LECTURE 1 – BUSINESS - THE BASIS OF WEALTH

The basic objectives are each associated with a question as follows:

Business & Profits: The Basis of Wealth – What is business, and how are
profits made?
Business as a Benefactor: Payoffs beyond Money – How can business
benefit society?
Risk, Entrepreneurship, & the Factors of Production, The Creative Fire
of Business – What are the main sources of wealth?
The Business Environment: Forces That Encourage & Discourage
Entrepreneurship – What major forces affect the way companies and
individual business people operate?

Seven Key Business Rules: The Great Adventure of Being in Business in

the 21st Century – What are Seven Key Business Rules to observe in
pursuing business success?

Business has the goal of selling a product or service to others. A for-

profit organization will seek to provide as many of their products or
services as possible and make money in the process. A non-profit
organization is formed to offer products and services, but their purpose
is to further their goals, not make money for its owners.

The biggest difference among these two groupings is the measure of

accomplishment: In for-profits, the measure generally is profit (or loss).
In non-profit organizations, money and expenses are important
concerns, but success is usually measured by how effectively services
are delivered.

A business is any activity that seeks to make a profit by satisfying needs

through selling goods or services to generate revenue.

Selling is the exchange of goods or services for an agreed sum of

money.

Revenue: the total amount of money that the selling of goods or

services produces for a business during a defined period of time,
such as every 3 or 12 months.

Goods are defined as tangible products - things you can touch - such as
food, clothing, appliances, gasoline, and books.

Services are defined as intangible products - things you can’t touch -

such as education, recreation, or health care.

Profit: the amount of money a business makes after paying for its
salaries and all other costs - that is, revenue minus expenses

Loss occurs when business expenses are larger than revenues.

A business has the opportunity to provide benefits beyond profits. One

way they do this is by providing a good working situation for workers
who earn a fair wage and receive good benefits. A business can raise
the quality of life by increasing society’s general well-being. They can
also raise the standard of living by increasing the buying potential of
their employees: defined by how many goods and services people can
buy with the money they have.
A business also contributes to the interests of society by producing
goods and services we need, providing pay checks and benefits for
employees, paying taxes to support the government services provided
and by donating funds, goods and services for community causes.

Most of the very wealthy are self-employed business owners, who are
much more likely than the salaried to be rich, 4 times as likely to be
millionaires.

Risk and entrepreneurship are closely linked. Risk is defined as the

possibility of losing money that the owner/owners invest in the
business. Entrepreneurs are generally starting something new so the
risk is higher. Some argue the risk is higher in not being an
entrepreneur because you do not control the results or if you are able
to keep your job.

What are the main sources of creating wealth? The four fundamental
resources needed include entrepreneurship (taking risk to create new
products or a new enterprise), natural resources, capital and human
resources. Some scholars will add knowledge as an additional factor.

There are four key factors of production, or resources, needed to

create wealth. They are:
• Natural resources – production inputs that are useful just as they
appear in nature
 • Capital – buildings, machines, tools and technology used to
produces goods & services
• Human Resources – labour, both physical and intellectual
contributions of employees
• Entrepreneurship – process of taking risks to try to create a new
enterprise
• A fifth factor of production is knowledge.

Companies operate within the business environment which consists of

economic, technological, competitive, global and social forces that will
either encourage or discourage the development of business.

There are many forces that impact business in a way to either

encourage or discourage business development.

Economic forces are the tension between freedom and restraint. These
will include things such as taxation, contract enforcement and
corruption.

Technological forces are the effect on productivity and security. This

will include the impact of technology on productivity which can be
both positive and negative and the increased need for security.

Competitive forces are the influence on customer, employee and

investor satisfaction. The level of competition will influence how a
company treats its customers. It will also impact the ability of a
company to retain its employees. Investors will also look at
competition to see if they can find a better return with another
company.
Global forces can have a powerful impact on a business by affecting
trade through agreements with other countries. It can also impact
companies if they are operating in an unstable political environment.

Social forces will impact a company because as the demographics

change, it will influence customer’s needs and tastes. It can also change
the employee pool and skills that a company has to deal with.

As change continues to accelerate there are seven key business rules

you need to follow to remain successful in today’s business world.

(1)You must keep an eye on the 10 types of groups whose interests

are affected by your firm’s activities.
(2) You must deal with many uncertainties.
(3) You must strive to assert your competitive advantage.
(4) You must operate in a global economic system.
(5) You must try to stay true to your values.
(6) You must deal with others who are diverse in race, ethnicity,
religion, etc.
(7) You must develop superior personal skills.

Business people are working in the art of management to organize and

coordinate the activities in their organization, utilizing certain rules to
achieve certain goals. The environment you operate in will be made up
of various stakeholders or those whose interests are influence by an
organization’s activities. These stakeholders include:
Owners – those who can claim the organization as their legal property
and are hoping for a profit, but risking loss
Customers – the focus of the business and the people who pay to use
the goods or services
Employees – those who work for the organization and need to perform
for the organization to succeed
Suppliers – those supplying the raw materials, services, labour etc. to
your organization so you have what you need to produce your part or
service
Distributors – those who help to sell the goods and services to the
customers; in other words, those who get the products into the hands
of the consumer
Lenders – this can be a bank, personal funds or an investor who
provides funds to a company when money is short
Nearby Communities – this is the local environment that provides
workers, tax base, and a good place for employees to live, etc.
Government Regulators – these are the agencies who set up the rules
and regulations under which an organization must operate
Interest Groups – groups whose members may try to influence
businesses and governments on specific issues
Media – organizations that will publicize information about your
company in both a positive and negative manner
There are many changing forces in the current business climate that put
you on alert. It is important to be aware of what is happening around
you and to be prepared to deal with surprises that force you to adapt
quickly.

There are four key areas of the competitive environment you must be
proficient with in order to succeed in business today. They are as
follows:
• Being responsive to customers
• Making continual improvement in the quality of your
product or service
• Finding ways to deliver new or better products or services
• Striving for employee efficiency

These are critical components of operating well in a marketplace.

The world is changing, and business operates in a global environment

where many of their suppliers and customers can be halfway around
the world. You must remain aware of this and learn to operate
effectively in this interdependent system.

There are also increasing pressures to operate ethically and in a

socially-responsible manner. The Enron case brought out an example
of an extremely unethical business practice, and the business
community has correctly reacted by requiring a higher level of ethical
behaviour.
Socially responsible behaviour is a part of ethics but is more specific to
looking at how a business will take actions that benefit the interests of
society as well as the organization, such as giving to local schools.

We live in an increasingly diverse environment, and we must learn to

deal with different kinds of people. The demographics are changing
rapidly and as a result, a business has a diverse employee and customer
base. There is a great deal of complexity in working in a diverse
environment. The challenge to managers is to find a way to maximize
the contributions of extremely diverse employees and serve the needs
of extremely diverse customers.

As we have seen, the business environment is constantly changing. In

order to succeed, you will need to cultivate personal skills needed in the
workplace. These include the ability to perform a specific job, the
ability to think analytically or see the bigger picture, and the ability to
interact well with other people.
 LECTURE 2 – SMALL BUSINESS & ENTREPRENEURSHIP
This chapter addresses some essential questions as follows:
Small Business & Entrepreneurship: The Art of the Quick - Do I have
what it takes to be a small-business entrepreneur?
The World of Small Business - How important is small business, and
what newer types might interest me?
Starting Up: From Idea to Business Plan - If I wanted to start a company,
how should I go about it?
Getting Financing - What are various ways of financing my new
business?
Achieving Success in a Small Business - How can I avoid failure and keep
my business healthy?

Some call small-business owners micropreneurs - those who take the

risk of starting and managing a business that remains small (often
home-based), lets them do the kind of work they want to do, and offers
them a balanced lifestyle.

Small businesses and entrepreneurship may be the key factor in moving

the United States out of the current economic crisis. The two are similar
but have a critical difference: the small business owner is seeking to
stay small and make a living, while the entrepreneur desires to develop
a new idea into a big company.

According to the Small Business Administration, a small business is

defined by the U.S. government as a business that is (a) independently
owned and operated, (b) is not dominant in its field of operation, and
meets certain criteria set by the SBA for (c) number of employees and
(d) annual sales revenue.

Entrepreneurs are business owners who, in the classic meaning of the

term, see a new opportunity for a product or service and start firms
that may lead to a high-growth business- those who become the
“millionaires next door.”

There are three main types of entrepreneurs:

The classic entrepreneur meets the definition we gave above for
entrepreneur. A classic entrepreneur is an individual who sees a new
opportunity for a product or service and starts a firm that can lead to a
high-growth business.

An intrapreneur is someone who works inside an existing organization

who sees an opportunity for a product or service and mobilizes the
organization’s resources to try to realize it.

An entrepreneurial team is a group of people with different kinds of

expertise who form a team to create a new product. One variant is the
skunkworks, a team whose members are separated from the normal
operation of an organization and asked to produce a new, innovative
project.

Opportunity and necessity are two driving forces for entrepreneurs:

Most entrepreneurs are opportunity entrepreneurs, those who are
ambitious and start their own businesses in a voluntary pursuit of
opportunity.

Others are necessity entrepreneurs, people who suddenly must earn a

living and are simply trying to replace lost income.

