Review Flashcards for Business Management Lectures

Finance

  • Definition: How businesses raise capital, invest in assets, and manage financial risk.
    • Facilitates financial transactions.
    • Connected to strategy, leadership, industry, etc.
    • Considers assessment of risk tolerance.
  • How businesses invest:
    • Budgeting for long-term capital projects.
    • Strategic direction: growth vs. diversity.
    • Alignment with long-term goals.
  • Time Value of Money:
    • Small differences add up significantly over time.
    • Example #1: Investing 1000/year in a broad stock market index fund from age 25 to 35 versus starting at 35 and investing for life.
    • Assuming a 10% (historical) return, the friend who started later will never catch up.
    • Example #2: Borrowing 500,000 at 7% for 30 years to buy a house.
    • Total repayment will be 1.2 million.
  • Generally, money is worth more now than in the future.

Present Value

  • Definition: The amount you need to invest today to achieve a specific future value.
    • Formula: PV = FV / (1+r)^n
    • Where:
      • PV = Present Value
      • FV = Future Value
      • r = interest rate
      • n = number of periods
    • Example: Wanting 20,000 in 5 years for a down payment on a house, assuming 5% annual return.
    • Calculation: PV = 20,000 / (1 + 0.05)^5
    • PV ≈ 15,670

Future Value

  • Definition: The amount in the future if invested today.
    • Formula: FV = PV * (1 + r)^n
    • Where:
      • FV = Future Value
      • PV = Present Value
      • r = interest rate
      • n = number of periods
    • Example: Investing 1,000 today at an annual interest rate of 5% for 5 years.
    • Calculation: FV = 1,000 * (1 + 0.05)^5
    • FV ≈ 1,276

Interest

  • Definition: The price paid for the use of borrowed money.

    • Simple Interest:

    • Calculated only on the principal.

    • Example: 1000 for 5 years at 5% = 50 * 5 = 250, Total = 1250

    • Compound Interest:

    • Calculated on the principal and reinvested interest.

    • Example: 1000 for 5 years at 5% = 50 + 52.50 + 55.13 + 57.88 + 60.77 = 276.28, Total = 1276.28 (same as FV)

  • Power of Compounding: Rule of 72

    • How many years it takes to double your money.
    • Formula: (72 / X%) = N
      ewline years
    • 4% = 18 years
    • 8% = 9 years
    • 12% = 6 years

Valuation Decisions

  • Comparing today’s money versus tomorrow’s money.
  • Decisions based on comparison/alternatives.
  • Example: Should BMW invest 100m in a factory that will be worth 200m in 10 years?
    • At 6%, PV of 200m is 112m – YES build plant.
    • At 9%, PV of 200m is 84m – NO don’t build plant.

Raising Funds

  • Capital Structure:
    • Debt (loans) vs. equity (cash, stock).
    • D/E ratio – how risky is the borrowing practice.
  • Factors:
    • Interest rates.
    • Lifecycle stage – e.g., startup vs. midlife.
    • Industry – e.g., energy vs. tech.
    • Leadership/firm preference – risk tolerance.
  • Selling stock (equity).
  • Issuing bonds (debt).
  • Angel investors/venture capital (equity).

Raising Funds – Equity vs. Debt

  • Equity:
    • Dividends, divided ownership, slower, can grow.
  • Debt:
    • Faster, less disclosure, requires collateral.
  • Mix depends on Context (e.g., industry) and Design (e.g., company risk tolerance).

Finance conclusions

  • Raise, invest, and manage finances.
  • Riskier assets pay/charge higher interest.
    • Highest interest rates are typically for short term loans.
  • Comparison of alternatives.
  • Equifinal: There’s no one right answer.

Operations Management

  • Definition: Designing, planning, managing, and improving the processes that convert materials and labor into goods and services as efficiently as possible.
  • Inherent part of open systems.
  • Made up of three aspects:
    • Operational
    • Managerial
    • Supporting
  • Linked to customer value and utility (Form, Time, Place)

Operations – Effectiveness

  • Productivity:
    • Productivity = Outputs/Inputs
    • 100,000 units produced in 250 hours = 400 units/labor hour
    • 10,000 revenue hours by 500 employees = 20 revenue hours/employee
    • Same store year-over-year sales

Efficiency

  • Efficiency = optimize resource utilization
  • Actual/Standard Output
    • Standard output = 150/day
    • Output today = 120
    • Efficiency = 120/150 = 80%
  • % on-time flights – subjective!

