COMM 1800 Exam 3

Finance

how businesses raise capital, invest in assets, and manage financial risk

Connects to strategy, leadership, environments, the economy, industry, politics, competition, etc.

Considers assessment of risk (risk tolerance)

Transaction

company spends money on something or company gets money to spend

Relationship between time and money: making money

invest early because today’s money is worth more than tomorrow’s money

Relationship between time and money: costing money

borrowing money today will require you to pay back more later

Present value

amount you need to invest today to achieve a specific future value

PV = FV/(1 + r)ⁿ

Future value

amount in the future if invested today

FV = PV * (1 + r)ⁿ

Discounting

for $X later, how much do you need now?

Compounding

for $X now, how much will you have later?

Interest

price paid for use of borrowed money (how much it costs to borrow money)

generally, lower interest rate means lower risk

Simple interest

paid only on the principal

E.g. $1000 for 5 years at 5% --> $50/year * 5 years = $1250

Compound interest

earn interest on principal and reinvested interest (whatever else you earned)

E.g. $1000 for 5 years at 5% --> $50 + $52.50 + $55.13 + $57.88 + $60.77 = $1276.28 (same as FV)

Principal

the amount of money you're giving or getting

Rule of 72

72/x% = n years

Simple way to see how long is take to double your money

Budgeting

• long-term capital projects = 5-10 years building something

• strategic direction: growth vs stability

• alignment with the company’s long-term goals

Valuation decisions guide investments

• Today's money vs tomorrow's money

• Decisions based on comparisons/alternatives

Operations

designing, planning, managing, and improving the processes that convert materials and labor into goods and services as efficiently as possible

part of ITO, connected to structure and leadership, and linked to customer value and utility

Three aspects of operations

1. operational

2. management

3. supporting

Two components of operational effectiveness

Productivity and efficiency

Productivity

outputs/inputs

the more outputs for each input, the more productive

Same store year-over-year sales

productivity for a retail company

compare numbers of stores to revenue every year

Efficiency

optimize ITO process

actual/standard output

Process design to optimize workflow and procedures

1. map the entire process out in steps

2. analyze efficiency (quantitative or qualitatitve)

3. design/improve process

Logistics

movement of goods and services through the entire process (to the operations, operations, from operations)

Supply chain management

• all activities for producing and delivering

• systems (ITO) and resources (stuff needed to make the supply chain happen and prevent breaking down)

• internal (operations/ITO) and external (logistics and supply chain)

• broader, strategic

The big players of supply chain management

Supply chain: Unilever (provides food to 190 countries), Walmart (100,000+ suppliers)

Logistics: DHL (ship 1.7 billion parcels per year), UPS (has a logistics hub of 5.2M ft² that processes 115 packages per second)

Just in Case (JIC)

• inventory → having everything in stock

• trades up-front cost for availability

  • need to be sure that you need the thing, can store it, and will be able to sell it

• e.g. Ford

Just in Time (JIT)

• the thing arrives exactly when you need it

• cuts out the storage, no need for warehouse or inventory

• trade savings (don’t need to store) for risk (if the supply chain breaks down)

JIC vs. JIT

Most companies now do a hybrid of JIC and JIT

Mostly JIT but with a few things in their pocket in case something goes wrong (addition of JIC since pandemic)

e.g. Honda

Impacts of operations

• context → what industry you're in, how much can you drive the price down, how much can you save (e.g. Costco vs a bank)

• design → how important it is to you, the structure (e.g. Costco vs Prada)

Equifinality of operations

Slightly less equifinal than other areas

Power

the extent to which A can get B to do something they would not otherwise do

Characteristics of power

• relational and dynamic

• irrelevant unless used

• down, up, and side-to-side influence

• always a cost

• evolves/changes in response to design and context

Five types of power (French and Raven)

1. reward

2. coercive

3. legitimate

4. expert

5. referent

Effective leaders will use different combinations of these types of power with different kinds of people in different situations

Reward power

get B to do something by A giving them something

the more B doesn’t want to do it, the more it’s going to cost A

Coercive power

if B doesn't do something because they didn’t want to do, A takes something away from B