Some characteristics that are helpful for those who want to become
entrepreneurs are:
A high level of confidence and belief in the ability to control their own
destinies. Entrepreneurs also tend to have a high need for
achievement and are very action-oriented.
A high tolerance for ambiguity and risk will be helpful, as the
entrepreneurial world is constantly changing and filled with risks.
Given the great amount of work it takes to get a business off the
ground, a high energy level is also an advantageous characteristic for an
entrepreneur.
Small businesses contribute much to our economy:
- They provide almost half the jobs in the economy and represent
the majority of employers.
- They also add new jobs to the economy at a greater quantity than
other types of businesses.
- Most new job entrants find their first jobs in small businesses.
 - They also tend to be the innovators in their fields, as they are
small enough to move quickly.

Two areas that are growing are home-based business and web-based
businesses:
Home-Based Businesses:
Freelance work
Direct sales
Customer service
Transcription service
Tutoring
The challenges of working at home include:
Dress for work
Set a routine and stick to it
Keep work and family stuff on separate computers
Interact with other professional or networking: the process of
establishing and maintaining connections with professionals and
managers in your field to help you advance in your career.

Web-Based Business Benefits:

Simple and reliable servers
Speedy wireless networks
A sophisticated economic infrastructure
Facebook tools for reaching local customers

There are many reasons to buy a small business instead of starting a

new one:
 Buying an existing business can help to reduce uncertainty
because a lot of the factors of a businesses are already known.
 Since it is a known entity, it can generate profits quickly.

When buying a new business, it is important to look over the details of

how the business works.
Also, knowing why the owner is selling will help to avoid an owner
opening up an immediate competing business.
In order to negotiate the right price, you will want to look carefully at
the books, probably with a financial consultant, to find out what the
business is truly worth.
There are many reasons why someone would want to sell a business,
including:
 Make money
 Beaten by competitors
 Tired of running the business
 Health problems

The key to starting a new business is coming up with the idea that will
provide a good opportunity. Once you have a good idea, there are
three steps you should follow:
1. Research the business concept
2. Talk to knowledgeable people in the field:

Mentor: an experienced person who coaches and guides lesser-

experienced people by helping them understand an industry or
organization’s culture and structure.

Service Corps of Retired Executives (SCORE): consists of retired

executives who volunteer as consultants to advise small-business
people

Active Corps of Executives (ACE): composed of executives who are still

active in the business world but have volunteered their time and
talents
Trade Associations: consist of individuals and companies in a specific
business or industry organized to promote common interests

3. Get experience in the field

Once you have taken these steps you need to write a business plan to
be able to adequately communicate your idea to others.

A business plan is a document that outlines a proposed firm’s goals,

methods for achieving them, and standards for measuring success.
Why Write a Business Plan?
A good business plan will help you get financing, think through
important details and make a plan for success.
How Do You Conceptualize a Business Plan?
What’s the basic idea behind my business? The business model - the
need the firm will fill, the operations of the business, its components
and functions, as well as its expected revenues and expenses.
What kind of industry am I entering, and how is my idea different?
How will I market to customers?
What qualifies me to run this business?
How do I propose to finance the business?
Is It Really Necessary to Create a Formal Business Plan? The Reasons
Why Not:
You May Need to Act Fast to Get the Business Going.
You May Be Able to Get Financing without a Full Formal Plan.
Many Firms Have Done Well without a Business Plan.
There are many ways to finance a new business that vary in risk and
capacity:
The first is to utilize personal funds such as credit cards, savings or
loans.
Family and friends are often a source of funding for new business
owners.
A business’s suppliers may make barter arrangements to help a new
business get inventory and pay for it later.
• Short-Term Credit: A supplier might provide you with short-term
credit, giving you 30 to 45 days to pay for supplies or services.
• Extended-Payment Plan: With heavy-duty machinery, such as
trucks and computers, the supplier may give you an extended-
payment arrangement, allowing you three to five years to pay for
purchases.
• Barter Arrangements: To trade goods or services without the
exchange of money is another option, as in trading your old Ford
F-150 pickup to a roofer for replacing your restaurant’s roof.
Financial institutions may provide loans to help start a new business.
Loans may be backed by the Small Business Administration (SBA).
• The Small Business Administration (SBA) is the principal U.S.
government agency charged with aiding small businesses by
providing help in financing, management training, and support in
securing government contracts.
Angel investors are defined as individuals who invest their own money
4in a private company, typically a start-up.
Venture capitalists are generally companies, not individuals, who invest
in new enterprises in return for part ownership of them.
Public stock offerings provide additional funds but it is basically selling
your company to others, so you lose a lot of management freedom and
potential profits. “Going public” means that a privately owned
company becomes a publicly owned company by issuing stock for sale
to the public.
Some other ways to get help is to place your business in an incubator, a
facility that offers small businesses low-cost offices with basic services.
An enterprise zone is a specific geographic area in which government
tries to attract business investment by offering lower taxes and other
government support.

Many small businesses fail for many reasons. Small businesses are more
apt to fail than big businesses are. Often this is because they are taking
more risks - selling products that are new and untried. But there are
also at least five other reasons, as follows:
1. Inadequate Management Skills

2. Lack of Financial Support

• Lack of credit
• Unfavourable Economies of Scale—the savings realized from
buying materials or manufacturing products in large quantities.

3. Difficulty Hiring & Keeping Good Employees

4. Aggressive Competition

5. Government Paperwork
How to Keep a Small Business Healthy
Staying in business means constantly staying on your toes. Some
suggestions are:

Keep Good Records & Know When to Ask for Help

Stay in Tune with Your Customers

Learn How to Manage Employees

 LECTURE 3 – FORMS OF BUSINESS OWNERSHIP
Basic Forms of Business Ownership: Sole Proprietorships, Partnerships,
Corporations, & Cooperatives - Which of the four basic forms of
business ownership would best suit a business I might start?
Franchises: A Special Form of Ownership - What are franchises, and
how might I benefit or not benefit by owning a franchise?
Mergers & Acquisitions: Paths to Business Expansion - If I wanted to
expand my company, what are the ways to do it?
When organizing a business it is important to determine which form of
business is most appropriate for your needs and goals. Some forms are
extremely simple and others very complex.
The four main forms are sole proprietorships, partnerships,
corporations and cooperatives.
The following discusses the advantages and disadvantages of each of
these main form:

The oldest and simplest form of business ownership - and, at 70%,

certainly the largest - is the sole proprietorship, a business owned, and
typically managed, by one person. Many retail establishments, small
service businesses, home-based businesses, and farms are sole
proprietorships.

Five Benefits of a Sole Proprietorship

Start Up the Business with Ease.
Make All Your Own Decisions.
Keep All the Profits.
Keep Your Taxes Relatively Simple.
End the Business with Ease.

Five Drawbacks of a Sole Proprietorship

 Have unlimited liability - any debts or damages incurred by the
business become the responsibility of the business owner
 Have limited financial resources and few fringe benefits, such as
vacation pay, sick leave, health benefits, and pension plans, which
provide benefits beyond base wages.
 Have Management Problems.
 Be Overstressed about Time.
 Not Being Able to Sell or Pass Along the Business.

Looking at the various ways to form a partnership. Each form has its
own advantages and disadvantages, and an organization must
determine what is best for them. Partnership formation mostly rests
on liability, resources put into the business and management
responsibilities.
General – two or more partners are responsible for the business and
share profits, liabilities and management responsibilities
Limited – one or more general partners plus other limited partners who
contribute only an investment but do not have any management
responsibility or liability
Master Limited Partnership (MLP) – acts like a corporation, sells stock
but taxed like a partnership
Limited Liability Partnership (LLP) – a partnership where liability is
limited to your area of responsibility

Four Benefits of a Partnership:

 Start Up the Business with Relative Ease. You should probably get
a lawyer to draw up articles of partnership, a legal agreement
that (a) defines the role of each partner in the business, (b)
specifies how much money each is to invest, and (c) specifies the
buy/sell arrangements if one or both partners die or if one wants
to get out of the arrangement.
 Have More Financial Resources.
 Have More Managerial and Other Expertise.
 Keep Your Taxes Relatively Simple.

Three Drawbacks of a Partnership:

 Experience Personality Conflicts or Other Disagreements among
Partners.
 Have Unlimited Liability.
 Have Difficulty Ending or Changing the Partnership and Can’t Pass
the Business Along.

There are many advantages to owning a corporation that make it more

appealing than a partnership or sole proprietorship. However, there are
also some drawbacks to consider.

Five Benefits of Being in a Corporation:

Have Little or No Liability.
Get Possible Tax Breaks.
Have Far More Financial Resources.
Have Far More Managerial and Other Expertise.
More Easily Sell Ownership Shares and Continue the Life of the
Business.

Four Drawbacks of Being in a Corporation:

Have to Deal with Start-Up and Ongoing Costs and Paperwork.
Be Taxed Twice.
Have to Publicly Disclose Financial Information.
Have Difficulty Ending the Corporation.

A cooperative, or a co-op, is a corporation owned by its user members,

who have pooled their resources for their mutual benefit. The purpose
of a co-op, such as a retail cooperative, is not so much to make a profit
as to provide a service to its members.

A franchise is an arrangement in which a business owner allows others

the right to use its name and sell its goods or services within a specific
geographical area.
A franchisee is the buyer of a franchise, and is helped in establishing a
business by a franchisor, the business owner that gives others the
rights to sell its products or services.
Types of Franchises:
A business-format franchise, or chain store or franchise outlet, allows a
franchisee to use the trade name and format of a franchisor, following
guidelines for marketing and pricing the product.
Product-distribution franchise, also known as a distributorship, is when
a franchisee is given the right to sell trademarked products purchased
from the franchisor.
Manufacturing franchise is when franchisees are given the right to
manufacture and distribute a certain product, following a formula or
using supplies purchased from the franchisor.