Operations – Process Design

  • Optimizing workflow and procedures
    • 1. Map steps in process
    • Critical paths
    • 2. Analyze efficiency
    • Quantitative/qualitative
    • 3. Design/improve process
    • Equipment and people

Operations – Additional Issues

  • Supply Chain Management
    • All activities for producing and delivering goods and services.
    • Systems and resources
    • Internal and external
    • Broader, strategic
  • Just in Case vs. Just in Time
    • JIC (e.g., Ford):
    • Inventory: Build things ‘just in case’ our customers want/buy them.
    • Trades up-front cost for availability
    • JIT (e.g., Honda):
    • Arrives when needed.
    • Trades savings for risk

Information Technology

  • Definition: Design, implementation, support, and management of information systems.
    • Supports management decision-making.
    • Includes tech (hardware and software), systems, networks.
    • Integrated with every business function
  • Aspects of IT
    • Information Systems
    • Data warehousing
    • IT for work (e.g., CAD)
    • Enterprise Systems (MIS, HRIS, DSS)
    • Bespoke/Proprietary AI
  • IT risks/threats:
    • Hackers, Malware
    • Intellectual property
    • Ex. Equifax – 150m customers’ names, SSNs, b-days

Power, Control, Leadership

Power

  • Definition: The extent to which A can get B to do something he/she/it would not otherwise do.
    • Relational and dynamic
    • Irrelevant unless used.
    • Can go in any direction.
    • Always a cost.
    • Evolves/changes in response to design and context.
  • Types of Power
    • Weber
    • French and Raven
    • 5 Basis of Power
      • Reward – give.
      • Coercive – take away.
      • Legitimate – positional.
      • Expert – knowledge.
      • Referent – charisma.

Control

  • Definition: Managing member self-interests such that they align with the organization’s interests.

    • Don’t suppress, align.
    • Goal is not uniformity.
    • Dynamic

  • How to align interests

    • Process

    • Goal-alignment, rewards.

    • Agency

    • Owners empower managers.

    • Top-down

    • Market

    • Free-market/customers

    • Bottom-up

    • Bureaucratic

    • Rules and regulations

    • Clan

    • Culture, values, norms

    • Ex. Zappos hiring process.

    • Can be combined depending on design and context.

Leadership

  • Not just one definition.
  • Partly the individual, partly the context.
  • Four main approaches:

Leadership is… Traits

  • Earliest approach – Great Man
    • No combination works best, but…
    • …Some traits are important:
    • Cognitive capacity
    • Social capacity
    • Personality
    • Expertise

Leadership is… Behaviors

  • What leaders do
    • Initiating structure – task
    • Consideration – people
    • Change
    • No combo works best, but…
    • …Some are important:
    • Direction setting
    • Boundary spanning
      • Connecting the organization to everything else
    • Operations
      • Making things happen

Leadership is… Problem-solving

  • Combines traits and behaviors.
    • Boundary spanning/monitoring
    • What is my competition/environment doing?
    • Planning and strategizing.
    • Very useful in dynamic environments.

Leadership is… Influence

  • Activate higher-order needs.
    • Align individual and organization goals.
    • Motivation
    • Individualized consideration.
    • Moral and ethical character important.
    • Very useful in uncertain environments.

Who decides?

  • Work Context
    • Stability – task
    • Uncertain – influence
  • History/Tradition
  • Environments/generalizability (Socrates!)

Conclusions

  • Leadership matters, but context is important.
  • No one “best” leadership style.
  • The best leaders are adaptable, like the best businesses.

Conflict

  • Leadership + Power ~ Conflict

  • Definition: Clash between goal-directed behaviors.

  • Not always bad.

  • Can improve effectiveness.

  • Key is managing “good” and “bad”.

  • Relationship not linear.

Sources of Conflict

  • Resource scarcity
  • Incompatible goals
  • Structural (e.g., reward systems)
  • Interpersonal differences.
  • Poor communication.

Conflict Management Styles

  • Competing – win/lose
  • Avoiding – run away!
  • Accommodating – for you
  • Compromising – satisficing
  • Collaborating – win/win

Stages of Conflict

  • 1. Latent – always there.
  • 2. One party perceives a conflict.
  • 3. Both parties feel the conflict.
  • 4. One or both parties manifest the conflict.
  • 5. The conflict is resolved.
  • 6. Aftermath – back to step 1

Decision-Making

  • Definition: The process of responding to a problem by searching for and selecting the best course of action.
  • Programmed – repetitive and routine.
    • Ex. Paying a bill.
  • Non-programmed – novel and unstructured.
    • Ex. Covid-19
  • Certainty & Risk affect choices

Models of Decision-Making

  • Rational – nice, but Simon says…
    • Ideal, but not useful; nobody can do it.
  • Carnegie – bounded rationality/satisficing
    • Exam as much/as deeply as I can with the time that I have.
  • Incremental – stable environment
  • Unstructured – free-form

Managerial Decision Levels

  • Top management
    • Non-programmed, strategic.
  • Middle management
    • Transform non-programmed into programmed.
  • Lower-level management
    • Handle and implement programmed.

