
Economic Theory of Wealth Creation: Adam Smith The Wealth of Nations
Right to Make a Profit Right to Private Property Right to Buy or Sell Freedom to Compete Freedom from Government Interference

Economic Environment
Capitalism Today
Giving back Today, more businesspeople are becoming concerned about social issues and their obligation to return to society some of what they ve earned.

Three Economic Systems

Mixed Socialism

(Highly Controlled)

(Little Control)

Communism

Capitalism

Economic Environment
Different Economic Systems
Capitalism: individuals seeking profits produce goods and services.
Goods and services are sold in a free market to those who can pay for them.

Communism: the government decides what will be produced and who will consume the results of that production. Socialism: some free market and some government allocation. Most countries have a mixed economy.

Economic Environment
Capitalism Defined
an economic system in which all or most of the factors of production and distribution (e.g., land, factories, railroads, stores) are privately owned (not owned by the government) and are operated for profit. Capitalism is the popular term used to describe free-market economies.

Economic Environment
Capitalism: Free-market Economies The free market is one in which decisions about what to produce and in what quantities are made by the market. that is, by buyers and sellers negotiating prices for goods and services. No country is purely capitalist; no market is truly free.

Economic Environment
The Foundations of Capitalism
How a free market works - Many buyers and sellers trading freely determine the prices at which they will exchange goods and services. How prices are determined - The constant interplay between supply and demand determines an equilibrium price at which a transaction will occur.

Economic Environment
The Foundations of Socialism
Socialism is an economic system based on the premise that some, if not most, basic businesses, such as steel mills, coal mines, and utilities, should be owned by the government so that the profits can be evenly distributed among the people.

Economic Environment
The Foundations of Communism
Communism is an economic and political system in which the state (the government) makes almost all economic decisions and owns almost all of the major factors of production. Communism affects personal choices more than socialism does. Some communist countries have not allowed their citizens to practise certain religions, change jobs, or move to the town of their choice.

Economic Environment
Recent Economic Trends
Canada: We have a mixed economy, as the government has always played a major role in the Canadian economy. Communist countries: They have moved to capitalist forms of economies to improve their standards of living. Socialist countries: They have reduced government s role in their economies.

Economic Environment
Recent Economic Trends
Socialism and communism, for their part, haven t always created enough jobs or wealth to keep economies growing quickly enough. As a consequence, communist governments are disappearing and socialist governments have been cutting back on social programs and lowering taxes for businesses and workers.

Economic Environment
The Economic Concept of Supply and Demand
Supply refers to the quantity of products that manufacturers or owners are willing to sell at different prices at a specific time. Generally speaking, the amount supplied will increase as the price increases because sellers can make more money with a higher price.

Economic Environment
The Economic Concept of Supply and Demand
Demand refers to the quantity of products that people are willing to buy at different prices at a specific time. Generally speaking, the quantity demanded will increase as the price decreases.

Economic Environment
The Economic Concept of Supply and Demand: The Equilibrium Point

The place where quantity demanded and supplied meet is called the equilibrium point.

Economic Environment
The Economic Concept of Supply and Demand
In the long run, that price would become the market price.

Market price, then, is determined by supply and demand.

Economic Environment
Competition Within Free Markets
Four different degrees of competition exist: (1) perfect competition (2) monopolistic competition (3) oligopoly (4) monopoly

Economic Environment
Competition Within Free Markets
Perfect competition exists when there are many sellers in a market and no seller is large enough to dictate the price of a product.

Economic Environment
Competition Within Free Markets
Monopolistic competition exists when a large number of sellers produce products that are very similar but are perceived by buyers as different.

Economic Environment
Competition Within Free Markets
An oligopoly occurs when a few sellers dominate a market. Oligopolies exist in industries that produce products in the areas of oil and gas, tobacco, automobiles, aluminum, and aircraft.

Economic Environment
Competition Within Free Markets
Oligopoly: One reason some industries remain in
the hands of a few sellers is that the initial investment required to enter the business is tremendous like the airline industry.