Legitimate power

get B to do something because A is the boss

similar to Weber’s rational-legal authority, very business oriented

Expert power

A knows more about this than B does, so B will do it because A said to

A has the knowledge, B doesn’t

Referent power

B does something because they like A

same as Weber’s charismatic authority

Control

managing member self-interests so that they align with the organization's needs

Techniques for control

• don’t suppress, align self-interests with the organization’s

• goal is not uniformity, but to minimize random behavior

• dynamic → pick the best strategy depending on context

Types of control

• process

• agency

• market

• bureaucratic

• clan

Process control

Goal-alignment through rewards

Series of steps that inform the employee how to get rewarded (sets expectations; can leave if they dislike/disagree)

e.g. UVA’s hiring process and classes

Agency control

owners empower managers through agents

this is how all publicly owned companies are run

e.g. Google’s board members

Market control

free-market/consumers influences the company

consumer actions (giving money, boycotting) are a way to try to influence the organization

least common

e.g. GoFundMe, Target pride collection protests

Bureaucratic control

Interests are lined up through rules and registrations (Weber’s bureaucracy)

Use guidelines to get interests of A more similar to B

e.g. U.S. SEC

Clan control

cultures, values, norms, shared beliefs influence the way you act

organization's self-interest of getting employees lined up with their goals and employees' self-interest of fitting in

very common and very powerful

Leadership

not just one definition

partly the individual, partly the context

Four main approaches to leadership

1. leadership is traits

2. leadership is behavior

3. leadership is problem-solving

4. leadership is influence

Leadership is traits

• the earliest understanding of leadership

• Great Man approaches

• leadership is something about the person

• No combination of "key traits" works best

• important traits regardless: cognitive capacity, social capacity, personality, expertise

Cognitive capacity (as a leadership trait)

being able to figure things out; identify characteristics of a problem, formulate a solution, implement the solution to the problem

Social capacity (as a leadership trait)

connect with people, self-monitoring (reading the room, paying attention to themselves), situational awareness, self-awareness

Personality (as a leadership trait)

openness to new experiences, perspectives, ideas; conscientiousness

Expertise (as a leadership trait)

knowing about/what it is you’re doing

Leadership is behaviors

• what leaders do

  • initiating structure (task), consideration (people), change (reacting to the environment)

• no combination works best

• specific traits regardless: direction setting, boundary spanning, operations

Direction setting (as a leadership behavior)

the vision, where this business is going

Boundary spanning (as a leadership behavior)

looking out of the organization, evaluating connections outside of the organization (stakeholders, constituents)

Operations (as a leadership behavior)

paying attention to operations to understand how it affects the organization and the environment

Leadership is problem-solving

• evaluates the main task of a leader (solving problems)

• combines traits and behaviors

  • boundary spanning/monitoring

  • planning and strategizing

• very useful in dynamic environments

Leadership is influence

• the goal of a leader is to get people to do stuff

• activate higher-order needs

  • Identify what employees want and figure out how high it can be taken

  • get everyone to work in the same direction

• Most helpful when the goal is getting everyone past the basics and working towards a bigger thing

• ethical and moral characteristics (socialized/positive or personalized/negative charisma)

• very useful in uncertain environments

How to activate higher-order needs

• Align individual and organization goals

• Motivation

• Individualized consideration -- take into account each person they're trying to lead/motivate on an individual basis

What/who decides leaders

• environment

  • stable = task-oriented leaders

  • unstable = influential leaders

• history/tradition

• context/generalizing characteristics or traits

• individuals can choose their leaders

Human resources

policies, practices, and systems organizations use to acquire, select, train, appraise, reward, develop, and terminate while complying with legal and cultural requirements
(everything to get people into the organization and doing their jobs)

Objectives of HR

improve performance and avoid mistakes (find good employees, provide good training, provide good compensation → improve quality of work)

Evolution of “HR”

Labor Relations → Personnel → HR → Strategic HR

Contexts changing HR

• globalization (increasing)

• changing nature of work — how people do their work and what they’re doing (e.g. less jobs of physically doing something)

• changing nature of the workforce — demographics of labor, depends on country and industry

• technology (e.g. AI)

How the law affects HR

everything in HR is affected by legal

Discrimination

employment decisions (selection, training, reward, promotion, termination) based on something other than job qualifications (race, gender, disability)

Disparate Impact

when there seems to be evidence of discrimination

A business’s defense to a disparate impact

1. business necessity — requirement of the business/job

2. bona fide occupational qualifications (BFOQ) — only people who are ____ can do this job

3. validity — test predicts performance (most acceptable)

Legal acts against discrimination

• the 5th and 14th Amendments

• Civil Rights Act (1964, 1991)

• Age Discrimination Acts (1967, 1978, 1984, 1986, 1987)

• Americans with Disabilities Act (1990)

• Supreme Court cases

The 5th and 14th Amendments

both say: “laws apply the same to everyone”

Civil Rights Act

Addressed the loopholes companies created to get around the 5th and 14th amendments

Title 7 → prohibited employment discrimination based on race, gender, color, religion
Title 9 → prohibited education discrimination based on gender

Age Discrimination Acts

protects workers over the age of 40, with some exceptions (e.g. pilots)

Americans with Disabilities Act (ADA)

prohibited employment discrimination based on disability (otherwise qualified individuals)

reasonable accommodation → assistive technology, curb cutouts, speakers, etc.