Motivation

  • Definition: The psychological force that directs and maintains an individual’s goal-directed efforts… it includes intensity, persistence, and direction of behavior.
  • Align individual and business goals (aka control)
  • Intrinsic v. extrinsic

What is motivating?

  • Money, promotions – Taylor
  • Accomplishment, recognition – humanism
  • Equity – comparison to others
  • Expectancy – likelihood of valued outcomes

How to motivate? Employee + Context

  • S.M.A.R.T. goals
    • Specific – clear
    • Measurable – quantifiable
    • Achievable – doable given time and resources
    • Relevant – align with objectives.
    • Time-bound – deadline/timeline
  • Employee + Context
    • Behavior mod/training
    • Job design – rotate and enrich
    • Increase/enhance rewards

Human Resources

  • Definition: 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 performing their jobs.
    • Improve performance and avoid mistakes.
    • Labor Relations à Personnel à HR àStrategic HR
  • How is HR changing?
    • Globalization
    • Changing nature of work
    • Changing nature of workforce

The Legal Context

  • Everything in HR is affected by the legal context
  • Main concept Discrimination = “employment decisions based on something other than jobs qualifications”
  • Establish Disparate Impact (using stats), then
    • Disparate Impact – something about you or group you represent that disproportionately effects the chance of getting hired.
    • Business necessity
    • Bona fide occupational qualifications (BFOQ)
    • Validity
  • Why is Discrimination Illegal?
    • 5th and 14th Amendments
    • Civil Rights Act (1964, 1991)
    • Age Discrimination Acts (1967, 1978, 1984, 1986, 1987)
    • Americans with Disabilities Act (1990)
    • Otherwise qualified individuals
    • Reasonable accommodation
    • Supreme Court Cases

HR – Key Functions

Job Analysis

  • Definition: The purposeful, systematic process for collecting information about the important work-related aspects of a job.
    • Basis of all the rest of HR
    • Job descriptions, tests, training, performance management.
    • Individual characteristics, tasks, duties, behaviors.

Recruiting

  • Develop largest application pool.
  • Meet legal, business, and social obligations.
  • Maximize hiring success.
  • Internal and external

Selection

  • Applicant would be…
    Don’t HireHire
    SuccessfulIncorrect Reject/MissCorrect Accept/Hit
    UnsuccessfulCorrect Reject/HitIncorrect Accept/Miss
  • Application forms
  • Reference checks
  • Tests – cognitive, physical, personality.
  • Interviews
    • Interviews work when they collect the same information from every candidate.
    • Answer for this: structured interviews.
  • Other – polygraph, drug testing
    • Can use drug testing after offer if trace of drugs can affect job.
    • For the most part, polygraphs cannot be used to make employment decisions. (Exceptions for some gov’t, National Security, positions)

Training

  • Formal effort to teach knowledges, skills, tasks.
  • 90% of orgs offer training.
  • 100b+/year with mixed results
  • Job Analysis + Org Analysis + Person Analysis.
    • JA – what does the job need.
    • OA – what does the organization need, have, want.
    • PA – what does the person need to know, experienced, can be trained, what do trainees need?
  • Goals and assessment very important
Training Techniques
  • Lectures/classroom
    • If JA suggest that u have bunch of people at roughly same level; can deliver same info to many people at same time.
  • On-the-job
    • Learn job skills by doing the job.
  • Technology-assisted/simulations
  • Cases, role plays, exercises.

Performance Assessment

  • Training, PA, and Compensation linked.
  • Communicate, motivate, reward.
  • Evaluation or Development – pick one.
  • Not very popular… but critical for businesses.
Criteria
  • Objective – sales, productivity, errors.
    • Often looks objective but is not.
  • Subjective – ratings, surveys, satisfaction.
    • Look at 2s and 4s for best info on rating.

HR – Key Functions

Other HR-related areas

Compensation
  • Salary, bonuses, stock, benefits.
  • Tied to motivation.
Labor Relations – lots of laws
  • Negotiations and contracts.
  • Worker rights
  • Occupational Health

DEI

  • Diversity – differences among people within organization.
  • Equity – equal opportunities (not equal achievement).
  • Inclusion – individuals feeling welcomed and valued.
  • Students for Fair Admissions, Inc. v. University of North Carolina (2023) – violated 14th Amendment Equal Protection Clause.

Benefits of DEI

  • More perspectives = better solutions
  • Exposure reduces biases, stereotypes.
  • Better serve needs of diverse stakeholders.
  • Increased commitment, satisfaction, less stress, fewer conflicts, less likely to leave.
  • But, diversity can hinder performance.
    • Lots of different opinions and slow down decision making.

