RSM100 Textbook Notes

Chapter 1: Business in a Global Environment

Factors of Production: four basic inputs for effective operation: natural resources, capital,
human resources, and entrepreneurship.
Natural Resources: All production inputs that are useful in their natural states,
including agricultural land, building sits, forests, and mineral deposits.
Capital: Production inputs consisting of technology (machinery, equipment, etc.;
things designed to improve production), tools, information, and physical facilities.
Human Resources: Production inputs consisting of anyone who works, including
both the physical labour and the intellectual inputs contributed by workers.
Entrepreneurship: The willingness to take risks to create and operate a business.
The Private Enterprise System: an economic system that rewards firms for their ability to
identify and serve the needs and demands of customers. Business functions within this
system in Canada. Also known as Capitalism.
Adam Smith: The father of Capitalism
o First described the idea of capitalism in his book The Wealth of Nations,
published in 1776
o Believed an economy is best regulated by the invisible hand of
competition
Competition among firms would lead to consumers receiving the
best possible products and prices because less efficient producers
would gradually be driven from the marketplace
Competitive Differentiation: The unique combination of organizational abilities,
products, and approaches that sets one company apart from its competitors in the
minds of customers.
Basic Rights in the Private Enterprise System:
o Private Property: the most basic right the right to own, use, buy, sell, and
hand down land, buildings, machinery, equipment, patents, individual
possessions, and various intangible kinds of property.
o Profits: the right to all after-tax profits earned through business activities
o Freedom of Choice: A private enterprise system relies on citizens to
choose their own employment, purchases and investments. They can
change jobs, discuss and agree on wages, join labour unions, and choose
among many different brands of goods and services
o Competition: Fair competition is set by allowing the public to set the rules
for competitive activity. The Canadian government has passed laws to
prohibit excessively aggressive competitive practices designed to remove
the competition (price discrimination, fraud in financial markets, deceptive
advertising and packaging, are all illegal)
The 6 Eras in the History of Business:

1. The Colonial Period: Prior to 1776, primarily rural and agricultural production.
2. Industrial Revolution: 1760 1850. Business moved to a factory system. Mass
production by semiskilled workers, aided by machines things like agriculture
became mechanized.
3. Industrial Entrepreneurs: In the late 1800s. Advances in technology and increased
demand for manufactured goods, leading to enormous entrepreneurial
opportunities. E.g. Alexander Graham Bell and the Telephone.
4. The Production Era: Through the 1920s. Emphasis on producing more goods
faster, leading to production innovations such as assembly lines.
5. The Marketing Era: Since the 1950s. Consumer orientation, seeking to understand
and satisfy needs and preferences of customer groups. Development of the idea of
branding.
6. The Relationship Era: Began in the 1990s. Benefits derived from deep ongoing
links with individual customers, employees, suppliers, and other businesses
promotion of Customer loyalty by carefully managing every interaction.
Managing Relationships through Technology:
Relationship Management: the collection of activities that build and maintain
ongoing, mutually beneficial ties with customers and others.
o Done through the forms of cellphone, Internet, and social media.
Strategic Alliances:
A partnership formed to create a competitive advantage for the business involved.
In international business, the business strategy of one company partnering with
another company in the country where it wants to do business.
o E-business firms whose entire business is conducted online, such as
Amazon, team up with traditional retailers who have expertise in
distribution and in buying the right amount of the right merchandise
The Green Advantage:
The need to develop environmentally friendly products and processes is a major
new force in business today.
o Saving energy, cutting emissions and pollution, reducing waste, saving
company money and increasing profits
Clean solar energy, fluorescent lighting, etc.
Energy among one of the biggest costs for most firms
Thinking green satisfies both consumers environmental concerns but also
shareholders concerns about saving money and earning profits.
Todays Business Workforce:
Changes in the Workforce: Companies face several trends that challenge their
skills for managing and developing human resources. These include:
Aging Population and Shrinking Labour Pool: Baby boomers, born between
1946-1964, are soon going to retire thus, leading to a shrinkage in the labour
pool

Increasingly Diverse Workforce: 2/3 of Canadas pop. growth is due to

international immigration, particularly from Asia.
o Having a diverse workforce can enhance a firms chances of success.
o Diverse employee teams and workforces tend to perform tasks more
effectively
o Develop better solutions to business problems than homogenous employee
groups - varied perspectives and experiences that promote innovation and
creativity in multicultural teams.
Outsourcing and the Changing Nature of Work: Canadian employment shifted
from manufacturing to services such as financial management and
communications. Due to this firms rely on well-trained workers with knowledge,
technical skills, ability to communication and deal with people, and talent for
creative thinking. The internet provides flexibility for employment
o Outsourcing is the use of outside vendors to produce goods or fulfill
services and functions that were previously handled in-house or in-country
o Outsourcing reduces costs and allows a firm to contrite on what it does
best, while accessing expertise it may not have
o Creates challenges like differences in language or culture
o Offshoring is the relocation of business processes to lower-cost production
overseas can involve both production and services
o Nearshoring the outsourcing of production or services to locations near a
firms home base
Flexibility and Mobility: Managers and employees need to be flexible and
sensitive to change
o Younger workers looking for an experience different than the workcomes-first lifestyle of the Baby Boom generation
o Employers hiring more part-time and temporary employees who are more
interested in developing skills than they are in climbing the career ladder
o Technology allows people to work where they choose and to easily share
knowledge, a sense of purpose or mission, and a free flow of ideas across
any geographical distance
Managers of such spread-out workforces need to work hard to
build and earn the trust of their staff
All workers are acting ethically and contributing their share
Innovation through Collaboration: Businesses that use teamwork hope to build a
creative setting where all members contribute their knowledge and skills to solve
problems or seize opportunities
o Old relationship between employers and employees of company loyalty no
longer in effect
o Workers not expected to remain with same company throughout career,
nor do they expect to be hired for that long either
o Employees build their careers wherever and however they can
o Firms now recognize the value of a partnering with employees to
encourage creative thinking and problem solving and also to rewarding
risk taking and innovation

The 21st Century Manager: Managers who are intelligent, highly motivated, able to create
and sustain a vision of how an organization can succeed, must apply critical thinking
skills and creativity to business challenges and lead change

Chapter 2: Business Ethics and Social Responsibility

Ethical and Societal Issues:
Business Ethics: Standards of conduct and moral values regarding right and
wrong actions in the business environment
o Shaped by ethical climate within an organization or even within a country
Ethical age to start working
Corporate Social Responsibility: Primary objective is to enhance societys wellbeing through philosophies, policies, procedures, and actions. Businesses
basically must find a balance between what is right and what is profitable
o Should benefit both the company and consumers
Sarbanes-Oxley and Bill 198: US Federal legislation designed to deter and punish
corporate and accounting fraud and corruption. It is also designed to protect the interests
of workers and shareholders by requiring enhanced financial disclosures, criminal
penalties for CEOs and CFOs who defraud investors, and safeguards for whistle-blowers.
The act also established a new regulatory body for public accounting firms.
o Required companies to publish their code of ethics, if they have one, and
inform the public of any changes made to it
o Also applies to Canadian companies who trade on any American stock
exchange
o In Canada, a similar bill was enacted known as Bill 198 of 2003 or C-SOX
Ethical Challenges Business Face Today:
o Conflict of Interest: a situation in which an employee must choose
between a business welfare and personal gain
Can be handled by avoiding them or disclosing them
o Violations of Honesty and Integrity: Lying on a resume, misreporting
working hours, internet misuse in the workplace
o Loyalty versus Truth: Businesspeople expect their employees to be loyal
and to act in the best interests of the company. But when the truth about a
company is not favourable, an ethical conflict can arise.
o Whistle-Blowing: disclosure to company officials, government authorities,
or the media of illegal, immoral, or unethical practices committed by an
organizations. An employee must decide what action to take when they
encounter unethical or illegal actions at work. No specific law protects
whistle blowers in Canada, but there are policies which companies have in
place to protect them.
Bill C-25 The Public Servants Disclosure Protection Act:
Introduced in 2004 intended to protect people who expose
problems in the governments bureaucracy

How Organizations Shape Ethical Conduct: Most organizations have established

standards of conduct. A corporate culture that supports business ethics develops on four
levels:
1. Ethical Awareness: The foundation of an ethical climate. A firm can
provide this support by developing a code of conduct a formal statement
which defines how the organization wants its employees to resolve ethical
questions. A code of conduct maybe also be simply the ground rules for
acceptable behaviour.
2. Ethical Education: Educating employees on how to arrive at suitable
decisions for ethical dilemmas. Many firms have started their own ethics
training programs, whereas others have hired organizations such as the
Skald Group to run ethical education programs.
3. Ethical Action: Firms must provide structures and approaches that allow
decisions to be turned into ethical actions. For example, Texas Instruments
gives its employees a reference card to help them make ethical decisions
on the job.
4. Ethical Leadership: Executives must not just talk about ethical behaviour;
they also need to show it in their actions. Ethical mavericks follow a
moral code with three simple characteristics:
a. Use clear, explicit language rather than euphemisms for corrupt
behaviour
b. Encourage behaviour that generates and fosters ethical values
c. Practise moral absolutism, insisting on doing right, even if it
proves financially costly.
Businesses are pressured to act in acceptable ways because ethical
misconduct can seriously affect a firms stakeholderscustomers,
investors, employees, and public affected by or with an interest in a
company.
If any of these four factors is missing, the ethical climate in an organization will
weaken
Acting Responsibly to Satisfy Society:
Social Responsibility: business consideration of societys well-being and
consumer satisfaction, in addition to profits
o Business practice this due to numerous reasons: required by law, enhances
company image, management believes it is the ethical course of action
Some firms measure social performance by conducting social auditsformal
procedures that identify and evaluate all company activities that relate social
issues, such as conservation, employment practices, environmental protection, and
philanthropy.
o Tells management how well the company is performing in these areas
o After seeing this info, they may decide to revise its current programs or
develop new ones
Business social responsibilities can be divided into 4 categories:

o Responsibilities to the General Public: dealing with public health issues,

protecting the environment and developing the quality of the workforce
basically businesses should give back to the communities in which they
earn profits (also known as corporate philanthropy)
o Responsibilities to Customers: treating their customers fairly and act in a
way that does not cause harm Consumerism: the public demand that a
business consider the wants and needs of its customers when making
decisions, belief that consumers have certain rights:
The Right to be Safe: businesses have moral and legal obligations
to ensure their products are safe to use Product Liability: refers
to the responsibility of manufacturers for injuries and damages
caused by their products.
The Right to be Informed: Consumers should be able to get enough
education and product information to make responsile buying
decisions. The Competition Act contains provisions against false or
misleading representations and deceptive marketing. In addition,
all communications with consumers must e checked so that they
clearly and accurately inform them.
The Right to Choose: Consumers should have the right to choose
the goods and services they need and the goods they want to
purchase.
The Right to be Heard: Consumers should be able to express their
valid complaints to the appropriate people.
o Responsibilities to Employees: Workplace safety, quality of life issues,
ensuring equal opportunity on the job, avoiding age discrimination,
preventing sexual harassment and sexism.
Employment Equity Act: An act created to increase job
opportunities for women and members of minority groups and to
help end discrimination based on race, colour, religion, disability,
gender, or national origin.
o Responsibilities to Investors and the Financial Community: Investors and
the financial community also demand that businesses behave ethically and
legally
Provincial regulators like the Ontario Securities Commission and
Alberta Securities Commissions are responsible for protecting
these people from financial misdeeds.
Investigate suspicions of unethical or illegal behaviour by
publicly traded firms
Look into accusation of a business using faulty accounting
practices to inaccurately report its financial resources and
profits

Chapter 3: Economic Challenges Facing Contemporary Business

Types of Competition:
Pure Competition: A market structure where large numbers of buyers and sellers
exchange similar products, and no single participant has a large influence on price
o Firms can easily enter or leave a purely competitive market because no
single company controls the market
o E.g. small scale farmer in Ontario
Monopolistic Competition: A market structure where large numbers of buyers and
sellers exchange different products so each participant has some control over
price
o Relatively easy for a firm to enter or exit a market
o E.g. local fitness centre
Oligopoly: A market situation where relatively few sellers compete and high start
up costs act as barriers to keep out new competitors
o Goods and services similar or dissimilar
o Some control over price
o E.g. Bell and Rogers
Monopoly: A market situation where a single seller controls trade in a good or
service and buyers can find no close substitutes.
o No direct competition
o Ease of entry into industry by new firms is regulated by government
o Goods arent directly competing products
o Control over price is considerable in a pure monopoly little in a
regulated monopoly
Planned Economies
Capitalism
Communism
Socialism
Mixed Economy
Ownership
Businesses owned Govt owns
Govt owns basic
A strong private sector
of
privately, often by
means of
industries
works with public
Enterprises
large numbers of
production, w/
enterprises
Private owners
people
few exceptions
operate some
such as small
small enterprises
Very little govt
plots of land
ownership
Management Enterprises
Centralized
Much govt
Management of private
of
managed by
mgmt. controls
planning is
sector resembles the
Enterprises
owners or reps,
all state
involved in
mgmt. under
very little govt
enterprises in
socialist nations
capitalism
involvement
line w/ 3-5yr
State enterprises
Professionals may also
plans.
managed directly
manage state
by govt
enterprises
Planning now
being
bureaucrats
decentralized
Rights to
Entrepreneurs and Profits not
Only private
Entrepreneurs &
Profits
investors allowed
allowed
sector of social
investors allowed to
to receive all
economy
receive private sector
profits (exc.
generates profits
profits, although they

Taxes)

Rights of
Employees

Employees have
right to choose
own occupation
and right to join
labour union

Employee rights
are limited in
exchange for
promised
protection
against
unemployment

Worker
Incentives

Large incentives
Incentives
motivate people
emerging in
to perform at their
communist
highest levels
countries

Workers may
choose occupation
& join labour
unions
However, govt
influences many
peoples career
choices
Incentives usually
limited in state
enterprises but
used to motivate
workers in private
sector

often pay high taxes

State enterprises
expected to produce
returns
Workers may choose
own jobs & may join
labour union
Unions often become
quite strong

Capitalist-style
incentives operate in
private sector
More limited
incentives influence
public-sector activities

Evaluating Economic Performance: An economic system should provide two benefits for
its citizens a stable business environment and sustained growth.
In a stable environment, the supply matches demand, no wild ups/downs in price
or availability, consumers and business have access to supplies of desired
products at affordable prices and have money to buy items demanded.
Ideal economy always changing because it is always expanding the amount of
goods and services it produces from the nation
o Growth leads to expanded job opportunities, improved wages, and a rising
standard of living
The Business Cycle:
o Prosperity: unemployment is low, consumers are confident about the
future and make more purchases, businesses expand hire more
employees, invest in new technology
o Recession: lasts for six months or longer consumers wait before making
major purchases, shift what they buy (basic, practical products at low
prices)
Businesses slow production, wait before expanding, reduce stock,
reduce number of employees
o Depression: when economic slowdown (recession) extends over a long
period of time
o Recovery: economy starts coming out of recession and consumers start
spending again, unemployment starts to decline, firms seek more workers
Productivity and the Nations Gross Domestic Product:
Productivity: the relationship between the number of units produced and the
number of human and other production inputs needed to produce them.
o As productivity rises, an economys growth increases, citizens wealth
increases. In a recession, productivity stalls and may decline

o Total Productivity =
o Many productivity ratios focus only on one input in the equation: labour
productivity or output per labour-hour
o Can be increased by outsourcing, new technology
o The total productivity of a countrys businesses measures a countrys
economic strength and standard of living
Economists call this the GDP the sum of all goods and services
produced within a country during a specific time period, such as a
year
Price-Level Changes:
Inflation: rising prices caused by a combination of excess consumer demand and
higher costs of raw materials, component parts, human resources, and other
factors of production
Core Inflation Rate: the inflation rate after energy prices and food prices are
removed. This measure is often an accurate estimate of the inflation rate that
consumers, businesses, and other organizations can expect in the near future.
Hyperinflation: an economic situation marked by soaring prices
Excess consumer demand creates demand-pull inflation
Increases in the costs of factors of production create cost-push inflation
Deflation: when prices continue to fall
CPI: Consumer Price Index a measure of the monthly average change in prices
of goods and services
Employment Levels:
Unemployment Rate: the percentage of the total workforce actively seeking work
but currently unemployed
Frictional Unemployment: the joblessness of people in the workforce who are
temporarily not working but still looking for jobs (e.g., new grads entering
workforce)
Seasonal Unemployment: The joblessness of workers in a season industry (e.g.
farm workers)
Cyclical Unemployment: the joblessness of people who are out of work because
of an economic slowdown (workers laid off during corporate downsizing or
recessionary periods)
Structural Unemployment: Not working for long periods of time due to no
demand for skills, may be retraining for a new job. Have little hope of finding a
job (assembly line employees who jobs are now done by robots)
Monetary Policy: a government plan to increase or decrease the money supply and to
change banking requirements and interest rates to affect bankers willingness to make
loans.
Expansionary Monetary Policy: increases the money supply to try to decrease the
cost of borrowing. Lower interest rates encourage businesses to make new
investments, which leads to employment and economic growth

Restrictive Monetary Policy: a plan to reduce the money supply to control rising
prices, overexpansion, and concerns about overly rapid economic growth.
Fiscal Policy: a plan of government spending and taxation decisions designed to
control inflation, reduce unemployment, improve the general welfare of citizens,
and encourage economic growth.
Budget: an organizations plan for how it will raise and spend money during a
specific period of time
o Each year the federal government presents a budget to parliament for
approval
o Budget Deficit: a situation where the government spends more than it
raises through taxes.
o National Debt: the money owed by government to individuals, businesses,
and government agencies who purchase Treasury bills, notes, and bonds.
o Budget Surplus: the excess funding when government spends less than it
raises through taxes and fees
o Balanced Budget: A situation where total revenues raised by taxes and
fees equal the total proposed government spending for the year.

Global Economic Challenges of the 21st Century:

International terrorism
The shift to a global information economy
The aging of the worlds population
The growth of China and India
The efforts to enhance the competitiveness of every countrys workforce

Chapter 4: Competing in World Markets

Absolute and Comparative Advantage:
Absolute Advantage: when a country has a monopoly on making a product or it
can produce that product at a lower cost than any other country
o China has an absolute advantage in silk production
Comparative Advantage: when a country can supply its products more efficiently
and at a lower price than it can supply other goods, compared with the outputs of
other countries
o A nation can also have comparative advantage in skilled human resources
by ensuring its people are well educated
Measuring Trade Between Nations:
How do we measure global business activity?
o The balance of trade and the balance of payments
o Currency exchange rates for the trading countries
Help us understand what the trade inflows and outflows mean for a
country
Balance of Trade: the difference between a nations imports and exports
Balance of Payments: the overall money flows into and out of a country

o Overseas loans and borrowing, international investments, profits from

international investments, and foreign payments
o To calculate, subtract the monetary outflows from the monetary inflows
Major Canadian Exports and Imports:
Global economy grown to more than $7.4 trillion of total GDP
o Canadas economy represents about $1.3 trillion
o US economy represents about $14.7 trillion
Canadas top exports in 2010:
o Industrial goods and materials ($95 billion)
o Energy products ($93 billion)
o Machinery and equipment ($69 billion)
Canadas top imports in 2010
o Machinery and equipment ($113 billion)
o Industrial goods and materials ($85 billion)
o Automotive products ($68 billion)
US leads the world in international trade of goods and services $2.5 trillion
o Imports more than it exports in terms of goods
o Services opposite $507 billion
Exchange Rate: the value of one countrys currency in terms of the currencies of other
countries
Many things can affect foreign exchange rates:
o Economic and political conditions
o Actions by the central bank
o Balance-of-payments position
o Speculation over future currency values
Currency values fluctuate, or float, depending on the supply and demand for
each currency in the world market
o Due to floating exchange rates, currency traders create a market for the
worlds currencies based on each countrys trade and the likelihood of
investments
National governments can change exchange rates
o May also form blocs by linking their exchange rates to each other
o Governments practice protectionist policies that try to protect their
economies against trade imbalances
Might devalue currency in order to increase exports and encourage
foreign investment
Exchange rate changes can quickly create or destroy a competitive advantage
Hard Currency: Currencies that easily convert in other currencies
Barriers to International Trade:
Social and cultural barriers: language, values, religious attitudes
Economic Barriers: currency shifts, infrastructure
Legal and political barriers: international regulations, trade restrictions, political
climate

