MGMT Exam 2

Entrepreneur statistics

31 million entrepreneurs in the US (16% of workforce)

55% of adults have started a business at some point

26% of adults have started two or more businesses

99.9% of all US businesses are small businesses

nearly 50% of all US employees are employed by a small business

Top five industries for small businesses

food and restaurant

retail

business services

health beauty and fitness

residential and commercial services

What is entrepreneurship?

the process of initiating a business venture, organizing the necessary resources, assuming the associated risks, and enjoying the rewards

How small is a small business

vast majority have no employees

small % have 1-19 employees

very few have 20-499

has to do with the size relative to your industry

Idealists

rewarded by the chance to work on something new and creative

Optimizers

get personal satisfaction from being business owners

Hard workers

thrive on the challenge of building a larger, more profitable business

Jugglers

high-energy people who enjoy handling every detail of their own business

Sustainers

enjoy the chance to balance work and personal life

Minority owned businesses

more than 11 million minority-owned businesses

employ more than 6.3 million people and generate nearly $2 trillion in revenue annually

Immigrant Owned businesses

immigrants are twice as likely as native-born Americans to start new businesses

types of businesses are increasingly sophisticated - moving towards firms in financial services, software, insurance, and online businesses

Women-owned businesses

more than 12 million firms were majority women-owned in 2018 (58% increase from 2007)

women are more cautious about borrowing money - limits growth opportunities

more woman are starting tech related businesses

Small business stats

approximately 20% of small businesses fail within the first year

by the end of the 2nd year, 30% fail

by the end of the 5th year, about 50% fail

by the end of the decade, 70% fail

Traits of entrepreneurs

need for autonomy, entrepreneurial sacrifice, high energy, need to achieve, self-confidence, internal locus of control, awareness of passing time, tolerance for ambiguity

Social entrepreneurships

focus primarily on creating social value by providing solutions to social problems, with a secondary purpose of generating profit and returns

Benefit corporation

Type of for-profit corporate entity, authorized by 36 states that includes positive impact on society, workers, the community and the environment in addition to profit

must pass an impact assessment which scores on environmental sustainability, community impact, and transparency

Launching a start up process

start with an idea

write a business plan

choose a legal structure

arrange financing

Sources of business ideas

in-depth understanding of industry

market niche spotted

brainstorming

copying someone else

hobby

writing a business plan

document specifying business details

planning forces the entrepreneur to carefully think through the issues and problems associated with starting and developing a business

Characteristics of a business plan

clear, compelling vision

clear, realistic financial projections

profile of potential customers and target market

details about the industry and competitors

evidence of an effective management team

critical risks

courses and uses of start-up funds and operating funds

Sole proprietorship

unincorporated business owned by an individual for profit

majority of businesses

few legal requirements

unlimited liability

Partnership

unincorporated business owned by two or more people

formal partnership agreement is encouraged

unlimited liability

Corporation

artificial entity created by the state and existing apart from its owners (more complex paperwork)

limited liability

pay taxes on its income

provides continuity

sell stock to investors

Debt financing

borrowing money that must be repaid at a later date to start a business

Equity funds

funds that are invested in exchange for ownership in the company

Angel financing

wealthy individual who believes in a start-up provides personal funds and advice to help the business get started

Venture capital firms

groups that invest money in new or expanding businesses or ownership and potential profits

Crowdfunding

raising capital from small amounts from many investors, usually through social media and the internet

Business incubator

typically provides shared office space, management support systems, and management and legal advice to entrepreneurs

Co-working facility

open office environment shared by multiple freelance entrepreneurs as well as corporate telecommuting employees or others who don't have a regular office

Franchising

the franchise owner sells rights to offer products/services and their process under its brand name in exchange for selling fee and ongoing sales and fees

Advantages/disadvantages of franchising

disadvantages: franchisers dictate the prices, must purchase equipment, building, and new product offerings

advantages: franchise owner provides management help and expertise, known brand name, reliable financial projections

Peter Drucker

Each member of the enterprise contributes something different...their contributions must fit together to produce a whole, without gaps, without friction, without unnecessary duplication of effort

Goal

desired future circumstance or condition that the organization attempts to realize

Plan

blueprint for goal achievement specifying the necessary resource allocations, schedules, tasks, and other actions

Planning

determining the organization's goals and defining the means for achieving them

Mission/Mission Statement

reason for organization's existence

statement includes the reason the organization exists, how they differ from competitors, may include statement of their values

Strategic goals

official goals; broad statements describing where the organization wants to be in the future, long term

Strategic plans define the actions steps by which the company intends to attain strategic goals

Tactical goals

define what major departments and organizational subunits will do to reach the tactical goals

tactical plans are how they reach the tactical goals

Operational goals

results expected from departments, work groups, and individuals in support of tactical goals

managers use them to direct employees and resources

Levels of goals and plans

Operational supports tactical that supports strategic all in an effort to achieve the mission. Everything flows from the mission

Characteristics of effective goals

linked to rewards, specific and measurable, defined time period, cover key result area, challenging but realistic

Key performance indicators (KPI)

tool used to assess what is important to an organization and how well the organization is progressing toward achieving its strategic goal

Planning approaches

management by objectives (Peter Drucker)

single-use plans

standing plans

Management by objectives (MBO)

system whereby managers and employees define goals and use the goals to assess performance

Management by Means (MBM)

new systemic approach that focuses attention on the methods and processes used to achieve goals

MBO benefits

focuses manager and employee efforts on activities that will lead to goal attainment

can improve performance at all company levels

improves employee motivation

aligns individual and departmental goals with company goals

Single-use plans

plans developed to achieve objectives that are not likely to be repeated in the future