There are many benefits and drawbacks of owning a franchise:

Five Benefits of Owning a Franchise
Own Your Own Business & Be Your Own Boss…to Some Extent
Start Your New Enterprise with Some Name Recognition
Follow Someone Else’s Proven Formula for Doing Business
Receive Marketing Support
Receive Management & Financial Support

Five Drawbacks of Owning a Franchise

Need to Come Up with a Large Initial Franchise Fee & Other Startup
Costs
Need to Share Your Sales with the Franchisor - Royalties: A percentage
of your sales
Have to Endure Close Management by the Franchisor
Possibly Have to Deal with Shady Practices by the Franchisor
Possibly Be Disappointed in the Payoff of Your Franchise
How to Grow
Internal expansion: You can grow through internal expansion - namely,
by increasing sales and capital investment.
External expansion: Another path is through external expansion - a
company merges with or buys another company or companies.
Merger - joining two companies together: A merger occurs when two
firms join to form a new firm.
Acquisition - buying another company: An acquisition occurs when one
company buys another one.

Why Mergers & Acquisitions Occur

Shortcut to Growth: Acquiring Rather than Developing a Capability
Management Talent: Acquiring Managerial Expertise
Saving Money: Consolidating Operations to Reduce Costs
Tax Benefits: Acquiring an Unprofitable Firm to Reduce Taxes
There are different types of strategic mergers that a company may
engage in to enhance their operations, such as horizontal, vertical and
conglomerate. These different types of mergers will provide a company
with the missing pieces they need to enhance their business.

In a horizontal merger, two companies merge that are in the same

industry and perform the same activity.

In a vertical merger, two companies merge that are in the same

industry but each performs a different activity.

In a conglomerate merger, two companies merge that are in different

industries and each performs different activities.

Some other types include hostile takeovers, wherein a company does

not want the merger to occur, as well as borrow and buy strategies.

Hostile takeovers are situations in which an outsider - often called a

“corporate raider” - buys enough shares in a company to be able to take
control of it against the will of the corporation’s top management and
directors.
Tender offer: an outsider seeking to take over a company directly
contacts the company’s shareholders and offers to buy their stock at a
price that exceeds the present market price.

Proxy fight: the outsider contacts shareholders and urges them to vote
for the raider’s hand-picked candidates for the board of directors.

White knight: to find a buyer for the company who is more acceptable
to management.

Poison pill: the managers take actions designed to make the stock less
attractive to the potential buyer

In a leveraged buyout (LBO), one firm borrows money to buy another

firm. The purchaser uses the assets of the company being acquired as
security for the loan being used to finance the purchase.

In an employee buyout, a firm’s employees borrow money against their

own assets, such as their houses or their pension funds, to purchase the
firm from its present owners; the employees then become the new
owners of the firm.

The main themes in Lecture 3 are to cover the basic forms of business
ownership by looking at different organizational forms, franchising
options and mergers and acquisitions. Each of these sections was
discussed to answer an essential question as follows:
Basic Forms of Business Ownership: Sole Proprietorships, Partnerships,
Corporations, & Cooperatives - Which of the four basic forms of
business ownership would best suit a business I might start?
Franchises: A Special Form of Ownership - What are franchises, and
how might I benefit or not benefit by owning a franchise?
Mergers & Acquisitions: Paths to Business Expansion - If I wanted to
expand my company, what are the ways to do it?
 LECTURE 4 - MANAGEMENT
Management: What it is, how you do it.
Management is designed to set up an organization that delivers a
quality product on time, or to achieve its goals effectively, achieving
goals by making the right decision and executing them successfully; and
achieving goals efficiently, or using the people, money, raw materials
and other resources wisely and cost-effectively.

The four main things managers do are to plan, organize, lead, and
control.

• Planning: You Set Goals and Decide How to Achieve Them

• Organizing: You Arrange Tasks, People & Other Resources to Get
Things Done
• Leading: You Motivate People to Work to Achieve Important
Goals
• Controlling: You Monitor Performance, Compare it with Goals &
Take Corrective Action.

There are three main levels of management. The first is top managers
who are the highest level of management. They are the ones who
make long-term decisions about the overall direction of the
organization. They establish the objectives, strategies and policies for
the organization to keep it focused on its strategic direction.

The second group is middle managers, who implement decisions from

the managers above them and then supervise and coordinate the
activities of the supervisory managers below them.

The third group is supervisory managers who make short-term

operating decisions and direct the daily tasks of non-managerial
personnel.

No matter what the level, all managers make decisions. Most practical
decision-making techniques fall into four phases. They are:
Step One: Identify the problem or opportunity, look at what is wrong
and what is possible.
Step Two: Think up possible solution, brainstorming ideas for possible
solutions.
Step Three: Weigh the alternative solutions and select one. Some
criteria to apply is which solution is effective, which is feasible and
which one is ethical.
Step Four: Implement and evaluate the solution chosen.
Some of the benefits of planning include: helping you deal with
uncertainty, thinking ahead about what is coming up, coordinating
activities to achieve your goals and checking on how you are doing to
evaluate your progress. All of this is based on the vision or long-term
goal of what the organization wants to become and the mission
statement that expresses the fundamental purposes of the
organisation.

SWOT analysis looks at the (S) strengths, (W) weaknesses, (O)

opportunities, and (T) threats affecting an organisation. The strengths
and the weaknesses focus internally on the organisation, whereas the
opportunities and threats look outside of the company. This analysis
helps an organisation understand both their internal and external
contexts.

The organisational chart shows the formal lines of authority and the
official positions or work specializations. It often includes vertical lines
of authority, designating who reports to whom, and horizontal
specialization, designating who specializes in what work.

There are a number of skills that good managers need, but three
agreed-upon principal skills are technical, human and conceptual.

 The technical skills are those that are job-specific and are needed
to perform well in a specialized field.

 The human skills are the ability to work well in cooperation with
other people to get things done.

 The conceptual skills consist of the ability to think analytically, to

visualize an organization as a whole and understand how the
parts work together.
These skills will change as a manager moves from one level of the
organization to another. Supervisors need more technical skills, and
top managers need more conceptual skills.

Often the question is asked “What is the difference between a leader

and a manager?” This is a complicated question but often the
difference is that leaders cope with change and managers cope with
complexity. This designation is attributed to John Kotter.

There are three main leadership styles with numerous variations. A

leader can be autocratic, such that they make decisions without
consulting others. A leader can be a democratic leader who delegates
authority and involves employees in their decisions or a leader can give
free-rein such that they set objectives and then let their employees
figure how best to achieve them. Which style works best depends on
the situation, the context and the culture of the organization.

A transactional leader will focus on creating a smooth-running

organization by motivating employees to meet performance goals.
A transformational leader will focus on inspiring long-term vision,
creativity and exceptional performance in employees. They typically
inspire motivation by promoting a big picture, inspire trust by
expressing their integrity, actively encourage employee development,
and communicate a strong sense of purpose.
Control is the last function of management, but why is it needed?
There are six main reasons that are set forth for why managers need to
set up control functions. They are:
To deal with changes and uncertainties
To become aware of opportunities
To detect errors and irregularities
To increase productivity, eliminate waste, reduce costs or to add value
To deal with complexity
To decentralize decision making and facilitate teamwork

There are four steps in the control process.

The first is to establish standards and determine what the desired
outcome is for a given goal.
The second is to monitor performance and determine what the actual
outcome is.
The third step is to compare performance against standards to see how
the actual is different from the desired.
The final step is to take corrective action, if needed, and determine
what changes are necessary to obtain the desirable results.

Management: What It Is, How You Do It, The Four Essential Functions -
Why are managers needed, what do they do, what are their levels, and
how do they make decisions?
Planning: You Set Goals & Decide How to Achieve Them - What are the
benefits of planning, and what is the planning process?
Organizing: You Arrange Tasks, People, & Other Resources to Get
Things Done - What do organization charts show, and what three skills
do managers need?
Leading: You Motivate People to Work to Achieve Important Goals -
How do leaders and managers differ, and what are the different types
of leaders?
Controlling: You Monitor Performance, Compare It with Goals, & Take
Corrective Action - How does control work, and how should I use it to
be an effective manager?

IBA LECTURE 5 – THE EFFECTIVE ORGANISATION

STAGES OF ORGANISATIONAL DECLINE

There are five stages that typically occur when an organization begins
to decline:
The first is when they think they are too good to fail, they fall into a
hubris (arrogance, pride, haughtiness, vanity) of success.
The second stage is when they have an undisciplined pursuit of more,
with “more” being defined by whatever the leaders deem as success.
The third stage is the denial of risk and peril. This occurs when decline
signs begin to show, but managers deny their impact or explain them
away.
The fourth stage is the grasp for the easy or quick fix.
The final stage is giving up and realizing the end is in sight, so a
company will often be sold, shut down or file for bankruptcy.

ORGANISATIONAL CHANGE
If change is needed in an organization, it is often concentrated in four
main areas:
The first is with people, where it is important to change their minds and
their performance. Often the changes with people involves changes in
their perceptions and attitudes. This can be coupled with a change in
skill. These changes will help to move towards a change in
performance.

The second area of change is with technology. Technology is defined as

any machine or process that gives an organization a competitive
advantage in changing materials used to produce a finished product.