Human Resources – Bonus career tips

  • AI is impacting HR, how to adapt?
    • What unique value do you bring.
    • Customize app/resume for AI screeners.
    • Prep for AI-interviews – practice!
  • Recent study on AI and finance – 0-45% accurate

Conclusions

  • Start with job analysis.
  • Legal context.
  • Build a system to recruit, select, train, and retain.
  • Equifinal
    • No one ideal HR system.
  • Bonus tip: AI is impacting HR, how to adapt?

Organizational Culture

  • Definition: Shared meanings, beliefs, norms, values, and assumptions that guide and are reinforced by organizational behavior.
    • Provides meaning.
    • Guides decision-making.
    • Encourages adaptation.
    • Sharedness is key.

Background

  • Jacques (1952) – Changing the Culture of a Factory
  • Clear differences between organizations
    • Ex. Walmart vs. Wegmans

Origins

1. National Culture – Hofstede (country caution**)

  • Power – acceptance of inequities
  • Uncertainty – preference for stability vs. risk-taking
  • Social – preference for individual vs. collective action.
  • Goal – assertiveness, dominance vs. relevance, cooperation
  • Time – focus on future vs. focus on present.
  • Indulgence – life is good!

2. Business Type – Institutional Theory

  • Examples
    • Banks – avoid risks.
    • Tech – supports innovation.
    • Hospitals – care for everyone

3. Founders – Schein (1992)

  • Founders are important.
  • Alignment is key.
  • Levels of culture.
Schein’s Model:

  • Basic Assumptions – common understandings standard procedures, not directly observable.

  • Espoused Values – beliefs about what should happen (philosophy, mission statements, etc.)

  • Artifacts – tangible and observable elements (documents, dress, physical space)

  • IKEA example:

    • Basic Assumption: ‘a Swedish company delivering value to everyone’
    • Espoused Values: ‘to create a better everyday life for the many people’
    • Artifacts: colors, logo, uniforms, no business cards.

  • Founders create culture

    • Create organization.
    • Bring in a few people.
    • Rules, norms develop.
    • Others join under these rules, reinforce.

  • Founders reinforce culture

Primary Mechanisms – things leaders do
  • Reward, allocate resources, HR practices.
Secondary Mechanisms – other reinforcers
  • Org design, myths, physical space

Conclusions

  • Culture is socialized by members.
  • Hard to measure, hard to change.
  • Important and powerful.
  • Equifinal.

Strategy

  • Definition: How a business plans to translate its core competencies into competitive advantage.
    • Pattern of decisions.
    • Actions to undertake.
    • Direction of efforts.

Value Creation Cycle

  • 1. Strategy
  • 2. Core Competencies
  • 3. Competitive advantage
  • 4. Ability to obtain resources

Core Competencies

  • Skills in essential areas that add value
    • Distinctive competencies – cc’s better than your competitors
    • People, resources, and management
  • Try keep cc’s related, also adds values
    • Ex. Pepsi and Frito Lay
    • Ex. GM and GMAC
    • Ex. Fortune Brands

Competitive Advantage

  • Differentiation – superior quality/features
    • Ex. BMW
    • Ex. Apple
  • Low-price – same product, lower price
    • Ex. Great Value, ATech
  • Integrated – dual focus (rare)
    • Ex. IKEA

Levels

  • Functional – what the business already does
    • Cut costs, increase efficiencies.
    • Optimize resources.
    • Ex. ColorNet printing company – they print giant banners
  • Business – leverage existing core competencies within industry/area
    • Ex. Costco
  • Corporate – expand into new business area
    • Related vs. Unrelated portfolio of companies
    • Ex. Honda – Related differentiation
    • Ex. Fortune Brands – Unrelated Differentiation

Conclusions

  • Function of competencies and resources
  • Impacts structure, culture, HR and more
  • Equifinal
  • But…
    • “Culture eats strategy for breakfast.”

Future and Conclusions

Top trends and challenges:

1. Artificial Intelligence and Automation

  • People – How will we respond?
  • Jobs – Reskilling workforce
  • Industries – Disrupted? Enhanced? Eliminated?

2. Cybersecurity

  • Data security
  • Risk mitigation.
  • AI, huge hacks, leave consumers facing a perfect storm of privacy perils – NYT

3. Talent Acquisition and Retention – Changing workforce

  • “mis-skilled” workers
  • Competition for top, work-ready talent

4. Climate Change/Sustainability

  • Sustainable practices = economic benefits
  • Consumer expectations
  • Regulatory changes

5. Environmental Uncertainty – Political, Economic, Social

  • Global political tensions
  • Trade and tariffs
  • Supply chain disruptions

Conclusions – big picture

  • Businesses are systems.
  • Successful businesses are aligned.
  • Equifinality—there is no one correct answer.