Trade Restrictions:
Tariffs: taxes, surcharges, and duties imposed on imported goods
o Government assesses two types:
Revenue tariffs generate income for the government
Protective tariffs raise the retail price of imported products to
math or top the prices of similar products made in the home
country
Limit imports and give local competitors an equal chance
to succeed
o Both tariffs make imports more expensive for domestic buyers
Nontariff Barriers: administrative trade barriers restrict imports without using
the strict rules that tariffs use
o May be in the form of quotas on imports, restrictive standards for imports,
and export subsidies
Quota: A limit set on the amounts of particular products that countries can import
during specific time periods. Limits such as quantities or values ($ on tobacco)
may be set.
o Quotas prevent dumping: selling products in other countries at prices
below production costs or below typical prices in the home market to
capture market share from domestic competitors
Benefits domestic consumers in importing market, but hurts
domestic producers
A way for companies to gain quick entry in to foreign markets
Embargo: a total ban on importing specific products or a total stop to trading with
a particular country
Exchange Control: a restriction on importing certain products or a restriction
against certain companies to reduce trade and the spending of foreign currency
Reducing Trade Barriers:
General Agreement on Tariffs and Trade (GATT): an international trade accord
that has greatly reduced worldwide tariffs and other barriers.
World Trade Organization (WTO): a 157-member international institution that
monitors GATT agreements and mediates international trade disputes. Continues
GATTs aim to reduce trade barriers throughout the world.
World Bank: an organization established by industrialized nations to lend money
to less developed countries. Primarily funds projects that build or expand nations
infrastructure transportation, education, and medical systems/facilities.
International Monetary Fund (IMF): an organization created to promote trade,
eliminate barriers, and make short-term loans to member-nations that are unable
to meet their budgets. In exchange for these last-resort loans, IMF lenders require
the borrowing nations to address the problems that led to the crises these steps
may include limiting imports or devaluing currencies.
NAFTA: an agreement among the United States, Canada, and Mexico to break
down tariffs and trade restrictions.

Central America-Dominican Republic Free Trade Agreement (CAFTA-DR): an

agreement among the US, Costa Rica, the Dominican Republic, El Salvador,
Guatemala, Honduras, and Nicaragua to reduce tariffs and trade restrictions.
EU: a 27-nation European economic alliance that promotes economic and social
progress. It aims to introduce European citizenship as a complement to national
citizenship, and to give the EU a major role in international affairs. To achieve
goal of borderless Europe, it is first removing barriers to free trade among its
members.

Going Global:
Before deciding to go global, a company must make many key decisions such as:
o Which foreign market(s) to enter
o The costs of entering a new market
o The best way to organize the overseas operations
They must also do research about the local demand for the firms products,
availability of needed resources, and ability of the local workforce to make worldclass, quality products
o Potential competition, tariff rates, currency stability, and investment
barriers
After a firm has completed research and decided to do business overseas, it must
choose one or more strategies:
o Exporting or importing
o Entering in contract-based agreements such as franchising, licensing, and
subcontracting deals
o Choosing direct investment in the foreign market through acquisitions,
joint ventures, or by setting up an overseas division.
Importers and Exporters
o Exporting can be one of two types:
Indirect Exporting: when a company makes a product, such as an
electronic component, that becomes part of another product sold in
foreign markets
Direct Exporting: when a company tries to sell its products in
markets outside its out country. Often the first step for companies
entering foreign markets. Firms that succeed at this then move on
to other strategies
o Export Management Company: give an exporting firm advice and
expertise paperwork, make contacts with local buyers, comply with local
laws for labeling, product safety, and performance testing
o Offset Agreement: matches a major international firm with a smaller
business smaller firm basically becomes a subcontractor to the larger
firm
Countertrade: a barter agreement whereby trade between two or more nations
involves payment made in the form of local products instead of currency
o May be because of poor access to needed foreign currency
o Sometimes the only way for a firm to enter a certain market
o Countries with heavy debt also countertrade

o Russian buyers sometimes find their currency is less acceptable to stronger

currencies, thus they have to trade
Contract-based Agreements: after a company gains some experience in
international sales, it may enter into contract-based agreements with local parties
o Franchising: when a franchisee can produce and/or sell the franchisors
products under that companys brand name if the franchisee agrees to the
operation terms and requirements
o Foreign Licensing: international agreement in which one firm allows
another firm to produce or sell its product, or use its trademark, patent or
manufacturing processes, in a specific geographical area, in return for
royalties or other compensation.
o Subcontracting: an agreement that involves hiring other companies to
produce, distribute, or sell goods or services; in international
subcontracting, local companies in a specific country or geographical
region are hired to produce, distribute, or sell goods or services
Offshoring: the moving of business processes to a lower-cost location overseas
o China preferred location for production offshoring, India for services
o Changing for manufacturers
International direct investment: directly investing in another countrys production
and marketing is the highest level of control
o Acquisition: a company purchases another firm in the hose country.
o Join Venture: a partnership between countries for a specific activity. A
company shares risks, costs, profits, and management responsibilities with
one or more host-country companies
Multinational Corporation (MNC): a firm with many operations and marketing
activities outside its home country (Nike, Wal-Mart)
Global Business Strategy: (Standardized strategy) the offering of a standardized,
worldwide product and the selling of it in basically the same way throughout a
firms domestic and foreign markets.
Multidomestic Business Strategy: (Adaptation strategy) a plan to develop and
market products to serve different needs and tastes in separate national markets.

Chapter 5: Forms of Business Ownership and Organization

Most Businesses are Small Businesses:
Small Businesses: an independent business with fewer than a hundred employees
and revenues less than $2 million, not dominant in the market.
o Some firms can be hybrids due to satisfying one but not the other
requirement.
o Size does not matter unless the firm is applying for work, grants, or loans
o A means test is used to decide which firms qualify.
Most small businesses get bought out by larger firms
o Business that sell personalized services, rely on certain locations, and keep
their overhead costs low are not very likely to be gobbled up by bigger
firms

Small businesses account for more than 2/3 of employment in 5 Canadian

industry categories:
o Non-institutional health care, construction, accommodation and food,
forestry, and other services
Approximately 25% of small businesses operate in goods-producing industries,
75% in service industries
Small businesses meet the needs of consumers that large firms cant
Home-Based Businesses: firms operated from the residence of the business owner
Together, small businesses make up 29% of Canadas GDP
o $83 billion (20%) of Canadas total value of exports - $2 million per firm
o
Small businesses create new jobs
o More than half of all new jobs are created by companies with less than 100
employees 7% of these are created by the smallest companies four or
fewer employees
New industries are sometimes created when small business shift their focus to
provide needed services to a larger corporate community, or to meet consumer
interests and preferences
Small firms develop twice as many product innovations per employee than larger
firms and 13 times more patents per employee
o 20th century the airplane, the personal computer, soft contact lenses, the
zipper
o 21st century social networking, security, and green energy industries

Why Do Small Businesses Fail:

96% of small business that enter the marketplace are in business for one full year,
85% for three years, 70% for five years
Management shortcomings
o One of the most common causes small business failure is management
inexperience
o Managers might not have right people skills, knowledge of finance, may
not be able to track inventory or sales, may be poor at judging
competition, may not have time to do everything that needs to be done
o Trying to do all the business functions can end in the firms failure
Inadequate financing
Government Regulation
o Cost of government paperwork too high
o Taxes provincial & federal income, workers compensation insurance,
pension payments, unemployment benefits
The Business Plan: A Foundation for Success:
Business plan: a formal document that details a companys goals, methods and
standards. A typical plan includes:
o Executive Summary: briefly answers the who, what, where, when, why,
and how questions for the business

o Introduction: includes a general statement of the concept, purpose, and

objectives of the business
o Separate Financial and Marketing Sections: that describe firms target
market, marketing plan and detailed financial forecasts of the need for
funds and when the firm is expected to break even the level of sales
where revenues equal costs
o Resumes of Principals: especially important in plans written to obtain
financing
An effective business plan uses the five sections above, contains the companys
mission, and addresses the following issues:
o The companys mission and the vision of its founders: why the company
was founded and what it intends to achieve
o An outline of why the company is unique
o The customers: who the firms customers will be and how the firm will
serve their needs
o The competition: existing and potential competitors, strategy for creating
better or unique offerings, can study competition to learn what works and
what doesnt
o Financial evaluation of the industry and market conditions: helps develop
a reasonable financials forecast and budget
o Assessment of the risks: the risks and strategies for dealing with them

Assistance for Small Businesses:

After writing a business plan, the business owner needs to look for loans and
other types of financing
o Government agencies and private investors often provide the needed funds
o However, the government cannot provide funds to everyone as there are
many businesses
Business Development Bank of Canada (BDC): a governmental agency that
assists, counsels, and protects the interests of small businesses in Canada
Financial Assistance: money borrowed directly from Canadas financial
institutions banks, trust companies, and credit unions.
o Canada Small Business Financing Program (CSBFP): federal and
provincial government assistance. When a bank loans money to a small
business and is not paid back, the government will guarantee payment for
as much as 85% of the loan.
Small business who cannot get a loan because they dont have a
financial history may be funded by the BDC
o The CSBFP encourages financial institutions to make their financing
available to small businesses by sharing the risk with the,
Business Incubators: a local program designed to provide low-cost, shared
business facilities to small start-up companies
o Section off space in an abandoned plant and rent it to various small firms
o Tenants often share clerical staff, computers, and other business services
o Goal: after a few months or years, the new business will be ready to move
out and operate on its own

o CABI Canadian Association of Business Incubation

Private Investors: Money invested in a business by another business or group of
individuals in return for an ownership share (venture capital)
Small Business Opportunities for Women: nearly half of all SMEs in Canada have
at least one female owner. Women hold majority ownership in 18% of SMEs, 1/3
of all self-employed people in Canada are women