Economic Environment
Competition Within Free Markets
A monopoly occurs when there is only one seller for a good or service, and that one seller controls the total supply of a product and the price. Traditionally, monopolies were common in areas such as water, electricity, and telephone services that were considered essential services.

Economic Environment
The Canadian Economy
Key Economic Indicators GDP: gross domestic product Unemployment rate Housing starts Commodity prices Stock markets Price indexes: Consumer Price Index (CPI), Producer Price Index (PPI) Another important statistic is the increase or decrease in productivity.

Economic Environment
Economics and Business
Gross Domestic Product (GDP): the total goods and services produced by the economy. This is how we measure how well the economy is doing! A major influence on the growth of GDP is how productive the workforce is that is, how much output workers create with a given amount of input.

Economic Environment
The Canadian Economy
Standard of living refers to the amount of goods and services people can buy with the money they have. Quality of life refers to the general well-being of a society in terms of political freedom, a clean natural environment, education, health care, safety, free time, and everything else that leads to satisfaction and joy.

Economic Environment
Productivity in Canada
Productivity is measured by dividing the total output of goods and services of a given period by the total hours of labour required to produce them. An increase in productivity means that a worker can produce more goods and services in the same period of time than before, usually through the use of machinery or other equipment.

Economic Environment
Productivity in Canada
Productivity and technology Productivity has gone up in recent years because computers and other technology have made the process of production faster and easier for many workers. The higher productivity is, the lower costs are in producing products, and the lower prices can be. Since Canada is a service economy, productivity is an issue because firms are so labour-intensive.

Economic Environment
Unemployment
Frictional unemployment refers to those people who have quit work because they didn t like the job, the boss, or the working conditions, and who haven t yet found a new job. Structural unemployment refers to unemployment caused by the restructuring of firms.

Economic Environment
Unemployment
Cyclical unemployment occurs because of a recession or a similar downturn in the business cycle. Seasonal unemployment Occurs when demand varies during the year.

Economic Environment
Canadian Unemployment

Economic Environment
Inflation and the CPI
Consumer Price Index (CPI) is the index economists use to measure the effects of inflation. Inflation refers to a general rise in the prices of goods and services over time. Disinflation describes a condition where price increases are slowing (i.e., the inflation rate is declining). Deflation means that prices are actually declining.

Economic Environment
The Business Cycle
Business cycles (also known as economic cycles) are the periodic rises and falls that occur in economies over time. An economic boom is just what it sounds like business is booming. Recession is two or more consecutive quarters of decline in the GDP. A depression is a severe recession usually accompanied by deflation.

Business Ownership

Forms of Business Ownership

Business Ownership
Sole Proprietorship
One person owning and operating a business, without forming a corporation. In a sole proprietorship, the business and the owner are a single entity. As noted in Figure 6.1, almost 24% of all registered businesses in Canada fall under this form of ownership.

Business Ownership
Sole Proprietorship
Advantages
Ease of start/end Be your own boss Pride of ownership Leave legacy Retain profit No special taxes Fewer regulations

Disadvantages
Unlimited liability Limited financial resources Difficulty in mgmt. Time commitment Few fringe benefits Limited growth Limited life span

Business Ownership
Liability
Liability is often just another word for debt, but it also has a wider and important meaning. For a business, it includes the responsibility to pay all normal debts.

Business Ownership
Unlimited Liability
When you work for others, it is their problem if the business is not profitable. When you own your own business, you and the business are considered one. You have unlimited liability; that is, any debts or damages incurred by the business are your debts, and you must pay them. When you have a sole proprietorship, you have unlimited liability.

Business Ownership
Partnership
There are several main types of partnerships:

General Partnership Limited Partnership General Partner Limited Partner

Business Ownership
Partnership
General Partnership
A partnership in which all owners share in operating the business and in assuming liability for the business s debts.

Limited Partnership
a partnership with one or more general partners and one or more limited partners.

Business Ownership
Partnership
General Partner
An owner (partner) who has unlimited liability and is active in managing the firm.

Limited Partner
An owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment.