The third area of change is with the company’s strategy. This change
focuses on changing the directions of the company.

The final change is with the organizational structure when the

management changes the hierarchy of the organization.

Changes are generally made first identifying the problem and devising
solutions.
The second step is to gain allies by communicating the vision.
And finally, work to overcome resistance by empowering and
motivating employees to achieve the goals.

CULTURE
Organizational culture, sometimes called corporate culture, consists of
the shared beliefs and values that develop within an organization and
guide the behavior of its members. Culture is communicated to
company employees in several ways, not only through such surface
manifestations as manner of dress, office layout, and slogans but also
through heroes, stories, symbols, and rites and rituals.

A hero is a person whose accomplishments embody the values of the

organization.

A story is a narrative based on true events, which is repeated—and

sometimes embellished upon—to emphasize a particular value.

A symbol is an object, act, quality, or event that conveys meaning to

others.

Rites and rituals are the activities and ceremonies, planned and
unplanned, that celebrate important occasions and accomplishments in
the organization’s life.
The culture can have a big influence on the members of the
organization:
The first is to help them understand the goals of the organization.

It also helps develop a sense of organizational identity.

This identity leads to the third impact, where there is a collective

commitment to the goals of the organization.

The final impact is what is called social-system stability, where people

feel they are part of a system and they are treated fairly within it.

STRUCTURE
The six basic structural characteristics of an organization are:
1.) Authority, accountability and responsibility
2.) Division of labor
3.) Hierarchy of authority
4.) Span of control
5.) Delegation
6.) Centralization versus decentralization of authority.
Authority is the legitimacy an organization confers on managers in their
power to make decisions, give orders, and utilize resources. Authority
has to do not with a manager’s personality but with his or her defined
place in the organization. With authority goes accountability and
responsibility.
Accountability: reporting and justifying results to superiors
Responsibility: an obligation to perform the tasks assigned to you
Departmentalization is the dividing up of an organization into smaller
units, or departments, to facilitate management.
There are four principal departmental arrangements: functional,
divisional, hybrid, and matrix.

4 TYPES OF ORGANISATIONAL STRUCTURE

 FUNCTIONAL - The first type of organisational structure is
functional, wherein people are grouped by occupational
specialties.

 DIVISIONAL - The next type of organizational structure is

divisional, where the structure is set up around common
customers or customer groups. There are five different types of
Divisional Structure:
o Customer Divisions: Grouping by Common Customers or
Clients
o Geographic Divisions: Grouping by Regional Location
o Process Divisions: Grouping by Work Specialization
o Product Divisions: Grouping by Similar Products or Services
o Industry Divisions: The Conglomerate Structure
o A conglomerate is a large company that is doing business in
different, often quite unrelated areas. The conglomerate
structure groups divisions around similar businesses or
industries.
  HYBRID - The next type of structure is hybrid, wherein an
organization uses functional and divisional structures in different
parts of the same organization.

 MATRIX - The next type of organizational structure is matrix,

which combines, in grid form, the functional chain of command
and the divisional chain of command—usually product—so that
there is a vertical command structure and a horizontal command
structure.

NETWORKS & TEAMWORK

Organizations today exist in a constantly changing environment. Two
ways to stay on top of the change is to use networks, particularly the
Internet, and teamwork to be ready for change.

Networks:
A virtual organization, or networked organization, consists of a
company with a central core that is linked by computer network,
usually the Internet, to outside independent firms, which help the core
firm achieve its purpose.
A variation on the virtual organization is the modular structure, in
which a firm assembles pieces, or modules, of a product provided by
outside contractors.
Teamwork:
A team is a small group of people with complementary skills who are
committed to common performance goals and a common approach to
realizing them, for which they hold themselves mutually accountable.
Teams can be action teams that are highly specialized and pulled
together for a specific action. The second type of team is production
where the team is organized for doing day-to-day activities. The third
type is project teams who work together for creative problem solving.
The final is advice, where a team is set up for consultative purposes.
Cross-functional self-managed teams are defined as groups of workers
with different skills who are given the authority to manage themselves.

LECTURE 6 – OPERATIONS MANAGEMENT

Operations Management: How Goods & Services Are Produced - What
is the process for obtaining high-quality goods and services?
Production Processes: Improving Production Techniques - What are the
various types of production processes and technologies, old and new?
Operations Management Planning: Designing & Managing Production
Operations - What factors should a business consider for effective
production operations?
Quality Assurance: Producing Better Products & Services - How do top
companies improve the quality of their products or services?
Production or operations refers to any process that takes basic
resources and converts them into finished products—inputs into
outputs, whether grapes into wine or electronic parts into cellphones.
This chart gives examples of how you can take basic inputs and
transform them into outputs.
The transformation process adds value to the inputs to make the
outputs a good or service someone would like to purchase.
Production Management versus Operations Management
Production management is the management of the process of
transforming materials, labor, and other resources into goods. Today
businesspeople are more apt to use the term operations management,
to reflect the conversion of resources into services as well as goods. To
give a formal definition, then, operations management is the
management of the process of transforming materials, labor, and other
resources into goods and/or services.
Manufacturing vs Services: The Differences in Operations
Management
Manufacturing businesses, which mainly deal with things, produce
goods; they convert raw materials into finished products.
Service businesses, which deal mainly with people, perform services;
they convert people’s unmet needs into satisfied needs.
The production process is the transferring of materials into finished
products. Form utility is the value that people add in converting
resources—natural resources, capital, human resources,
entrepreneurship, and knowledge— into finished products. This
happens in two ways:
Breaking Down Materials: Analytic Transformation
The process in which resources are broken down to create finished
products is known as analytic transformation.
Combining Materials: Synthetic Transformation
The process in which resources are combined to create finished
products is called synthetic transformation.
The conversion process can be continuous or intermittent.
A continuous process is a production process in which goods or services
are turned out in a long production run on an ongoing basis over time.
An intermittent process is a production process in which finished goods
or services are turned out in a series of short production runs and the
machines are changed frequently to make different products.
There are five historically significant technological changes that have
significantly impacted the production process:
• The first is mechanization, where machines replaced the work of
people.
• Hand in hand with mechanization was the development of
standardization, the use of uniform parts that could be easily
interchanged with similar parts.
• Taking the concept of standardization further, the factory
assembly line consists of a series of steps for assembling a
product, each step using the same interchangeable parts and each
being performed repetitively by the same worker.
• In order to increase output and profits, manufacturers began
trying to reduce the role of manual labor on their production
lines, striving to use automation, using machines as much as
possible rather than human labor to perform production tasks.
 Particularly interesting is the field of robotics, the use of
programmable machines, or robots, to manipulate materials and
tools to perform a variety of tasks.
• Mechanization, standardization, assembly lines, and automation
have made possible reduction of production costs and the
development of mass production, the production of uniform
goods in great quantities.
• There are four key technological advances that have improved
productivity in the manufacturing process:
• The first is the creation of CAD, CAM and CIM. These computer-
aided programs help to increase efficiency in the production
process.
• The second is flexible manufacturing systems (FMS) that set up
machines that do multiple tasks so they can be modified quickly
to manufacture different products.
• The third advance is lean manufacturing: the production of
products by eliminating unnecessary steps and using the fewest
resources, as well as continually striving for improvement.
• And the fourth advance is the development of mass
customization, using mass production techniques to produce
customized goods or services. All kinds of products and services
are now being produced to match individual customer needs and
tastes, from clothes to cars to computers.
• When engaging in operations management, planning the first step
is to choose a location. Facility location is the process of selecting
a location for company operations, whether it’s an office, a store,
a gas station, a warehouse, a factory, or a cattle ranch. There are
four key areas to think through as you select a location:
 • The first is the availability of resources such as materials, energy
availability, and the labor skills you need.
• The second is nearness to suppliers to ensure access to supplies
and limited transportation costs.
• The third issue to consider is nearness to customers, as you want
to reduce the time to market and get your product into the hands
of your customers as quickly as possible.
• Finally, there are often options for tax relief and local government
support which can be a big advantage to setting up your business
in a certain area.
• When engaging in operations management planning, the second
step is laying out your facility to achieve an efficient and effective
operation. Facility layout is the physical arrangement of
equipment, offices, rooms, people, and other resources within an
organization for producing goods or services. The arrangements
can be similar for delivering both goods and services. Three
options are available for consideration:
• The first is the product layout, in which equipment and tasks are
arranged into an assembly line—a sequence of steps for
producing a single product.
• The second is the process layout, where work is grouped by
function.
• The fixed-position layout is when materials, equipment, and labor
are transported to one location.
Purchasing is the activity of finding the best resources for the best price
from the best suppliers to produce the best goods and services.
Dealing with Suppliers: Two Strategies
 1. Use Many Suppliers to Ensure Constant Resources.
2. Use a Few Trusted Suppliers to Ensure Reliability
Inventory is the name given to goods kept in stock to be used for the
production process or for sales to customers. Inventory control is the
system for determining the right quantity of resources and keeping
track of their location and use.
Supply chain management is when companies produce goods and
services by integrating many facilities, functions and processes, from
suppliers to customers.
Holding a storeroom or warehouse full of inventory can be expensive.
Many businesses, therefore, now rely on a concept called just-in-time
(JIT) inventory control, in which only minimal supplies are kept on the
organization’s premises and others are delivered by the suppliers on an
as-needed basis.
Like JIT, materials requirement planning (MRP) is a computer-based
method of delivering the right amounts of supplies to the right place at
the right time for the production of goods. It uses what is known as a
bill of materials, which is essentially a list of materials that go into the
finished product.
Enterprise resource planning (ERP) is a computer-based system that
collects and provides information about a company’s entire enterprise,
including identifying customer needs, receipt of orders, distribution of
finished goods, and receipt of payment.
Scheduling is the act of determining time periods for each task in the
production process. There are many scheduling tools that can help
increase the productivity of an organization. Two such tools are
diagrammed in this slide and the following slide…
The first is a Gantt chart, developed by Henry L. Gantt. Gantt charts are
useful for graphically indicating deadlines or time schedules — a
specialized bar chart that shows the relationship between the kinds of
work tasks planned and their scheduled completion dates.
A PERT chart—PERT stands for program evaluation and review
technique—is a diagram for determining the best sequencing of tasks.
1. Identify the Tasks.
2. Arrange Tasks in Order.
3. Estimate Time for Each Task.
4. Diagram the Task Sequences and Times.
5. Compute the Critical Path: the sequence of tasks that takes the
longest time to complete.
Quality refers to the total ability of a product or service to meet
customer needs. Quality assurance is defined as the process of
minimizing errors by managing each stage of production.
Led by top management and supported throughout the organization,
total quality management (TQM) is a comprehensive approach
dedicated to continuous quality improvement, training, and customer
satisfaction.
There are four key components in TQM:
1. Make Continuous Improvement a Priority.
2. Get Every Employee Involved.
3. Listen to and Learn from Customers and Employees.
4. Use Accurate Standards to Identify and Eliminate Problems.
There are three quality control techniques that can help with quality
assurance:
1. The ISO 9000 series consists of quality-assurance procedures
companies must install—in purchasing, manufacturing, inventory,
shipping, and other areas—that can be audited by “registrars,” or
independent quality-assurance experts.
2. Statistical process control is a statistical technique that uses
periodic random samples from production runs to see if quality is
being maintained within a standard range of acceptability.
3. Six Sigma is a rigorous statistical analysis process that reduces
defects in manufacturing and service-related processes.