Franchising: a contract-based business arrangement between a manufacturer or other

supplier, and a dealer, such as a restaurant operator or retailer.
Franchisor: the firm whose products are sold to customers by the franchisee
Franchisee: the individual or business firm purchasing a franchise
Franchising Sector:
o Canada has the second largest franchise industry in the world, after the US
o The franchise industry has more than $100 billion in sales each year
o Approx. 1/5 consumer dollars are spent at a franchise
o Canada has approx. 76 000 franchises operating under 900 brand names
o Average franchise fee is $23 000, average franchise investment $160 000
o Franchising overseas growing trend for those aiming to expand globally
Franchising Agreements: involve an initial purchase fee plus agreed-on start up
costs. The franchisor can require the franchisee to purchase certain ingredients or
equipment, use standard pricing, and market the business in a certain way because
the franchisee represents the franchisors brand.
Benefits of franchising:
o Expanding domestically and internationally
o Can move into new locations at less cost than a traditional business
o Franchises in other countries employ local workers and businesspeople
who know what consumers like
o A good franchisor can manage a much larger and more complex business
with fewer direct employees than a traditional business
o A successful franchisor has financial strength and can usually bargain for
better deals on ingredients, supplies, and even real estate
Also a benefit for the franchisees if the savings are passed on to
them
o Quickest way to become a business owner and franchises benefit from
having a business name that people know, such as McDonalds or Subway
o Least risky way to own a business
o Sometimes, the ideas or successes of individual franchisees can be good
for the entire company
Problems of franchising:
o If franchisees fail, their failure reflects on the franchisors brand and the
bottom line
o A firm that is mismanaged by the franchisor it can be bad for franchisees
o When a firm decides to offer franchise opportunities, it may lose money
for several years
Franchisor also loses control over every aspect of the business
Difficult to select right franchisees to carry out companys mission

o Franchisee has many cash expenses: initial investment, franchise fees,

supplies, maintenance, leases, etc.
o The franchisees payments to the franchisor can add to the difficulty of
keeping the business going until the owner begins to earn a profit
o Franchises are closely linked to their brand, so franchisors and franchisees
must work together to maintain standards of quality in their goods/services
o Some franchisees found the franchising agreement to be too strict
Some franchise companies control promotional activities, select
site location, or even are involved in hiring decisions
Forms of Private Business Ownership:
Sole Proprietorship: a business ownership in which the sole proprietors status as
an individual is not legally separate from his or her status as a business owner
o Mostly found among small businesses such as repair shops, small retail
stores, & service providers such as plumbers, hairstylists, & photographers
o Easy to form and dissolve due to having only one owner
o Management flexibility
o Owner has right to all profits after paying business related bills and taxes
o Disadvantage is the owners financial liability for the business debts
o Business must operate with financial resources that are limited to the
owners personal funds and to money that he or she can borrow
Can keep the business from expanding
o Owner must handle a wide range of management and operational tasks
May not have skills in every area keeping the firm from growth or
even damaging the firm as well
o Higher chance of being audited by the CRA
o Usually lack long-term continuity because a change in personal
circumstances or finances can terminate the business on short notice
Partnership: an association of two or more persons who operate a business as coowners by voluntary legal agreement
o Partnerships are easy to form partners need to register the business
name and obtain any necessary licenses
o Greater financial capability and someone to share in the tasks and decision
making
o Partnerships have downside of being exposed to unlimited financial
liability
Each partner bears full responsibility for debts of firm and is
legally liable for the actions of other partner
o In order to leave the firm, partner cannot simply withdraw their portion of
the funds from the bank, they must find a partner to buy their interest in
the firm
o The death of a partner causes problems: new partnership must be formed,
estate of the deceased can take a share of the firms value
o Personal conflicts
Corporations: a legal organization with assets and liabilities separate from the
assets and liabilities of its owners

o Can be a large or a small business

o Corporation = separate legal entity, thus its shareholders have only limited
financial risk
If the firm fails, the shareholders lose only the money they invested
Same with firms managers and executives, their personal savings
are not at risk if company closes or goes bankrupt
Lawsuits filed against company not the owners of those companies
o Gain access to more funding because they can offer direct outside
investments such as sales of shares
o A large corporation can legally raise interest funds for projects by
transferring money from one part of the corporation to another
o Disadvantage is the double taxation of corporate earnings corporation
pays federal and provincial income taxes on its profits
Owners (shareholders) also pay personal taxes on dividends the
distributions of profits they receive from the corporation
Not-for-Profit Corporation:
o Governments have separate legal provisions for organizational structures
and operations of not-for-profit corporations
Do not issue shares because they do not pay dividends to owners,
and their ownership rarely changes
Exempt from paying income taxes
Must meet very strict guidelines to keep their not-for-profit status

Public and Collective Ownership of Business:

Public (Government) Ownership: a government unit or agency owns and operates
an organization. In Canada citys bus companies, parking structures, water
system
o Sometimes, the result of private investors unwilling to invest in a high-risk
project or when operating an important service is simply unprofitable
Collective (Co-operative) Ownership:
o Owners work together to operate all or part of the activities in their firm or
industry
o Co-ops allow small businesses to pool their resources for purchases,
marketing, equipment, and distribution
o Discount savings can be split among members
o Share equipment and expertise and support each other during difficult
economic times
Organizing a Corporation:
A corporation is a legal structure requires more complex organizational
structure than a sole proprietorship or a partnership
Where to incorporate (build a headquarters):
o Most businesses want to be near their customers
o Also depends on factors such as real estate prices, public transportation,
and communications networks
o Access to a good source of employees

o Canadian firms can operate in any province they choose depends on

things such as tax incentives (Alberta has one of the lowest taxes for
incorporated businesses in Canada), or provinces that are more business
friendly
The Corporate Charter: legal document that formally establishes a corporation
o Corporation is like an artificial person created by law with most of the
legal rights of a real person rights to start and operate a business, to buy
or sell property, to borrow money, to sue or be sued, to enter into binding
contracts
o Incorporation of a business can be done at federal or provincial level
If you incorporate provincially, your corporation has the right to
carry on business only in the province where your business is
incorporated
Each province has specific way of incorporating a business
Federally incorporated = all over the country
o After securing the charter, the owners prepare the companys bylaws
which set out the rules for operation
Stock Ownership and Shareholder Rights:
o Shareholders: owners of a corporation as a result of their purchase of
shares in the corporation
o Some companies such as family businesses are owned by only a few
shareholders, and shares are generally unavailable to outsiders
This is called a closed or closely held corporation shareholders
also control and manage all of the companys activities
o An open corporation or a publicly held corporation sells shares to the
general public
Broader range of operations
Annual shareholders meetings managers report on corporate
activities and shareholders vote on decisions that require their
approval, including elections of officers
o Shareholders role in the corporation depend on the class of stock they
own
Preferred shares: shares that give owners limited voting rights and
the right to receive dividends or assets before owners of common
shares
If the corporation is dissolved, owners of preferred shares
have first claims on assets, once all debtors are repaid
Common shares: shares that give owners voting rights but only
residual claims to the firms assets and income distributions
Last to receive any income distributions
One share = one vote
o Small shareholders have little influence on
corporate management actions
Board of Directors: the governing body of a corporation
o Set overall policy, authorize the corporations major transactions, hire the
CEO

o Include both inside directors (corporate execs) and outside directors

(people not directly employed by the organization)
Corporate Officers and Managers:
o Chief Executive Officer CEO
o Chief Operating Officer COO
o Chief Financial Officer CFO
o Chief Information Officer CIO
All these make most major corporate decisions
o Managers at the next level down, the middle management, handle the
ongoing operational functions of the company
o At the first of management, supervisory personnel coordinate day-to-day
operations, assign tasks to employees, and evaluate job performance
o Today, CEOs and CFOs work under stricter regulations than in the past
Must verify in writing the accuracy of their firms financial
statements
Process for nominating candidates for the board has also become
more complex
More checks and balances are in place for the governance of
corporations

When Businesses Join Forces:

Mergers and Acquisitions (M&A):
o Merger: an agreement in which two or more firms combine to form one
company
Vertical Merger: a merger that combines firms operating at
different levels in the production and marketing process
e.g., the combination of a manufacturer and a large retailer
Vertical merger pursues one of two main goals: (1) to
ensure adequate flows of raw materials and supplies needed
for a firms products or (2) to increase distribution
Horizontal Merger: a merger that joins firms in the same industry
for the purpose of diversification, increasing customer bases,
cutting costs, or expanding product lines
Popular in the auto industry
Conglomerate Merger: combines unrelated firms, usually with the
goal of diversification, increasing sales, or spending a cash surplus
to avoid a takeover attempt
May join firms in totally unrelated industries
Some say a company can use its management expertise to
succeed in a variety of industries
Downside = huge conglomerate can spread its resources
too thin to be successful in any one market
o Acquisition: an agreement in which one firm purchases the other
The buyer acquires the firms property and assets and takes on the
firms debt

Also occur when one firm buys a division or a subsidiary from

another firm
Joint Ventures Specialized Partnerships:
o Joint Venture: a partnership between companies for a specific activity.
Sometimes to share the operations costs, risks, management, and
profits
Common when firms want to start business in a foreign
market
Becoming common between for-profit and not-for-profit
organizations
NFP receive the funding, marketing exposure, and
sometimes the staff they might not have on their own
Firms that partner with environmental groups, for example,
cut costs, save energy, and reduce waste,