Standing plans

ongoing plans that provide guidance for tasks or situations that occur repeatedly within the organization

Benefits of planning

Provide a source of motivation and commitment

Guide resource allocation

Guide to action (behavior)

Set a standard of performance

Limitations of planning

Can create too much pressure

Can create a false sense of certainty

May cause rigidity in a turbulent environment

Can get in the way of intuition and creativity

Contingency planning

define company responses to be taken in the case of emergencies, setbacks, or unexpected conditions

Scenario building

forecasting technique that looks at current trends and discontinuities and visualizes future possibilities

Stretch goals

reasonable yet highly ambitious and compelling goals, characterized by both difficulty and extreme novelty, that energize people and inspire excellence

Crisis planning

preparing organization, managers, and employees to cope with catastrophic events that could destroy the firm

What does it mean to think strategically

Take the long-term view

See the big picture

Positively affect performance and financial success

What is strategic management

Set of decisions and actions used to formulate and execute strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals

Strategy

plan of action that describes resource allocation and activities for dealing with the environment, achieving a competitive advantage, and attaining the organization's goals

Competitive advantage

what sets the organization apart from others and provides it with a distinctive edge for meeting customer needs

Possible sources of competitive advantage

customer support, natural resources, brand, IP, access to skilled labor, quality, new technology, distribution network

Elements of competitive advantages

target customers, create value, exploit core competence, achieve synergy

Core competence

something the organization does especially well in comparison to its competitors

Synergy

occurs when organizational parts interact to produce a joint effect that is greater than the sum of its parts acting alone

Corporate level strategy

pertains to the organization as a whole and the combination of business units (more than one) and product lines that makes up the corporate entity

what business are we in?

Business level strategy

pertains to each business unit or product line and how each one competes within its industry

how do we compete?

Functional level strategy

pertains to the major functional departments within the business unit. Functional areas of business include accounting, marketing, HRM, R&D, manufacturing, and others depending on the line of business.

SWOT

strengths (internal), weaknesses (internal), opportunities (external), threats (external)

SWOT Analysis

mission

goals

strategies: scan external environment, identify OT, scan internal environment, identify SW, define new missions/goals/grand strategy, formulate strategy (corporate, business, functional), execute strategy via changes in leadership/culture, structure, HR, communication systems

Strategy Formulation

includes the planning and decision making that lead to the establishment of the firm's goals and the development of a strategic plan

Strategy execution

the use of managerial and organizational tools to direct resources toward implementing the strategy and achieving goals

Three approaches to understanding corporate-level strategy

Portfolio strategy, Boston Consulting Group Matrix, Diversification

Portfolio strategy

Strategic business units (SBUs): business divisions of the organization that have a unique business mission, product line, competitors, and markets

Portfolio strategy: pertains to the mix of multiple SBUs/product lines to provide synergy and competitive advantage

BCG matrix

organizes business units along two dimensions - business growth rate and market share

The combination of high/low market share and high/low business growth rate provide four categories for a corporate portfolio

Corporate Portfolio (BCG matrix)

Stars: High share, high growth rate: rapid growth and expansion

Cash cows: High share, low growth rate: milk to finance bright prospects and stars

Bright prospects: Low share, high growth rate: new ventures; risky; a few become stars, others are divested

Dog: Low share, low growth rate: no investment, keep some profit, consider divestment

Diversification

strategy of moving into new lines of business

Merger

occurs when two or more organizations combine to become one

Joint venture

involves a strategic alliance or program by two or more organizations

Related diversification

expansion into new business related to existing business activities

Unrelated diversification

expansion into new lines of business that are not related

Vertical integration

expansion into businesses that supply to the business or are distributors (often portrayed horizontally)

forward integration: apple moving into retailing

backward integration: netflix making its own content

Porter's Five Forces

Rivalry among competitors, threat of substitution products, potential new entrants, bargaining power of buyers, bargaining power of suppliers

Porter's Competitive strategies

differentiation, cost leadership, focus

Differentiation strategy

distinguish products/services from competitors (better/stronger/faster)

Cost leadership strategy

aggressively seek efficient facilities, cost reductions, and cost controls (not talking about price)

Focus strategy

concentration on a specific region or buyer

(then follow differentiation or cost leadership)

Globalization strategies

use of standardized product design and advertising strategies throughout the world

based on the assumption that a single global market exists for many consumers and industrial products

Multidomestic Strategy

handling of competition in each country remains independent of industry competition in other countries

Globalization strategy

combines global coordination to attain efficiency with local flexibility to meet needs in different countries

Organization structure

Formal tasks assigned to individuals and departments

Formal reporting relationships among employees

The design of systems to ensure effective coordination of employees across department

Organizational chart

the visual representation of an organization's structure

Division of labor

the degree to which organizational tasks are subdivided into separate jobs

Chain of command

an unbroken line of authority that links all employees in an organization and shows who reports to whom

Authority

the formal and legitimate right o a manager to make decisions, issue orders, and allocate resources to achieve outcomes and goals

vested in organizational positions, not people

flows down the vertical hierarchy

accepted by subordinates

Responsibility

the duty to perform the tasks or activity as assigned

Accountability

willingness or obligation to accept responsibility

Delegation

the process that managers use to transfer authority and responsibility down the hierarchy

Line authority

managers have formal authority to direct and control immediate subordinates - connected via a line in the organizational chart

Line departments

perform tasks that reflect the organization's mission - generate revenue

Staff authority

authority that includes the right to advise, recommend, and counsel in the staff specialists' area of expertise (usually advises someone horizontally)

Staff departments

support line departments - cost center