LECTURE 7 – MOTIVATION
Motivation consists of the psychological processes that induce people
to pursue goals.
Some ways to motivate employees are through extrinsic and intrinsic
rewards:
An extrinsic reward is the payoff, such as money or recognition, a
person receives from others for performing a particular task.
An intrinsic reward is the satisfaction, such as a feeling of
accomplishment, a person receives from performing the particular task
itself.
There are five reasons why it’s important to motivate employees, as
Panel 10.1 illustrates:
You want employees to:
1. Join – You want to motivate talented prospective workers to hire on
with you.
2. Show up – You want employees to be motivated to come to work —
to show up on time.
3. Stay – You don’t want good people to leave.
4. Perform – You want them to be motivated to be highly productive.
5. Do extra – You hope they will be good organizational citizens and
perform extra tasks beyond the regular call of duty.

Fredrick Taylor is the founder of scientific management. This theory

refers to the scientific study of work methods to improve the
productivity of individual workers.
Taylor based his system on time-motion studies, in which he broke
down each worker’s job into basic physical motions and then trained
workers to use the methods of their best-performing coworkers.
Frank and Lillian Gilbreth were a husband-and-wife team of industrial
engineers who expanded on Taylor’s motion studies to develop their
principle of motion economy, in which every job could be broken down
into a series of elementary motions.
The practical significance of Taylor’s and the Gilbreths’ theories today
can be seen every time you observe fast-food workers, airline baggage
handlers, or race-car pit crews.
The Hawthorne effect is the name given to a Harvard research group’s
conclusion that employees worked harder if they received added
attention — if they thought managers cared about their welfare and
that supervisors paid special attention to them. This was begun by an
investigation by Elton Mayo.
The Hawthorne studies led to the so-called human relations movement
in the 50s and 60s, which focused more on psychological motivation
rather than work steps in increasing productivity.
The theories of Abraham Maslow and Frederick Herzberg are illustrated
on the following two slides…
Maslow’s hierarchy of needs is based on the findings of the human
relations movement. Abraham Maslow is one of the key theorists and
developed the hierarchy of needs pyramid. This theory proposes that
people are motivated by five levels of needs, ranging from low to high:
(1) physiological, (2) safety, (3) social, (4) esteem, and (5) self-
actualization.
1. Physiological need—the most basic human physical needs, such as
the need for food, clothing, shelter, comfort, self-preservation.
Workplace example: these are covered by wages.
2. Safety need – the need for physical safety, emotional security,
avoidance of violence. Workplace examples: health insurance, job
security, work safety rules, and pension plans satisfy this need.
3. Social need – the need for love, friendship, affection. Workplace
examples: office parties, company bowling teams, management
retreats.
4. Esteem need – the need for self-respect, status, reputation,
recognition, self-confidence. Workplace examples: bonuses,
promotions, awards.
5. Self-actualization need – the highest-level need, such as needs for
self-fulfillment, increasing competence, using abilities to the fullest.
Workplace example: sabbatical leaves to further personal growth.

Psychologist Frederick Herzberg‘s theory dealt with employee

satisfaction and dissatisfaction. In his two-factor theory, he proposed
that work dissatisfaction and satisfaction arise from two different
factors—work satisfaction from higher-level needs he called motivating
factors, and work dissatisfaction from lower-level needs he called
hygiene factors.
Motivating factors, or simply motivators, are factors associated with
job satisfaction—such as achievement, recognition, responsibility, and
advancement—all of which affect the rewards of work performance.
Hygiene factors are factors associated with job dissatisfaction—such as
salary, working conditions, interpersonal relationships, and company
policy—all of which affect the job environment in which people work.

Job enrichment is the idea of finding the right fit between the job and
the person.
This can be accomplished by either fitting people to jobs or fitting jobs
to people:
Fitting People to Jobs: The Technique of Job Simplification
Job simplification involves reducing the number of tasks a worker
performs.
Fitting Jobs to People: The Techniques of Job Enlargement & Job
Enrichment
Job enlargement consists of increasing the number of tasks in a job to
improve employee satisfaction, motivation, and quality of production.
Job enrichment consists of building into a job such motivating factors as
responsibility, achievement, recognition, stimulating work, and
advancement.
Five core job characteristics that affect workers’ motivation and
performance, as follows:
• Skill variety: “How many different skills does my job require?”
• Task identity: “How many different tasks are required to complete
the work?”
• Task significance: “How many other people are affected by my
job?” Task significance describes the extent to which a job affects
the lives of other people, whether inside or outside the
organization.
• Autonomy: “How much discretion does my job give me
• Feedback: “How often do I find out how well I’m doing?”

Through his work as a college president, Douglas McGregor saw the

importance of the managers’ attitude to employees. Through research,
the managers’ attitudes could be classified as Theory X and Theory Y:
Theory X assumes workers to be irresponsible, resistant to change,
lacking in ambition, hating work, and preferring to be led rather than to
lead.
Theory Y makes the positive assumption that workers are capable of
accepting responsibility, self-direction, and self-control and of being
imaginative and creative. Theory Y leads to empowerment, in which
management makes employees more involved in their jobs by giving
them the authority and responsibility to make decisions.
William Ouchi (pronounced oh-chi) furthered McGregor’s ideas and
developed Theory Z. Theory Z is a motivational approach that
emphasizes involving employees at all levels,
giving them long-term job security, allowing collective decision making,
emphasizing slow evaluation and promotion procedures, and treating
workers like family.
Panel 10.4 highlights the many characteristics of Theory Z.

Reinforcement theory suggests that behavior with positive

consequences tends to be repeated, whereas behavior with negative
consequences tends not to be repeated. The use of reinforcement
theory to change human behavior is called behavior modification.
How Reinforcement Works:
Reinforcement is anything that causes a given behavior to be repeated
or inhibited. Four types of reinforcement are:
• Positive Reinforcement: the idea of providing positive
consequences for desired behavior.
• Negative Reinforcement: the removal of unpleasant
consequences following a desired behavior.
• Extinction: the withholding or withdrawal of positive rewards for
undesirable behavior, so the behavior is less likely to occur in the
future.
• Punishment: the application of negative consequences.
Victor Vroom offered another motivational theory called the
Expectancy Theory. This theory proposes that people are motivated by
(1) how strongly they want something, and
(2) How likely they think they are to get it.
See Panel 10.5 on page 299 for an illustration of the three assessments
or calculations of Expectancy Theory:
Assessment 1 (expectancy): “Will I be able to accomplish a certain
task?”
Assessment 2 (instrumentality): “If I accomplish the task, what kind of
reward will I get?”
Assessment 3 (valence): “How much do I want the reward?”
Expectancy theory suggests that when attempting to motivate your
employees you should ask the following questions:
• What Rewards Do My Employees Value?
• What Are the Job Objectives and the Performance Level I Want?
• Are the Rewards Linked to Performance?
• Do My Employees Believe I Will Deliver the Right Rewards for the
Right Performance?