Chapter 6: Starting Your Own Business The Entrepreneurship Alternative

Entrepreneur: a person who seeks a profitable opportunity and takes the necessary risks
to set up and operate a business
Differ from small-business owners small-business owners share the same drive,
creative energy, and desire to succeed
o Entrepreneurs different because one of their major goals is expansion and
growth
Combine their ideas and drive with money, employees, and other resources to
create a business that meets a need
May perform a managerial role, but their main responsibility is to use the
resources of their organizations employees, money, equipment, and facilities
to accomplish their goals
Classic Entrepreneur: a person who sees a business opportunity and sets aside
resources to gain access to that market
Serial Entrepreneur: a person who starts one business, runs it, and then starts and
runs more businesses, one after the other
Social Entrepreneur: a person who sees societal problems and uses business
principles to develop new solutions that help humanity
Why are people entrepreneurs?
o Desire to be ones own boss
o Desire to succeed financially
o Desire for job security
o Desire for an improved quality of life
Lifestyle Entrepreneur: a person who starts a business to reduce
work hours and create a more relaxed lifestyle
Factors Supporting and Expanding Opportunities for Entrepreneurs:
Globalization:
o Entrepreneurs market their products abroad and hire international talent

o Most of the fastest growing small Canadian companies have international

sales usually to the US
o Role of entrepreneurs is growing in most industrialized countries, in newly
industrialized countries, and in the emerging free-market countries in
central and eastern Europe
Education:
o Entrepreneurship being taught more than before students at many
colleges/universities can take a major in entrepreneurship
If not major, many offer courses
o Schools offer opportunities to intern with a start-up or to work towards
launching a company
o Most large universities in Canada host entrepreneurial centres for research
and development of new business
o Other than schools, organizations such as the Students in Free Enterprise
(SIFE) in which college students work with faculty advisors to teach
grade school and high school students the value of private enterprise and
entrepreneurship have opened up in recent years to teach
entrepreneurship to young people
Information Technology:
o Computer and communications technologies have merged and their costs
have dropped
o Low-cost technology has given entrepreneurs them tools they need to help
them compete with large companies
o Helps entrepreneurs to work quickly and efficiently and to provide
immediate and helpful customer service
o Helps increase sales and gives businesses a professional image
o Lead to the increase of homepreneurs entrepreneurs who run
home-based businesses
o Social networking
More than 90% of successful companies now use at least one
social media tool
Reach more customers and grow faster
Demographic & Economic Trends:
o Demographic trends such as the aging of the population, growth of ethnic
groups, and two-income families, can lead to new markets for products
and services
o Economic trends such as when consumers are less willing to spend money,
for example, might cause some businesses to do better because people will
find cheaper alternatives
E.g. shoe repair shop

Characteristics of Entrepreneurs:
Vision: an overall idea for how to make your business idea a success.
High Energy Level: ability to work long and hard to make your vision a reality.
Most entrepreneurs spend at least 70 hours a week on their new business.

Need to Achieve: Strong desire to compete, being able to work hard because you
want to do well.
Self-Confidence and Optimism: Entrepreneurs believe that they can succeed, and
their self-confidence and excitement leads to optimism in others. They see
opportunities where others see danger.
Tolerance for Failure: Entrepreneurs often succeed because their strong will and
because they continue to try again and again when others would give up. Willing
to take responsibility of their mistakes.
Creativity: Entrepreneurs think of new ideas for goods and services, devise new
ways to overcome difficult problems and situations
Tolerance for Ambiguity: Entrepreneurs take in stride the uncertainties for
launching a business; dealing with unexpected events is normal. Not like
gambling they look for strategies they believe have a good chance of success
and when they dont work, they quickly make changes. Managing ambiguity can
be done through staying close to customers so that they can change their offerings
to match customer desires.
Internal Locus of Control: Entrepreneurs believe they control their own future.
They dont blame others or outside events for their successes or failures.

Starting a New Venture:

Selecting a business idea
o Find something you love to do and are good at doing
o Find an idea that meets a need in the marketplace
o Many entrepreneurs invent new products or new ways of doing things, the
inventor needs to protect their rights by obtaining a patent
Canadian Intellectual Property Office
o Some entrepreneurs prefer to buy established businesses instead of taking
on the risks of starting a new one
Employees in place, regular customers, dealing with familiar
suppliers, the good/service is already known in the marketplace
Creating a business plan
Finding financing
o Seed Capital: the initial funding needed to launch a new venture
Many entrepreneurs use personal savings, some ask for loans from
business associates, family members, or even friends to use as
start-up funds
Debt financing: borrowed funds that entrepreneurs must repay
o Loans from banks, finance companies, credit-card companies,
family/friends
o Many banks turn down people who apply for loans to fund start-ups
fearful of the high risk of starting a new business
Want to see a business plan and also evaluate entrepreneurs credit
history
Because start-ups have not yet established a credit history, banks
base lending decisions on the their personal credit history

More willing to give loans to: those who e have been in business
for a while, those whose businesses show a profit on rising
revenues, and those who need funds to finance expansions
o A line of credit is an approved loan that a business can borrow from when
funds are needed
Equity Financing: funds invested in new ventures in exchange for part ownership.
o Dont have to repay equity funds investors share in success of business
instead
o Sources of equity finances family/friends, business partners, venture
capital firms, private investors
o Downsides: investor may not agree on the future direction of the business
Disagreement may result in one partner having to buy out the other
o Venture Capitalists: business firms or groups of individuals that invest in
new and growing firms in exchange for an ownership
Invest in early stage, high-potential, growth companies
Usually back companies in high-technology industries such as
biotechnology
Investors expect high rates of return and share of the company
Typical terms for accepting venture capital includes:
Agreeing on how much company is worth
How much stock both investors and founders will retain
Control of companys board
Payment of dividends
Period of time during which the founders are prohibited
from shopping for further investments
Want to invest in companies that have a combination of:
Use of innovative technology
Potential for rapid growth
Well-developed business model
Impressive management team
o Angel Investors: wealthy individuals who invest directly in a new venture
in exchange for an equity stake
These investors are a larger source of investment capital for
start-up firms
Angels focus mainly on new ventures
Many angels are successful entrepreneurs who want to help
would-be business owners get through difficulties of launching
their business
Government support for new ventures
o Various local agencies and business incubators offer information,
resources, and sometimes even access to financing for entrepreneurs
o Entrepreneur Zones: specific geographic areas set aside for economic
renewal
Encourage investment, often in troubled areas, by offering tax
advantages and incentives to businesses locating within the zone

o Urban Reserve: an economic zone within a municipality; an area that the

federal government has set aside as First Nation reserve land.
Allows for Aboriginal commercial ventures that enjoy tax
exemptions offered to traditional reserves
Intrapreneurship: the process of promoting innovation within the structure of an existing
organization.
30% of large firms now set aside funds to support intrapreneurship
To foster creativity, 3M encourages engineers to bootleg, or borrow, up to 15%
of their time from other assignments to explore new product ideas of their
choosing
o Skunkworks initiated by an employee who has an idea and then recruits
resources from within 3M to turn it into a commercial product
o Pacing programs company initiated projects; focus on a few products
and technologies that 3M sees as having potential for success

Chapter 7: Management, Leadership, and the Internal Organization

Management: the process of achieving organizational goals through people and other
resources. Managers job is to combine human and technical resources in the best way
possible to achieve the companys goals.
The Management Hierarchy:
o Top Management:
Positions: CEO, CFO, executive vice president
Top managers spend most of their time developing long-range
plans for their organizations
Decide whether to introduce new products, purchase other
companies, or enter new geographical markets
Set a direction for their organization
Inspire company execs and employees to achieve their vision for
the companys future
Must steer their firms through an economic downturn, slump in
sales, or crisis in quality
o Middle Management:
Positions: General managers, plant managers, division managers,
branch managers
Focus on specific operations, products, customer groups
Develop detailed plans and procedures to carry out the firms
strategic plans
E.g. if top management decides to increase distribution of product,
a sales manager will decide how many salespeople are needed
Focus on the products to be sold and on the customers who will
buy the products and lead to profit growth the CEOs expect
Might budget money for product development, identify new uses
for existing products, and improve the ways they train and
motivate salespeople

More familiar with day to day operations than CEOs

Come up with new ways to increase sales or solve company
problems
o Supervisory Management:
Also known as first-line management
Positions: Supervisors, section chiefs, and team leaders
Assign specific jobs to nonmanagerial employees and assess their
performance
Work directly with the employees who produce and sell the firms
goods and services
Carry out middle managers plans by motivating workers to
accomplish daily, weekly, and monthly goals
Carry out firms strategies to provide superior customer service
Skills Needed for Managerial Success:
Technical skills: managers ability to understand and use the techniques,
knowledge, tools, and equipment of a specific department or area of study
o Especially important for first-line managers, less important others
However, most top execs started as technical experts
Human skills: interpersonal skills that help managers to work effectively with
people. Include the ability to communicate with, motivate, and lead employees to
complete their assigned activities.
Conceptual skills: help a manager to see the organization as a single unit and to
understand how each part of the overall organization interacts with other parts.
People with these skills can see the big picture by acquiring, analyzing, and
interpreting information.
o Especially important for top-level managers, who must develop longrange plans for the future direction of their organization.
Managerial Functions:
Planning: the process of looking forward to future events and conditions and
deciding on the courses of action for achieving organizational goals.
o Should be flexible and responsive to changes in the business environment
o Involve managers from all levels of the organization
Organizing: the process of blending human and material resources through a
formal structure of tasks and authority: arranging work, dividing tasks among
employees, and coordinating them to ensure plans are carried out and goals are
met.
o Classifying and dividing work into manageable units with a structure that
makes sense
o Staffing organization with best possible employees for each job
Directing: guiding and motivating employees to accomplish organizational goals.
o Can include training (or retraining), setting up schedules, assigning tasks,
and monitoring progress
Controlling: the function of assessing an organizations performance against its
goals.