Business Ownership
Partnership
Advantages
More financial resources Shared mgmt. Longer survival No special taxes

Disadvantages
Unlimited liability Division of profits Disagreements among partners Difficult to terminate

Business Ownership
New Forms of Partnerships
Master Limited Partnership
traded publicly taxed as a partnership

Limited Liability Partnership

Business Ownership
Corporations
Although the word corporation makes people think of big businesses such as the Bank of Montreal or Irving Oil, it is not necessary to be big to incorporate (i.e., start a corporation). Obviously, many corporations are big; however, incorporating may also be beneficial for small businesses.

Business Ownership
Corporation
Advantages
More money for investment Limited liability Separation of ownership/mgmt. Ease of ownership change Perpetual life Size

Disadvantages
Initial cost Paperwork Two tax returns Termination difficult Stockholder and board conflict Double taxation

Business Ownership
Types of Corporations
Private: not traded on any stock exchange
limited to 50 or fewer stockholders.

Public: shares are traded on one or more stock exchanges Non-Profit: performs public service, has special tax considerations to encourage formation
Chapman s Ice Cream is a private corporation, started in 1973 by David and Penny Chapman.

Business Ownership
Other Types of Corporations
Professional Corporations Non-resident: has its head office outside of Canada Personal Services: for an athlete or entertainer to take advantage of corporate tax rates Non-profit: universities, hospitals, charities, etc.

Business Ownership
How Owners Affect Management

Business Ownership
Corporate Governance
Corporate governance refers to the process and policies that determine how an organization interacts with its stakeholders, both internal and external. Corporate governance is necessary because of the evolution of public ownership.

Business Ownership
Corporate Governance
As a result of corporate scandals, board members are under increasing scrutiny to ensure that they are effectively fulfilling their roles and responsibilities to their stakeholders. Be aware that those who serve on boards (both for-profit and non-profit) may be held personally liable for the misconduct of the organization.

Business Ownership
Business Regulations
Companies that wish to operate in Canada must follow federal and provincial business laws and regulations. Among other things, this applies to registration and to reporting and information.

Business Ownership
Business Regulations
Articles of incorporation A legal authorization from the federal or provincial/territorial government for a company to use the corporate format.

Business Ownership
Corporate Expansion: Mergers and Acquisitions
What s the difference between mergers and acquisitions? A merger is the result of two firms forming one company. An acquisition is one company s purchase of the property and obligations of another company.

Business Ownership
Why Mergers Don t Work
Companies overpay to acquire another firm Acquiring company overestimates cost savings and synergies After merger, managers disagree about integrating operations After merger, cost cutting obsession hurts business, costing top employees and customers

Business Ownership
Leveraged Buyout
A leveraged buyout (LBO) is an attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing. The funds borrowed are used to buy out the stockholders in the company.

Business Ownership
Franchises
Some people are not comfortable starting their own business from scratch. They would rather join a business with a proven track record through a franchise agreement. A franchise agreement is an arrangement whereby someone with a good idea for a business (the franchisor) sells the rights to use the business name and to sell a good or service (the franchise) to others (the franchisee) in a given territory.

Business Ownership
Franchises
Advantages Disadvantages

+ Management and
marketing assistance

+ Personal ownership + Recognized name + Financial advice &

assistance

High start-up costs Shared profit Management regulation Coattail effects Restrictions on selling Fraudulent franchisors

+ Lower failure rate

Business Ownership
Franchise Contract
Franchisor, Inc.
Branded Product/Service Performance Monitoring

$$$$$

Franchisee

Business Ownership
Franchisor
 Assigns territory  Provides training/support

 May provide financial aid/advice  Business expansion using  Offers merchandise/ supplies at competitive prices OPM

Business Ownership
Franchisee
 Pays upfront costs  Makes monthly payment to franchisor  Runs business by franchisor s rules/procedures  Buys materials from franchisor/approved supplier

Business Ownership
Franchising & E-Commerce
Technology: faster customer service Access to international markets

Business Ownership
Co-operatives
Owned by the members Pay no income taxes Profits are shared amongst the members Co-workers, farmers, fishermen, consumers, etc. band together to form coops

Mountain Equipment Co-op is Canada s largest retailer co-operative.

Next Week

Analyzing the External Environment Begin Marketing

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