Adams’ Equity Theory focuses on employee perceptions as to how

fairly they think they are being treated compared to others.
There are three elements of the equity theory that compare
contributions and returns:
These are contribution, or the contributions that people perceive they
give to an organization, such as their time, effort, training, experience,
intelligence, creativity, seniority, status, and so on. People will adjust
their contributions to their perceived equity.
The second element is returns, or the rewards that people receive from
an organization: pay, benefits, praise, recognition, bonuses,
promotions, status perquisites (i.e., corner office with a view or a
private parking space), and so on. If people don’t believe rewards are
distributed fairly, it will impact their motivation.
The third element is comparison, and the theory suggest that people
compare the ratio of their own returns to contributions against the
ratio of someone else’s contributions to returns.
When employees try to reduce inequity they will do so by the following
(also detailed in Panel 10.6 shown above):
They will reduce their contributions: They will do less work, take longer
breaks, leave early on Fridays, and call in “sick” on Mondays.
• They will try to change the returns or rewards they receive: They will
lobby their supervisor for a raise or they will steal company supplies or
equipment.
• They will distort the inequity: They will exaggerate their work efforts
and complain they’re not paid what they’re worth.
• They will change the object of comparison: They may compare
themselves to another person instead of the original one.
• They will leave the situation: They will quit, transfer, or shift to
another group.
Goal setting theory proposes that employees can be motivated by
goals that are specific and challenging but achievable. Goal qualities
need to fit three specific qualities:
Specific—“Goals Need to Be Measurable.”
Challenging—“Goals Need to Spur Higher Performance.”
Achievable—“Goals Need to Be within Workers’ Capabilities.”
First suggested by management philosopher Peter Drucker,
management by objectives (MBO) is a four-step process in which (1) a
manager and an employee jointly set objectives for the employee, (2)
the manager develops an action plan for achieving the objective, (3) the
manager and employee periodically review the employee’s
performance, and (4) the manager makes a performance appraisal and
rewards the employee according to results.
For MBO to be successful, three things have to happen:
The commitment of top management is essential.
It must be applied organization wide.
Objectives must “cascade.”

Companies have to think forward with this next generation of

employees. Several years ago, PricewaterhouseCoopers, the
international consulting and accounting firm, surveyed 2,500 university
students in 11 countries to see what they wanted in a career. The
results:
• The need for balance between life and work
• The need to learn additional skills
 • The need to do something that matters
A good corporate culture will also be one that treats employees well,
listens to the needs of their employees, and offers praise.

LECTURES 8 & 9 - MARKETING

Marketing is the activity, set of institutions, and processes for creating,
communicating, delivering, and exchanging offerings that have value
for customers, clients, partners, and society at large.
How Marketing Evolved: Four Periods
The Production Era, 1700s to 1920s:
The production concept emphasized producing as many goods as
possible because there was an unlimited demand. In short, the era of
the production concept represented a seller’s market—a market in
which there is more demand for products than there is supply.
The Selling Era, 1920s to 1950s:
The selling era was known as a buyer’s market, in which there were
more products available than there were buyers. This in turn led to the
selling concept, which emphasized high-powered sales techniques to
sell products.
The Marketing Concept Era, 1950s to 1990s:
The marketing concept era focuses on customer satisfaction, service,
and profitability.
• Customer Satisfaction: the concept of offering a product to please
buyers by meeting their expectations.
• Focus on Service: “Everyone, from CEO to Stock Clerk, Should
Focus on Customer Service.”
• Emphasis on Profitability, Not Sales: “We Need to Concentrate on
the Products That Are Most Profitable.”
The Customer Relationship Era, 1990s to the Present:
Customer relationship management (CRM) emphasizes finding out
everything possible about customers and then using that information to
satisfy and even exceed their expectations in order to build customer
loyalty over the long term.
Marketing is about changing perceptions of customers to perceive one
product as more valuable than others. Value is defined as a customer’s
perception that a certain product offers a better relationship between
costs and benefits than competitors’ products do.
A company has to offer a product to the consumer. This can be an
individual product, a product line or a product mix.
• Product: A Good or Service That Can Satisfy Buyers’ Needs
• Product Line: A Group of Products Designed for a Similar Market
 • Product Mix: The Combination of All Product Lines
Consumer buying behavior refers to the behavior shown by consumers
in considering and buying various products. This activity consists of five
decisions the consumer makes when considering whether or buy a
product, as follows (see Panel 12.2 here, and on page 359):
1. Problem Recognition
2. Information Search
3. Evaluation of Alternatives
4. Purchasing Decision
5. Post-purchase Evaluation
6. Throughout the buying process, the consumer is influenced by
various factors, from global to personal, from general to specific,
some of them as follows (see Panel 12.3 here, and on page 361):
7. One of those is our culture/subculture, which is the influence of
values and attitudes around us.
8. The second is social class, the influence of our socioeconomic
group.
9. The next is our reference group, or the influence of those we hang
around with. Personal image will also influence what we buy, as
we are trying to portray a certain image.
10. Finally, we are influenced by various situational factors such
as timing, mood, impulse, expectations, etc.
11. Understanding one’s market begins with having a marketing
strategy, a plan for (1) identifying the target market among
market segments, (2) creating the right marketing mix to reach
 that target market, and (3) dealing with important forces in the
external marketing environment.
12. Buyers or users of a product fall into all kinds of groups, or
segments. Thus, a marketing strategy relies on . . .
13. • Market segmentation, dividing a market into groups
whose members have similar characteristics or wants and needs.
14. • Target marketing strategy, consisting of marketing
directly to such segments — the target market. Marketers don’t
have endless resources. Thus, they need to direct their efforts
toward people who are most likely to buy their products.
15. The consumer market – all those individuals or households
that want goods or services for their personal use – can be
segmented in a number of different ways, including: geographic,
demographic, psychographic, benefit, and user-rate.
16. Geographic segmentation categorizes customers according
to geographic location.
17. Demographic segmentation consists of categorizing
consumers according to statistical characteristics of a population,
such as gender, age, income, education, social class, ethnicity, and
so on.
18. Psychographic segmentation consists of categorizing people
according to lifestyle, values, and psychological characteristics,
such as frugal versus free spending, or rebel versus conservative.
19. Benefit segmentation consists of categorizing people
according to the benefits, or attributes, that people seek in a
product.
 20. User-rate segmentation consists of categorizing people
according to volume or frequency of usage, as with heavy users
versus light users.
21. Taking Segmentation Even Further: Niche Marketing &
One-to-One Marketing
22. Niche Marketing: consists of dividing market segments even
further, to microsegments for which sales may be profitable.
23. One-to-One Marketing: consists of reducing market
segmentation to the smallest part—individual customers.
24. For-Profit Marketing to Businesses:
25. The business market or business-to-business (B2B) market,
also known as the industrial or organizational market, consists of
those business individuals and organizations that want business
goods and services that will help them produce or supply their
own business goods and services.
26. Customer-based segmentation consists of categorizing
business customers according to such characteristics as size,
industry type, and product/service-related attributes.
27. Product-use-based segmentation categorizes business
customers according to how they will use the seller’s product.
28. Not-for-profits—whether private sector, such as churches,
charities, and environmental organizations, or public sector, such
as governmental organizations—also frequently employ
marketing.
A new product is defined as a product that either (1) is a significant
improvement over existing products or (2) performs a new function for
the consumer. Four reasons a company should introduce new products
are:
• To Stay Ahead of or Match the Competition
• To Continue to Expand Revenues & Profits
• To Fill Out a Product Line
• To Take Advantage of an Opportunity
The Marketing Process, with the Marketing Mix: The 4-P Strategy
Once a firm has determined that it needs a new product, the next
challenge is:
First, to conduct research to determine opportunities and challenges;
Second, to identify the target market; and,
Third, to determine the strategies for the marketing mix – the 4-P
strategy.
The marketing mix consists of the four key strategy considerations
called the four Ps: product, pricing, place, and promotion strategies.
Specifically, the marketing mix involves (1) developing a product that
will fill consumer wants, (2) pricing the product, (3) distributing the
product to a place where consumers will buy it, and (4) promoting the
product.
The Product Strategy: “How Do We Design & Test a Product That Will
Best Meet Consumer Wants & Needs?
Concept testing: marketing research designed to solicit initial consumer
reaction to new product ideas.
Test marketing: the process of testing products among potential users.
The Pricing Strategy: “How Do We Determine the Right Price to Set for
the Product?
Pricing is figuring out how much to charge for a product—the price, or
exchange value, for a good or service.
The Place Strategy: “How Do We Place (Distribute) the Product in the
Right Location
Placing, or distribution, is the process of moving goods or services from
the seller to prospective buyers.
The Promotion Strategy: “How Do We Communicate the Benefits of
the Product?”
Promotion consists of all the techniques companies use to motivate
consumers to buy their products —techniques such as advertising,
public relations, publicity, personal selling, and other kinds of sales.
For a marketing program to be successful, it depends on something
crucial: accurate information. Accurate information is the province of
marketing research, the systematic gathering and analyzing of data
about issues relating to the marketing of goods and services.
1) Define the Problem: Clarify the Question to Be Answered
2) Collect Facts: Use Published Data or Interviews, Observation,
Experimentation, & Focus Groups to Get Information
• Secondary Data: information acquired and published by others.
• Primary Data: data derived from original research, such as that
which you might conduct yourself.
• Focus groups: small groups of people who meet with a discussion
leader and give their opinions about a product or other matters.
 • Databases: integrated collections of data stored in computer
systems.
• Neuromarketing: a newer tool, it’s the study of how people’s
brains respond to advertising and other brand-related messages
by scientifically monitoring brainwave activity, eye tracking, and
skin response.
3) Analyze the Data: Use Statistical Tools to Determine the Facts
Once data has been gathered, it may need editing, or checking over to
eliminate mistakes, or the application of data analysis, which is
subjecting the data to statistical tools to determine its significance.
4) Take Action: Implement the Best Solution
Marketing strategy involves (1) identifying the target market, (2)
determining the right marketing mix, and (3) dealing with the external
environment— specifically the external marketing environment, the
outside forces that can influence the success of marketing programs.
These forces are: (1) global, (2) economic, (3) sociocultural, (4)
technological, (5) competitive, (6) political, and (7) legal and regulatory.
To understand this environment, marketing managers working on
marketing strategy need to do environmental scanning — look at the
wider world around them to identify what matters can affect the
marketing program.
• Global Forces
• Economic Forces
• Sociocultural Forces
• Technological Forces
• Competitive Forces
• Political Forces
• Legal & Regulatory Forces