o 4 basic steps setting performance standards, monitoring actual

performance, comparing actual performance with the standards, and
making corrections if needed.
Setting a Vision and Ethical Standards for the Firm:
Business begins with a vision: the ability to perceive marketplace needs and what
an organization must do to satisfy them.
o Focus for the firms actions
o Directs company toward opportunities and sets it apart from its
competitors
o Must be flexible enough to adapt to changes in the business environment
Ethical standards should comply with industry or federal regulations
safety/quality standards
Ethical tone can lead to financial and nonfinancial rewards
o Keeps employees from doing wrong and motivates to achieve goals
Ethical stand can cost a firm in lost revenues
Planning:
Strategic Planning: the process of deciding on the primary objectives of an
organization and then taking action and setting aside resources to achieve those
objectives
o Top management
o e.g. organizational objectives, fundamental strategies, long-term plans
Tactical Planning: carrying out the activities set out in the strategic plans. Guide
the current short-term activities required to carry out the overall strategies.
o Middle management
o e.g. quarterly and semi-annual plans, departmental policies and procedures
Operational Planning: sets the detailed standards that help to carry out tactical
plans. Involves choosing specific work targets and assigning employees and
teams to carry out plans. Develops and carries out tactics in specific functional
areas.
o Supervisory management
o e.g. daily and weekly plans, rules, and procedures for each department
Contingency Planning: helps firms to resume operations as quickly and as
smoothly as possible after a crisis. Makes it easier for them to openly tell the
public what happened.
o Involves two components:
Continuing the business
Communicating to the public
o Outlines a chain of command for crisis management and assigns specific
emergency functions to some or all managers and employees.
o Primarily top management, but all levels contribute
o Ongoing plans for actions and communications in an emergency

The Strategic Planning Process:

Defining the Organizations Mission:
o Mission Statement: a written description of an organizations overall
business purpose and aims
Assessing the Organizations Competitive Position:
o SWOT Analysis: By assessing these factors one by one, a firm can then
develop the best strategies for gaining a competitive advantage.
Setting Organizational Objectives:
o Objectives: set targets so that managers can plan for the organizations
hoped-for performance. These objectives can relate to such areas as newproduct development, sales, customer service, growth, environmental and
social responsibility, and employee satisfaction.
Mission statement highlights aims and purpose but objectives are
more specific
Creating Strategies for Competitive Differentiation:
o Strategies used to get ahead of the competition
o Competitive Differentiation: the unique mix of a companys abilities and
resources that set it apart from its competitors.
Implementing the Strategy:
o Middle managers or supervisors often people who implement a strategy
Assessing the Results and Refining the Plan:
o Gathering feedback about performance
o Managers might compare actual sales against forecast sales; compile
information from surveys; listen to complaints from the customer hot line;
interview employees who are involves; and review reports prepared by
production, finance, marketing, or other company units.
Then managers look at whether to continue or discontinue the plan
or to change it
Managers as Decision Makers:
Programmed Decision: involves simple, common, and frequently occurring
problems that already have solutions
o e.g. reordering office supplies, renewing a lease, etc.
o Save time & money because new decisions dont need to be made
Nonprogrammed Decision: involves a complex and unique problem or
opportunity and has important results for the organization.
o e.g. entering a new market, deleting a product from the line, developing a
new product
How Managers Make Decisions:
o See problem/opportunity, develop possible ways of taking action, evaluate
options, select and carry out one option, asses outcome
Managers as Leaders:
Characterized as possessing empathy, self-awareness, and objectivity.
Autocratic Leadership: centred on the boss; decisions made without consulting
employees make decisions, communicate to employees, expect them to be done

Democratic Leadership: includes employees in the decision making process;

centres on employees contributions assign projects, ask employees for
suggestions, and encourage participation.
o Empowerment: giving employees shared authority, responsibility, and
decision-making with their managers.
Free-Rein Leadership: minimal supervision, allow employees to make most of
their own decisions but these leaders communicate with employees frequently.

Corporate Culture: an organizations collection of principles, beliefs, and values.

Influenced by leadership style of its managers, the way the firm communicates,
and overall work environment
Shaped by leaders who founded and developed company and leaders appointed
after founders left
Managers may use symbols, rituals, ceremonies, and stories to strengthen a
corporate culture
Can be very strong and lasting
o However, might need to change to meet new demands in business world
Organizational Structures:
Organizing process:
o Decide on the specific work activities needed to carry out plans and
achieve goals
o Group all work activities into a pattern or structure that makes sense
o Assign activities to specific employees and give them the resources they
need
o Coordinate the activities of different groups and individuals
o Evaluate the results of the organizing process
Factors such as firms goals and competitive strategy, products
offered, how technology is used to work, and size, affect the results
of organizing
Departmentalization: the process of dividing work activities into units within the
organization. Employees specialize in certain jobs such as marketing, finance, or
design.
o Product Departmentalization: organizes work units based on the goods and
services a company offers.
o Geographical Departmentalization: organizes unites by geographical
regions within a country or, for a multinational firm, by region throughout
the world
o Customer Departmentalization: might be used by a firm that offers a
variety of goods and services for different types of customers.
o Functional Departmentalization: organize work units according to
business functions, such as finance, marketing, human resources, and
production
o Process Departmentalization: some goods and services require multiple
work processes to complete their production.
Delegation: the managerial process of assigning work to employees

o Span of Management: number of employees a manager supervises, these

employees referred to as direct reports. First-line managers often have
the widest spans of management because they monitor the work of many
employees. Many companies have reduced layers of management to flag
o Centralization: a company emphasizing centralization keeps decisionmaking at the top of the management hierarchy.
o Decentralization: shifts decision-making to lower levels. Firms believe
this will improve their service to customers.
Types of Organization Structures:
Line Organization: direct flow of authority from the chief executive to the
employees. Defines a simple, clear chain of command hierarchy of managers
and workers. Everyone knows whos in charge, and decisions are made quickly.
Line-and-Staff Organization: combines the direct flow of authority of a line
organization with staff departments that support the line departments. Line
departments make decisions that affect the firms core operations; staff
departments lend specialized technical support.
o Accounting, engineering, and human resources are staff departments
o Line manager forms part of the primary line of authority that flows
throughout the organization
Work directly with the production, financing, or marketing
departments areas needed to produce and sell goods and services
o Staff manager provides information, advice, or technical assistance to help
the line managers
Do not have authority to give orders outside their own departments
or to assign actions to the line managers
o Common in mid-size and large organizations
o Effective structure because it combines the line organizations rapid
decision making and direct communication with expert knowledge of staff
departments
Committee Organization: a structure that places authority and responsibility in a
group of individuals, not a manager.
o Often appears as part of regular line-and-staff structure
o Also work in areas like new-product development
o May include managers from accounting, engineering, finance,
manufacturing, marketing, and technical research
o Tend to act slowly and make conservative decisions
Decisions made by compromising, coming to an agreement with
conflicting interests, instead of choosing best alternative
Matrix Organization: links employees from different parts of the organization
who work together on specific projects.
o Each employee reports to two managers: 1 line and 1 project manager
o Employees working on a special project receive instructions from project
manager but continue as employees in their permanent functional
departments
o Matrix refers to intersecting grid of horizontal & vertical lines of authority

o Popular at high-tech and multinational corporations, and in hospitals and

consulting firms
o Flexibility to adapt quickly to rapid changes in environment
o Focuses resources on major problems or products
o Provides an outlet for employees creativity and initiative
o Challenges project managers to take the skills of specialists from many
departments and form a coordinated team
o Most effective when company leaders give project managers authority to
use whatever resources are available to achieve the projects objectives

Chapter 8: Human Resource Management From Recruitment to Labour

Relations
Human Resources The People Behind the People:
Human Resource Management: the function of attracting, developing, and
retaining employees who can perform the activities needed to meet organizational
goals
o Goal: achieving a high level of job satisfaction and dedication among
employees
o Responsibilities: plan for staffing needs, recruit and hire workers, provide
for training and evaluate performance, decide on compensation and
benefits, and oversee employee separation.
Through this HR managers achieve the following objectives:
Providing qualified, well-trained employees for the
organization
Maximizing employee effectiveness in the organization
Satisfying individual employee needs through monetary
compensation, benefits, opportunities to advance, and job
satisfaction.
Recruitment and Selection:
Finding Qualified Candidates:
o College and university job fairs, personal referrals, and want ads
o Most companies now rely on their websites for recruiting new workers
Career section that provides general employment information and a
listing of open positions.
o Internet recruiting quick, efficient, and inexpensive way to reach a large
number of job seekers
Best way of reaching new college and university grads and
workers in their 20s and 30s
Includes social media
Jobcasts podcasts posted in blog format
People interviewed describe employers hiring needs
Workers talk about what its like to work at a particular
company

Selecting and Hiring Employees:

o Every firm must follow provincial and federal employment laws
Employers cannot discriminate against job applicants, or treat them
unfairly because of race, religion, colour, sex, national origin, etc.
o Due to high cost of lawsuits and settlements, HR managers must
understand the laws that apply to employment so they can prevent
unintended actions that might break these laws
Even interviews must be conducted according to law
Interviewer cannot ask about marital status, children, race or
nationality, religion, age, criminal records, mental illness, medical
history, alcohol/substance abuse
o Drug testing common in industries especially dealing with public safety,
such as air travel and truck driving
Strong debates on privacy issues
Positive results may not be accurate
o Employers may legally establish requirements for specific jobs
o Recruiting and selecting employees is expensive advertising,
interviewing, employment testing, and even medical exams.
Costs for training, equipment
Bad hiring decision even more expensive as firm must go through
whole process again
Total cost of hiring mistake = 24x applicants annual pay
o Many employers require applicants to complete employment tests
Test skills such as mechanical, technical, language, and computer
skills

Orientation, Training, and Evaluation:

New hire may complete an orientation program prepared by the human resource
personnel and the department where the employee will work
o Employees learn about company policies regarding their rights and
benefits
o Might receive an employee manual that includes companys code of ethics
and code of conduct
Training Programs:
o Provides workers with an opportunity to build their skills and knowledge
o New skills can also prepare them for new job opportunities within the
company
o Helps employers to keep long-term, loyal, high-performing workers
o On-the-Job Training:
Prepares employees for job duties by having them perform tasks
under the guidance of experienced employees
Variation of this is Apprenticeship training: learns a job by
working as an assistant to a trained worker
Usually focus on blue-collar trades plumbing, heating
Some white collar

o Classroom and Computer-Based Training:

Lectures, conferences, workshops, seminars
Ernst & Young offers a training program called Ernst & Young
and You (EYU) focuses on classroom learning, experiential
learning, and coaching
Many firms replacing classroom training with computer-based
training consistent presentations, videos that simulate the work
environment, online training programs for interactive learning,
employees learn at own pace,
Significantly cheaper
o Management Development:
Provides training designed to improve the skills and broaden the
knowledge of current or future managers and executives
Training may be aimed at increasing specific technical knowledge
or more general knowledge, in areas such as leadership and
interpersonal skills
e.g. the Conference Board of Canada provides management
training in leadership, team development, and strategic
implementation online or in classroom settings
Performance Appraisals: evaluation and feedback on an employees job
performance.
o Done annually
o Can include assessments of everything from attendance to goals met
o Managers use these to make decisions about compensation, promotion,
additional training needs, transfers, or even termination
o Some management experts argue that performance review is based on
single managers subjective, personal opinion which can be positive or
negative
Argue most employees are afraid to speak honestly to managers
during performance review
o An effective performance review meets the following criteria:
Takes place several times a year
Linked to organizational goals
Based on objective measures
Takes place in the form of a two-way conversation
o Some firms use peer reviews employees assess the job performance of
co-workers
o Some ask employees to review job performance of their supervisors and
managers
360-Degree Performance Review gathers feedback from review
panel of 8-12 people, including co-workers, supervisors, team
members, people who report o the employee, sometimes customers
Want to get feedback from as many people as possible
A lot of work but employees benefit: more involved with the
process and understand more about own strengths, weaknesses,
and roles in the company

Managers get more in-depth feedback from all parts of the

organization

Compensation: amount employees are paid in money and benefits

Has huge effect on where people live, what they eat, how they spend leisure time
One of the most highly charged issues faced by human resource managers
Wage: pay based on an hourly rate or the amount of work accomplished
o Factory workers, construction workers, auto mechanics, retail salespeople,
and restaurant wait staff
o Earn overtime pay
Salary: pay calculated on a periodic basis, such as weekly or monthly
o Office personnel, executives, and professional employees
An effective compensation system should attract well-qualified workers, keep
them satisfied in their jobs, and inspire them to succeed.
o Certain laws, such as minimum wage, must be taken into account
Most firms base compensation policies on:
o What competing companies are paying
o Government regulation
o Cost of living
o Company profits
o Employees productivity
Firms try to find balance between rewarding workers and maintaining profits
o Link more employees pay to superior performance
Motivate employees to excel by offering incentive compensation in addition to
salaries or wages:
o Profit sharing awards that bonuses based on company profits
o Gain sharing whereby companies share financial value of productivity
gains, cost savings, or quality improvements with their workers
o Lump-sum bonuses and stock options such as one-time cash payments
and the right to purchase stock in the company based on performance
o Pay for knowledge which distributes wage or salary increases as
employees learn new job tasks
Employee Benefits: additional compensation paid entirely or in part by the
company vacation time, retirement savings plans, profit sharing, health
insurance, gym memberships, child and elder care, and tuition reimbursement
o Rep large portion of employees total compensation
o Wages and salaries account for around 70% of typical earning, other 30%
takes the form employee benefits
o Some benefits required by law pension contributions and payments to
unemployment insurance and workers compensation programs, which
protect workers in case of job-related injuries or illnesses
o Firms provide some benefits to attract and retain employees such as child
care and health insurance
o Large companies often pay for supplementary healthcare benefits, leaving
employees paying little of the cost

Costs rising each year thus employers offer incentives for

workers to live healthier lives: gym memberships, nutrition
programs, wellness visits to the doctor, smoking cessation classes
Flexible Benefits:
o Firms finding ways to tailor business plans to employees needs.
o Flexible benefit plans (cafeteria plans) offer a choice of benefits,
including different types of medical insurance, dental and vision plans,
and life and disability insurance
o One working spouse can choose medical coverage for the entire family,
the other can use benefit dollars to buy other types of coverage
o Each employee receives flex dollars or credits set allowance to pay for
benefits that suit their needs
o Contributions to cafeteria accounts can be made by employee & employer
Cafeteria plans also offer tax benefits to employees & employers
o Paid Time Off (PTO) can take days off without having to explain why
employees need that time
Gives workers freedom to make their own choices
Expensive benefit to employers
Flexible Work:
o Flexible work plans allow employees to adjust their working hours or
places of work according to needs
Include flextime, compressed workweeks, job sharing, and home
based work (telecommuting)
Reduce employee turnover & absenteeism, boost
productivity and job satisfaction
o Flextime: allows employees to set their own work hours within certain
limits. Instead of scheduling everyone to work between 8-5, a manager
can decide that all employees must be at work between core hours of 10-3
Outside core hours, employees can start and end early or vice versa
Work in jobs where responsibilities of employees are independent
o Compressed workweek: allows employees to work longer hours on fewer
days. Might work 10 hour shifts, 4 times a week
Reduce commute time per week, stretch companys overall
workday providing more availability to customers in other time
zones
o Job Sharing Program: allows two or more employees to divide tasks of
one job. Plan appeals mainly to people who want to work part-time (older
workers, students, working parents)
o Home-Based Work: allows employees to work from home these
telecommuter are connected to employers through the internet, voice and
video conferencing, and mobile devices
Firms can expand pool of talent and increase productivity without
increasing costs
Workers must be reliable and self-disciplined

Employee Separation: broad term for the loss of an employee for any reason, voluntary or
involuntary.
Turnover: when an employee leaves their job.
Voluntary: some HR managers will ask the employee for an exit interview to
learn reasons for leaving
o If for example, employee leaving due to lack of career opportunities, HR
manager might offer ongoing training
o Low pay = raise
Involuntary: termination due to poor performance or unethical behaviour in
business practice or workplace; when firms are forced to eliminate jobs as costcutting measure
Downsizing: process of reducing the number of employees within a firm by
eliminating jobs. Can be done by offering early retirement or voluntary severance
programs.
o After downsizing some report improvements in profits, market share,
employee productivity, quality, and customer service
o Doesnt always lead to improvements:
Anxiety, health problems, lost productivity among remaining
workers
Expensive severance packages paid to laid-off workers
Domino effect on local company unemployed workers have less
money to spend, which creates less demand for consumer goods &
services, which increases likelihood of more layoffs & other failing
businesses
o If firm is committed to its workforce as part of its mission, it will do
everything it can to support both workers who must leave workers who
will stay
Outsourcing: using outside vendors to produce goods or fulfill services and
functions previously handled in-house or in-country
o Businesses try to outsource functions that are not part of their core
business so they can save on expenses and remain flexible
Motivating Employees:
Starts with good employee moraleemployees mental view toward their
employer and jobs, often including a common sense or purpose
High employee morale occurs when workers feel valued, their opinions heard,
and theyre empowered to contribute their best
o Results from good management
Understanding of human needs & effort to satisfy them in ways
that move companies forward
Low employee morale signals poor relationship between managers and employers
o Results in absenteeism, voluntary turnover, and a lack of motivation
Managers use rewards and punishments for motivation
o Extrinsic: rewards outside of work pay, fringe benefits, praise
o Intrinsic: feelings related to performing job feeling proud

Process of motivation: need produces motivation which leads to goal-directed

behaviour resulting in need satisfaction
Maslows Hierarchy of Needs:
1. Physiological Needs. These basic human needs include food, shelter, and
clothing. On the job, employers satisfy these needs by paying salaries and
wages and providing a heated or cooled workspace
2. Safety Needs. These needs refer to desires for physical and economic
protection. Companies satisfy these needs by providing benefits such as
health insurance and meeting safety standards in the workplace.
3. Social (belongingness) needs. People want to be accepted by family,
friends, and co-workers. Managers might satisfy these needs by
encouraging teamwork and group lunches.
4. Esteem needs. People like to feel valued and recognized by others.
Managers can meet these needs by offering special awards or privileges.
5. Self-actualization needs. These needs drive people to seek fulfillment of
their dreams and capabilities. Employers can satisfy these needs by
offering challenging or creative projects and opportunities for education
and advancement.
Herzbergs Two-Factor Model of Motivation:
o Surveyed workers to find out when they felt good or bad about their jobs
learned that certain factors important to job satisfaction though not
necessarily related to motivation
Hygiene (Maintenance) Factors: aspects of work that dont directly
relate to a task but do relate to job environment pay, job security,
working conditions, status, interpersonal relations, technical
supervision, and company policies
Extrinsic
Motivator Factors: produce high levels of motivation when
present, relate directly to specific aspects of a job, including job
responsibilities, achieve & recognition, & opportunities for growth
Intrinsic
o Managers wanting to motivate employees should emphasize recognition,
achievement, and growth.
Expectancy Theory and Equity Theory:
o Expectancy Theory: the process people use to evaluate the likelihood that
their efforts will lead to the results they want and the degree to which they
want those results
Suggests people use 3 factors to determine how man effort to put
forth
1. Persons subjective, or personal, prediction that a certain
effort will lead to the desired result Can do
2. Value of the outcome to the person
3. Persons assessment of how likely a successful
performance will lead to a desirable reward
Employee is motivated if they think they can complete a task, &
they believe reward for accomplishing the task is worth the effort