Key functions of HR

• job analysis

Job analysis

the purposeful, systematic process for collecting information about the important work-related aspects of a job

outlines job descriptions, tests, training, performance management, promotions, career development plans

looks at individual characteristics (personality traits), tasks (what employees do), duties (responsibilities), behaviors (e.g. motivation)

Motivation

the psychological force that directs and maintains an individual's goal-directed efforts, including intensity, persistence, and direction of behavior

one tool that can be used to align goals of the organization and the workers

Intrinsic motivation

internal motivation; doing it because it's something you want to do (e.g. self-satisfaction, sense of pride)

Extrinsic motivation

external motivation (e.g. a pay raise, benefits)

What motivates people

• money, promotions (extrinsic)

• accomplishment, recognition, sense of pride, awards, sense of belongingness (intrinsic)

• equity theory

• expectancy theory

Equity theory

Inputs_me/outputs_me vs. inputs_others/outputs_others

comparing ourselves to others
motivation = inequity/our inputs and outputs are out of balance with those of others

Expectancy theory

likelihood of valued outcomes
motivation = the possible rewards
the higher the probability and/or the more valuable the outcome, the more motivation

How to motivate

• S.M.A.R.T. goals

• behavior modification/training

• job design (rotate and enrich)

• increase/enhance rewards (extrinsic motivations)

S.M.A.R.T. goals

• Specific → clear

• Measurable → quantifiable

• Achievable → doable given time and resources

• Relevant → align with objectives

• Time-bound → deadline/timeline

Conflict

• people + power

• clash between goal-directed behaviors (good or bad)

• can improve effectiveness

• key is managing the “good” and the “bad”

• relationship is not linear

Sources of conflict

• resource scarcity (competition)

• incompatible goals (organizational and individual goals are inherently conflicting → compromise)

• structural (e.g. reward system)

• poor communication → try to change through training, selection, reward system, feedback

Stages of conflict

1. latent

2. perceived

3. felt

4. manifest

5. resolution

6. aftermath

Stages of conflict: latent conflict

Conflict is always there, just maybe not clashing at the moment

E.g. employee wants to get paid a lot, organization wants to pay workers as little as possible

Stages of conflict: perceived conflict

One party notices the conflict, that goals are not aligned

E.g. worker notices someone is getting paid more to do the same thing as them with the same amount of experience

Stages of conflict: felt conflict

Both parties feel the conflict; the other party recognizes it as well

E.g. boss notices unhappy worker and reaches out; someone brings the unhappy worker to the boss’s attention

Stages of conflict: manifest

One or both parties does something about the conflict (result of the conflict)

E.g. workers going on strike

Stages of conflict: resolution

The conflict is resolved (negotiation, conversation, argument, physical altercation, etc.)

E.g. boss gives a raise, rejects the request, defers the conversation

Stages of conflict: aftermath

feeds back into step 1 → latent conflict goes down (e.g. pay raise) or up (e.g. raise is rejected)

Conflict management styles

• competing

• avoiding

• accommodating

• compromising

• collaborating

Conflict management style: competing

• win/lose

• fast way to resolve conflict

• less successful in the long run because it increases latent conflict

Conflict management style: avoiding

• run away

• raises latent conflict

• not suitable for businesses because conflict needs to be dealt with

Conflict management style: accommodating

• for you

• works if its not a big issue, you don’t really care, may get you some points in the future with the person

• for small day-to-day things, not big issues or goal conflicts

Conflict management style: compromising

• satisficing

• each party gets some and gives up other stuff

Conflict management style: collaborating

• win/win

• the ideal management style

• negotiate, collaborate, work together, and both sides win

• takes more time and effort

• most successful in the long run because it creates the least amount of latent conflict

Decision-making

the process of responding to a problem by searching for and selecting the best course of action

dynamism (environment) and risk tolerance (the individual) affect choices