PRODUCT
• The total product offer, also known as the value package, is all
the factors that potential buyers evaluate in a product when
considering whether to buy it. Panel 13.1 on page 387 lists some
possible components of a total product offer.
• The consumer market consists of all those individuals or
households that want goods or services for their personal use.
Consumer goods and services fall into four general classes:
• - Convenience goods and services are those inexpensive products
that people buy frequently and with little effort.
• - Shopping goods and services are more expensive products that
people buy after comparing for value, price, quality, and style.
• - Specialty goods and services are usually much more expensive
products that buyers seldom purchase or that have unique
characteristics that require people to make a special effort to
obtain.
• - Unsought goods and services are those that people have little
interest in, are unaware of, or didn’t think they needed.
• The business market or business-to-business (B2B) market consists
of those businesses that want industrial goods, or business goods,
products used to produce other products. Types of business
products include installations, capital items, accessory equipment,
 raw materials, component parts, process materials, supplies, and
business.
Simply stated, an innovation is a product that customers perceive as
being newer or better than existing products. Three types of innovation
include:
• Continuous innovation represents modest improvements to an
existing product to distinguish it from competitors; they require
little consumer behavior change.
• Dynamically continuous innovation represents marked changes
to an existing product that require a moderate amount of
consumer learning or behavior change.
• Discontinuous innovation means the product is totally new,
radically changing how people live.
Understanding these three levels of innovation helps marketers
develop the right kinds of marketing strategies to go along with a
product.
A product life cycle is a model that graphs the four stages that a
product or service goes through during the “life” of its marketability: (1)
introduction, (2) growth, (3) maturity, and (4) decline.
The introduction stage is the stage in the product life cycle in which a
new product is introduced into the marketplace.
The growth stage, which is the most profitable stage, is the period in
which customer demand increases, the product’s sales grow, and later
competitors may enter the market.
The maturity stage is the period in which the product starts to fall out
of favor and sales and profits start to level off.
The decline stage is the period in which the product falls out of favor,
and the organization eventually withdraws it from the marketplace.
There are six stages in developing a new product. They are:
1. Idea generation is coming up with new product ideas, ideally by
collecting ideas from as many sources as possible.
2. Product screening is elimination of product ideas that are not
feasible.
3. Product analysis is doing cost estimates to calculate the product’s
possible profitability.
4. Product development is the production of a prototype of the
product, a preliminary version, so the company can see what the
product will look like.
5. Test marketing is the introduction of a new product in a limited form
to selected geographical markets to test consumers’ reactions.
6. Commercialization is the full-scale production and marketing of the
product.
Product differentiation is the attempt to design a product in a way that
will make it be perceived differently enough from competitors’
products that it will attract consumers. Of course, the kind of
differentiation will depend on what kind of goods and services are
involved and what kinds of markets.
Two important ways to differentiate a product are through branding
and packaging. A brand is a unique name, symbol, or design that
identifies an organization and its product or service. Brands fall into
three general classes:
 • Brand names are those parts of a brand that can be expressed
verbally, such as by words, letters, or numbers.
• Brand marks are those parts of a brand that cannot be expressed
verbally, such as graphics and symbols.
• Trademarks are brand names and brand marks, and even slogans,
which have been given exclusive legal protection.
Brands can be in different types such as: manufacturer, private-label,
family, individual and co-branding.
• Manufacturer’s brands also called national or producer brands, or
even global brands when extended worldwide—are those
attached to products by companies that distribute nationwide or
even worldwide.
• Unlike manufacturers’ brands, private-label brands also known as
private, store, and dealer brands—are those attached to products
distributed by one store or a chain.
• With family brands, the same brand name is given to all or most
of a company’s products.
• Unlike family brands, with individual brands, different brand
names are given to different company products.
• Sometimes two companies or entities will get together and
combine their brands, in hopes of advancing the interests of both.
This is known as co-branding, two noncompeting products link
their brand names together for a single product.
There are many goals of branding, but the most important goals are:
• to publicize the company name and build trust
• to differentiate the company’s product from competing products
 • to get repeat sales
• to make entering new markets easier
Judging the Value of a Brand: Brand Equity & Brand Loyalty
Brand equity is the marketing and financial value derived from the
combination of factors that people associate with a certain brand
name. Brand loyalty is commitment to a particular brand—the degree
to which consumers are satisfied with a product and will buy it again.
Brand awareness means that consumers recognize the product.
Brand preference means that consumers habitually buy the product if it
is easily available, but will try alternatives if they can’t find it.
Brand insistence means that consumers insist on the product; they will
accept no substitutes. Highly popular brands often bring forth knock-
off brands, illegal imitations of national brand-name products.
Packaging: Protecting & Promoting a Product
Packaging is the covering or wrapping around a product that protects
and promotes the product. Packaging has five functions:
• To Protect the Product
• To Help Consumers Use the Product
• To Provide Product Information
• To Indicate Price & Universal Product Code
• To Promote the Product & Differentiate It from Competitors
PRICE
There are several pricing objectives, or goals, that product producers —
as well as retailers and wholesalers — hope to achieve in pricing
products for sale. Five of the most popular strategies are:
 • To Make a Profit
Achieving a target return on investment is simply fancy language for
making a profit, a specified yield on the investment.
• To Match or Beat the Competition
• To Attract Customers
Sometimes stores will use certain products as loss leaders, products
advertised at or below cost to attract customers. Low pricing can also
be used to increase market share, the percentage of the market of
total sales for a particular product or good.
• To Make Products More Affordable to Certain People
• To Create Prestige
Determining the Revenue Needed to Cover Costs: Break-Even Analysis
Break-even analysis is a way of identifying how much revenue is
needed to cover the total costs of developing and selling a product.
Specifically, its purpose is to find the break-even point—the point at
which sales revenues equal costs; that is, at which there is no profit but
also no loss. The break-even point involves (1) fixed costs and (2)
variable costs.
• Fixed costs, or total fixed costs, are expenses that don’t change
regardless of how many products are made or sold.
• Variable costs are expenses that vary depending on the numbers
of products produced.
The formula for computing the break-even point is shown at the
bottom of this slide.
There are three principal pricing strategies:
1. Some companies favor cost pricing, in which the cost of producing or
buying the product—plus making a profit—is the primary basis for
setting price.
2. Unlike cost pricing, target costing considers market forces. In target
costing, a company starts with the price it wants to charge, figures out
the profit margin it wants, then determines what the costs must be to
produce the product to meet the desired price and profit goals.
3. In competitive pricing, price is determined in relation to rivals,
factoring in other considerations such as market dominance, number of
competitors, and customer loyalty.
Besides the three main pricing strategies, there are six alternative
pricing strategies:
1. To recover its high research and development costs on a product, a
company may resort to price skimming, setting a high price to make a
large profit; it can work when there is little competition. Naturally the
big profits will quickly attract competitors.
2. Penetration pricing is setting a low price to attract many customers
and deter competition.
3. Discounting, or high-low pricing, is assigning regular prices to
products but then resorting to frequent price-cutting strategies, such as
special sales, to undercut the prices of competitors.
4. Unlike discount pricing, everyday low pricing (EDLP) is a strategy of
continuously setting prices lower than those of competitors and then
not doing any other price-cutting tactics such as special sales, rebates,
and cents-off coupons.
5. Bundling is the practice of pricing two or more products together as
a unit, such as a burger, fries, and soft drink (Burger King); a shirt and
tie (Men’s Wearhouse); or a washer and dryer (Sears).
6. Psychological pricing, sometimes called odd-even pricing, is the
technique of pricing products or services in odd rather than even
amounts to make products seem less expensive.