o Equity Theory: an individuals perception of fair and equitable treatment

Employees first consider their effort and then their rewards
Then compare their results against results of co-workers
If employees feel under-rewarded for effort in comparison with
others doing similar work, they will decrease their effort to restore
the balance
If employees feel they are overrewarded, they will feel guilty and
put more effort into their job to restore equity and reduce guilt
Goal-Setting Theory and Management by Objectives:
o Goal-Setting Theory: idea that people will be motivated to the extent to
which they accept specific, challenging goals and receive dieback that
shows the progress towards goal achievements
Goal Specificity: refers to goals that are clear and concrete
Goal Difficulty: shows how hard the goal is to reach.
Goal Acceptance: relates to peoples understanding of the goal and
their agreement with the goal. People are likely to reject a goal that
is too challenging.
Performance Feedback: information about performance and how
well the goal has been met. Goal setting wont work without this.
o Management By Objectives (MBO): a structured approach that helps
managers to focus on reachable goals and to achieve the best results based
on the organizations resources. Principles include:
A series of related organizational goals and objectives
Specific objectives for each person
Participative decision-making
A set time period to accomplish goals
Performance evaluation and feedback
Job Design and Motivation:
o Jobs can be designed to be more motivating in three ways:
o Job Enlargement: job design that expands an employees responsibilities
by increasing the number and variety of tasks e.g. redesigning the
production process
o Job Enrichment: expands employees duties to empower him to make
decisions and learn new skills leading toward career growth. Firm might
give its managers and sales consultants power to make decisions about
their work, such as how to organize sales and when they prefer to work.
o Job Rotation: involves system of moving employees from one job to
another. Increases an employees range of activities. Workers learn more
jobs, increase interest in company.
Managers Attitudes and Motivation:
o McGregor studied managers interactions with employees managers
make one of two assumptions about workers behaviours: Theory X and
Theory Y
o Theory X: assumes that employees dislike work and try to avoid it
whenever possible. Managers must put effort in to make them work,
believe average worker likes instructions, avoid responsibility, and take

little initiative. Also believe worker views money and job security as only
valid motivators Maslows lower order of needs
o Theory Y: assumes typical person actually likes work and will seek and
accept more responsibility. Managers assume most people can think of
creative ways to solve work problems, believe employees should
participate in decision-making. Self-control and self-direction main
motivators Maslows higher order of needs.
o William Ouchi proposed another viewpoint: Theory Z
Blends best of American and Japanese management practices
Views worker involvement as key to increased productivity and
improved quality of work-life for workers
Many Canadian firms adopted participation aspect of Japanese
management style firms ask workers for suggestions to improve
jobs, then give them authority to implement changes.
Labour-Management Relations:
Labour Unions: a group of workers who organize themselves to work toward
common goals in the areas of wages, hours, and working conditions.
o Found at the local, national, and international levels
o Local union reps members in a specific area, such as single community
o National union a labour org. consisting of numerous local chapters
o International union national union with membership outside of Canada,
usually US
o Canadian Labour Congress (CLC): reps about 2 million of 4.6 million
unionized Canadians 70% of unionized workforce. Canadian based
labour groups grew and organized into countrys largest national org. of
unions
Labour Relations Board: type of judicial organization. Responsibilities for
overseeing workers groups that apply to become and union and activities that
occur during a labour dispute
o Each province has their own
o People in interprovincial communications or transportation are under the
legal authority of national labour board the Canada Industrial Relations
Board
The Collective Bargaining Process:
o Labour unions aim to increase job security and to improve wages
o Collective Bargaining: the process of negotiation between management
and union representatives
Union contracts usually cover a 2-3 year period often result of
weeks or months of discussion
Done through voting
If rejected then they can either send union reps back to bargaining
process or union members may strike

Settling Labour-Management Disputes:

o Grievance: a complaint by a single employee or by the entire union
that management is violating, or is breaking, some portion of the agreedon contract
Might be disagreement about pay, working hours, or workplace
Beings with employees supervisor and then moves up companys
hierarchy
If highest level of management cant settle grievance, its
submitted to an outside party for mediation or arbitration
o Mediation: process of settling labour management disagreements
through an impartial, or objective, third party. Mediator does not make
final decision but can make objective recommendations. If still unsettled
then turns to arbitration.
o Arbitration: outside arbitrator chosen whom both union and management
accept. Arbitrator will then make legally binding decision.
Competitive Tactics of Unions and Management:
o Union Tactics: main tactics are strikes, picketing, and boycotts.
Strike/walkout is one of the most effective tools seeks to disrupt
business by calling attention to workers needs and union demands
Picketing involves workers marching in a public protest against
employer. Protected under law as long as it does not involve
violence/intimidation.
Boycott is an organized attempt to keep public from purchasing
goods or services of a firm. Some unions fine members who do not
obey a boycott
o Management Tactics:
Lockout is a management strike to put pressure on union members
by closing the firm
Companies usually either hire strikebreakers in highly visible
fields such as pro sports or they transfer supervisors and other
nonunion employees to continue operations during strikes
Future of Labour Unions:
o Become more flexible to adapt to a global economy and diverse workforce
o Respond to growing need for environmentally responsible business and
manufacturing process
o Can set up working relationships with HR managers and other
management officials
o Recognize potential for prosperity for everyone management and union
workers included

Chapter 9: Top Performance through Empowerment, Teamwork, and

Communication
Empowering Employees:
Empowerment: giving employees shared authority, responsibility, and decisionmaking with their managers.

Sharing Information and Decision-Making Authority:

o Companies should provide regular reports to employees on key financial
info, such as profit and loss statements
o Firms show their willingness to practise open book management by using
companys internal website to post financial info, training schedules,
policy docs, and other info
Employees understand more about organizations strategic
thinking and how their own work fits into overall plan
These workers are better able to direct work efforts to make use of
company efforts
Risks: private company info may reach competitors
o Can also give employees broad authority to make decisions that carry out
firms vision and competitive strategy
Purchasing supplies, making hiring decisions, scheduling
production or work hours, overseeing safety program, granting pay
increases
Linking Rewards to Company Performance:
o Ultimate step in convincing employees of their role in success of their firm
is worker ownership:
o Employee Stock Ownership Plans (ESOPS): benefit employees by giving
them stock ownership in their companies.
Employer buys shares of company stock on behalf of employee as
retirement benefit
Accounts continue to grow in value tax-free
Employees cash stock shares when they leave company
Employees motivated to work harder and smarter because theyre
part owners
TSX study: ESOP companies scored better than non-ESOPs: five
year growth 123% higher, net profit margin 95% higher,
productivity by revenue per employee 24% higher, return on
average total equity 92.3% higher, return on capital 65.5% higher
o Stock Options: rights to buy a specified amount of company stock at a
given price within a given time period. Employees can own stock
themselves if they choose to exercise, or use, their options by purchasing
stock
An employee receives option on 100 shares at $10 per share; stock
price increases to $20 per share. Employee can exercise option to
buy those at $10 each and then sell them at $20 per share and keep
difference.

Teams:
Work Team: relatively permanent groups of employees with complementary
skills who perform the day-to-day work of organizations.
Problem-Solving Team: temporary combination of workers who gather to solve a
specific problem then disband.

Self-Managed Team: a work team that has the authority to decide how its
members complete their daily tasks.
Cross-Functional Team: team made up of members from different functions, such
as production, marketing, and finance.
Virtual Team: groups of geographically or organizationally separated co-workers
who use technology to communicate and work together.

Team Characteristics:
Team Size: As small as 2 people to as large as 150 people. Most teams less than
12 people. Teams more than 20 people should be divided into sub-teams.
Teal Level: the teams average level of ability, experience, personality, or any
other factor.
Team Diversity: the teams differences in ability, experience, personality, or any
other factor.
Stages of Team Development:
1. Forming: Orientation, meeting other team members, and learning what is
expected. Leader provides time for members to get to know each other.
2. Storming: Conflict, disagreement. Leader encourages participation, differences
surface.
3. Norming: Establishment of order and cohesion. Leader helps clarify team roles,
norms, and values.
4. Performing: Cooperation, problem solving. Leader encourages participation and
task accomplishment.
5. Adjourning: Task completion. Leader brings closure and may celebrate the teams
accomplishments.
Team Cohesiveness and Norms:
Team Cohesiveness: the extent to which members feel attracted to the team and
motivated to remain part of it.
Team Norm: a standard of conduct shared by team members that guides their
behaviour.
Team Conflict:
Conflict: out come when one persons, or one groups needs, do not match those
of another, and one side may try to block the other sides intentions or goals.
Cognitive Conflict: a disagreement that focuses on problem and issue-related
differences of opinion. Team members disagree due to different experiences and
expertise thus different POV but have willingness to examine, compare, and
resolve differences to produce best solution.
Affective Conflict: a disagreement that focuses on individuals or personal issues.
Importance of Effective Communication:
Managers spend about 80% of time 6h 24m/8h/day in direct communication
with others
Company recruiters rate communication as most important skill when hiring

Context: every communication takes place in a situational or cultural context

can exert powerful influence on how well the process works.
Low-Context Culture: communication is done through written and verbal
messages Switzerland, Austria, Germany, Canada, US
High-Context Culture: communication depends not only on the message itself but
also on the conditions that surround it, including nonverbal cues, past and present
experiences, and personal relationships between the parties.
Formal Communication: Internal: memos, reports, meetings, written proposals,
oral presentations. External: letters, written proposals, oral presentations,
speeches, news releases, press conferences.
o Most important factor is to be open and honest research shown that
open communication has following 7 characteristics:
1. Employees are valued. Employees are happier and more
motivated when they feel they are valued and opinions heard
2. A high level of trust exists. Telling the truth maintains a high
level of trust forming foundation of open comm. which leads to
employee motivation and creativity
3. Conflict is invited and resolved positively. Conflict encourages
innovation and creativity.
4. Creative dissent is welcomed. When employees can express
their creative ideas, they feel theyre contributing to company
and improving performance.
5. Employee input is requested. Seeking employees feedback
gives them a sense of involvement and improves working
relations.
6. Employees are well informed. Employees feel valued when
theyre kept informed about what is happening within the org.
7. Feedback is ongoing. Feedback should be provided in a way
that builds relationships rather than assigns blame.
External Communication: a meaningful exchange of information through
messages sent between an organization and its major audiences: customers,
suppliers, other firms, the general public, and government officials.
The following communication steps can help calm a public relations crisis:
1. When crisis occurs, firm should respond quickly. Execs should prepare a
written statement inc. time, place, initial description of what occurred (not
cause), and number and status of people involved
2. Top company management should appear in public with news media
present, if possible, ASAP. Top managers respond to reporters questions.
3. Management representative must stick to facts. Not much is known if
press conference is held right away.
4. If question is currently unanswerable, exec can offer to find out answer.
Not good to say no comment, say, I dont know instead.
5. Firm should recognize that problems exist, explain solutions, and welcome
feedback.
6. Press conference or interview will be most effective if exec speaks briefly
and clearly and provides visual images.