DISTRIBUTION
The Distribution Mix: Marketing Channels - What are the means of
distributing products between producers and consumers?
Intermediaries: Wholesalers, Agents & Brokers, & Retailers - How do
the principal intermediaries differ from one another?
Physical Distribution: Supply Chains & Logistics - What are supply
chains and logistics, and how are transportation and warehousing
involved?
The Promotion Mix: Tools, Goals, & Strategies - What are the concepts
of the promotion mix and integrated marketing communication, and
what are the goals of promotion?
Advertising & Public Relations - How are advertising and public
relations important in marketing?
Personal Selling & Sales Promotion - How could I use personal selling
and sales promotion to benefit a product?
If we continue the 4 Ps discussion we started in Chapter 13, we still
have place and promotion to discuss.
• The place strategy — “How do we place (distribute) the product in
the right locations?” Placing, or distribution is the process of
 moving goods or services from the seller to prospective buyers.
We discuss distribution in the first half of this chapter.
• The promotion strategy — “How do we communicate the benefits
of the product?” Promotion consists of all the techniques that
companies use to motivate consumers to buy their products.
A distribution channel, also known as a marketing channel, is a system
for conveying goods or services from producers to customers.
Intermediaries, or marketing intermediaries, are the people or firms
that move products between producer and customers. They consist of
agents or brokers, wholesalers, and retailers.
The distribution mix is the combination of distribution channels a
company uses to get its products to customers.
Distribution Channels for Consumer Goods & Services
No Intermediaries: Producer to Consumer—Direct Channel.
One Intermediary: Producer to Retailer to Customer.
Two Intermediaries: Producer to Wholesaler to Retailer to Consumer.
Three Intermediaries: Producer to Agent/Broker to Wholesaler to
Retailer to Consumer.
Distribution Channels for Business Goods & Services
No Intermediaries: Business Producer to Business User.
One or More Intermediaries: Business Producer to Agent or
Wholesaler.
There are six key ways intermediaries add value to a product:
1. Form utility - changing raw materials into useful products
2. Location utility - making products available where convenient
3. Time utility - making products available when convenient
4. Information utility- providing helpful information
5. Ownership utility - helping customers acquire products
6. Service utility - providing helpful service
There are three kinds of distribution strategies, which are known as
forms of market coverage, or product distribution among locations.
They are (1) intensive, (2) selective, and (3) exclusive.
Intensive distribution means the product is distributed among as many
locations as possible.
In selective distribution, a product is distributed in preferred locations,
where it will get special attention.
Exclusive distribution means the product is distributed in only a few
locations.
When expanding a business it is important to get intermediaries
involved to help facilitate the growth. Some types of intermediaries
are wholesalers, agents and brokers.
The three principal types of wholesalers are (1) manufacturer-owned
wholesalers, (2) full-service merchant wholesalers, and (3) limited-
function merchant wholesalers.
A manufacturer-owned wholesaler is a wholesale business that is
owned and operated by a product’s manufacturer.
A full-service merchant wholesaler is an independently-owned firm that
takes title to — that is, becomes owner of — the manufacturer’s
products and performs all sales and distribution, as well as provides
credit and other services.
A limited-function merchant wholesaler is an independently owned
firm that takes title to — becomes owner of — the manufacturer’s
products but performs only selected services.
Agents and brokers are specialists who bring sellers and buyers
together and help negotiate a transaction. Their value to a
manufacturer or producer is their knowledge of markets and their
experience in merchandising. Agents tend to maintain long-term
relationships with the people they represent. Brokers are usually hired
on a temporary basis. Their relationship with the buyer or the seller
ends once the transaction is completed.
Store retailers sell to the ultimate consumer, such as a Walmart.
Non-store retailers are such things as vending machines, online outlets,
direct selling such as door-to-door and in-home parties.
Direct marketing includes mail, catalogs and telemarketing.
Video marketing includes TV shopping and programming.
Physical distribution consists of all the activities required to move
products from the manufacturer to the final buyer. . .
• Order processing
• Transportation
• Storage
Getting products into the hands of customers involves a supply chain,
the sequence of suppliers that contribute to creating and delivering a
product, from raw materials to production to final consumer.
Logistics consists of planning and implementing the details of moving
raw materials, finished goods, and related information along the supply
chain, from origin to points of consumption to meet customer
requirements.
The five main ways of transporting materials and products through the
supply chain are via (1) rail, (2) road, (3) pipeline, (4) water, or (5) air.
Warehousing is the element of physical distribution that is concerned
with storage of goods. The physical handling of goods to and from and
within warehouses is called materials handling.
Storage Warehouses are for Long-Term Storage
Distribution Centers are for Short-Term Storage
PROMOTION
The promotion mix is the combination of tools that a company uses to
promote a product, selecting from among four promotional tools: (1)
advertising, (2) public relations, (3) personal selling, and (4) sales.
Integrated marketing communication combines all four promotional
tools to execute a comprehensive, unified promotional strategy.
Promotion has three goals: to inform, to persuade, and to remind.
The first promotional priority is to inform people about a product,
because they won’t buy something they know nothing about.
Consumers need to be told what the product is, how to use it, where to
buy it, and perhaps how much it costs.
The second priority is to persuade consumers to buy the product, to
differentiate the product from competitive products, to say what the
unique features are.
The last priority is to remind consumers about the existence and
benefits of the product.
Two quite different promotional strategies are often used: (1) push and
(2) pull.
The push promotional strategy is aimed at wholesalers and retailers, to
encourage them to market the product to consumers.
The pull promotional strategy is aimed directly at consumers, to get
them to demand the product from retailers.
There are three main types of advertising: brand, institutional and
public service.
Brand advertising, also called product advertising, consists of
presentations that promote specific brands to ultimate consumers.
Institutional advertising consists of presentations that promote a
favorable image for an organization.
Public service advertising consists of presentations, usually sponsored
by nonprofit organizations, that are concerned with the welfare of the
community in general.
There are six distinct approaches: informational, reminder, persuasive,
competitive, direct action, and fear appeal.
Informational advertising provides consumers with straightforward
knowledge about the features of the product offered.
Reminder advertising tries to remind consumers of the existence of a
product.
Most advertising is persuasive advertising, which tries to develop a
desire among consumers for the product.
Competitive advertising, which is also called comparative advertising,
promotes a product by comparing it more favorably to rival products.
Direct-action advertising attempts to stimulate an immediate (or
relatively immediate) purchase of a product through such devices as
one-day sales, one-time promotions, or announcements of a special
event.
Fear-appeal advertising attempts to stimulate the purchase of a
product by motivating consumers through fear of loss or harm.
There are three main types of advertising: brand, institutional and
public service.
Brand advertising, also called product advertising, consists of
presentations that promote specific brands to ultimate consumers.
Institutional advertising consists of presentations that promote a
favorable image for an organization.
Public service advertising consists of presentations, usually sponsored
by nonprofit organizations, that are concerned with the welfare of the
community in general.
There are six distinct approaches: informational, reminder, persuasive,
competitive, direct action, and fear appeal.
Informational advertising provides consumers with straightforward
knowledge about the features of the product offered.
Reminder advertising tries to remind consumers of the existence of a
product.
Most advertising is persuasive advertising, which tries to develop a
desire among consumers for the product.
Competitive advertising, which is also called comparative advertising,
promotes a product by comparing it more favorably to rival products.
Direct-action advertising attempts to stimulate an immediate (or
relatively immediate) purchase of a product through such devices as
one-day sales, one-time promotions, or announcements of a special
event.
Fear-appeal advertising attempts to stimulate the purchase of a
product by motivating consumers through fear of loss or harm.
Advertising media are the variety of communication methods for
carrying a seller’s message to prospective buyers. There are many
different types of media that an organization can utilize. It is important
to select a media outlet that will fulfill your goals.
When selecting a media plan there are four considerations: reach,
frequency, continuity, and cost.
Reach: How many people will be reached at least once? Reach is the
number of people within a given population that your ad will reach at
least once.
Frequency: How often is each person exposed to the ad? Frequency is
the average number of times each member of the audience is exposed
to an ad.
Continuity: What is the timing of the ads? Continuity is timing of the
ads, how often they appear or how heavily they are concentrated
within a time period.
Cost: What is the cost of reaching 1,000 people? Cost per thousand
(CPM) is the cost a particular medium charges to reach 1,000 people
with an ad.
Whereas advertising is paid media coverage of a firm’s products,
publicity is defined as unpaid coverage by the mass media about a firm
or its products. Because publicity is presented in a news format—as
when a newspaper takes a company’s press release and rewrites it into
a news article—consumers are apt to see this kind of promotion as
more credible than advertising. A press release, or news release or
publicity release, is a brief statement written in the form of a news
story or a video program that is released to the mass media to try to
get favorable publicity for a firm or its products.
Public relations (PR) is concerned with creating and maintaining a
favorable image of the firm, its products, and its actions with the mass
media, consumers, and the public at large.
Personal selling is face-to-face communication and promotion to
influence customers to buy goods and services.
Three basic tasks associated with personal selling are (1) creative
selling, (2) order processing, and (3) sales support.
Creative selling is the selling process in which salespeople determine
customer needs, then explain their product’s benefits to try to
persuade buyers to buy the product.
Order processing consists of receiving customer orders and seeing that
they are handled correctly and that the product is delivered.
Sales support consists not of selling products but rather of facilitating
the sale by providing supportive services.
The personal selling process—by which we mean the creative selling
process—consists of a carefully planned sequence of seven activities:
(1) prospecting (2) qualifying, (3) approaching the customer, (4)
presenting the product, (5) handling objections, (6) making the sale,
and (7) following up. This slide shows these steps in order.
Sales promotion is defined as short-term marketing incentives to
stimulate dealer interest and consumer buying. The first is B2B; the
second is B2C.
Business-to-business (B2B) sales promotion, also known as trade
promotion, is intended to stimulate dealer interest. The devices used
include trade shows, conventions, catalogs, and special printed
materials for salespeople. A trade show is a gathering of manufacturers
in the same industry who display their products to their distributors
and dealers.
Business-to-consumer (B2C) sales promotion is extremely varied. Some
of the more common devices used are bonuses (such as two products
for the price of one), catalogs, cents-off promotions, contests, games,
and lotteries.
Guerrilla marketing consists of innovative, low-cost marketing schemes
that try to get customers’ attention in unusual ways.
Word-of-mouth a promotional technique that relies on people telling
others about products they’ve purchased or firms they’ve used, such as
buzz marketing or viral marketing.