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New Management Approaches

Focus on global competition, technology, customer expectations, better educated employees, and team-building

Management Skills

Technical; Human relations; conceptual skills

Four Classic Management Functions

Plan, Organize, Control, Direct


starts with a statement of vision and mission


within micro (individual) or macro (corporate) level


auditing performance


communicating, promoting ethics, embracing change

Leadership Styles

Autocratic; Laissez-Faire; Democratic

Autocratic Leadership

"Do as I say"

Laissez-Faire Leadership

"Come to me only if there's a problem"

Democratic Leadership

"What does everybody think?"

Fayol's Principles of Organization

(a.k.a. Unity of Command) employees should be given non-conflicting orders from superiors; no one should have more than one supervisor; frustration and conflict will occur if this principle is not followed

Chain of Command Principle

organizations should have a well-defined chain of command; problems should be resolved at lowest level; "jumping" the chain is disruptive and ill-advised

Span of Control Principle

number of workers depends on capabilities of subordinates and manager; depends on complexity of job, geography, functional similarity, need for coordination, and planning demands


Max Weber believes the elements are regulations, promotions based on qualifications, and job descriptions; turns bad when rules and regulations override common sense

Tall Organization Definition

Centralized-decision making; strict adherence to principles of management; narrow span of control; unity of command is strictly followed; well defined chain of command

Tall Organization Pros & Cons

Pros: increased uniformity; stronger brand image; maximum managerial control; worked well during era of mass production
Cons: over-reliant on rules; many decision making layers= slow response; costly; benefits managers not customers

Flat Organization Definition

Few layers of management; decentralized decision making (teams and workers); less rigid in following classic principles

W. Edwards Deming

Pioneered Total Quality revolution in the 1950s; sent to help rebuild Japan's economy post WWII; recognized that identifying defecting end product only was ineffective way to achieve quality products

Total Quality Principles

emphasize teamwork
empower employees
strive for constant improvement
drive out fear of authority
END RESULT: flatter more efficient organizations

Maslow's Hierarchy of Needs

Physiological/biological needs --> safety/security needs --> social needs --> esteem needs --> self-actualization

Frederick Herzberg

Noted that there is a difference between just being satisfied and being motivated (between liking your job and loving it); theory of Motivation-Hygiene

Motivation-Hygiene Theory

Motivators: comes from nature of work itself of job content (sense of achievement, challenge of work, responsibility, potential for growth)
Potential Dis-satisfiers: (Hygiene factors) work environment, salary, benefits, supervisors, co-workers

Job Enrichment Theory

1. re-design the job itself for the employee (job rotation, job enlargement)
2. bestow significance to the job
3. provide employees more autonomy
4. give and get better feedback

Equity Theory

equity= ownership & fairness
perception is based on comparison to others; actuality is secondary; employer must be able to explain disparities


noun: a group of consumers with an identified need
verb: to market a product is to find and fill a need using a combination of the right product, price, placement, and promotion

Qualification for a Market

1. desire
2. financial ability
3. authority to purchase the product

Business to Business Market

purchases are characterized by more rational decision-making; not swayed by advertising and sales

Business to Consumer Market

purchase often driven by combination of reason and emotion; advertising is very important

Four P's of Marketing

1. Product
2. Price
3. Place
4. Promote

Approaches of Marketing

1. Undifferentiated Approach- single product
2. Market Segmentation- demographics, psychographic (attitude & lifestyle), geographic, benefit (comfort, safety, health), frequent buyer

Pure risk

potential for loss with no potential for gain

Exposure to Risk

1. accidental death or injury
2. losses to natural disasters
3. risk of being sued for negligence
4. risk of being robbed

Four Ways to Manage Risk

1. Avoid exposure
2. Reduce the risk to minimize loss through education, regulation, technology, etc.
3. Transfer the risk to others (buying insurance)
4. Self-insure (deductible)

Criteria to be Insurable

1. You must have an insurable interest
2. The loss must have a $ value
3. Loss must be accidental
4. Risk must be geographically dispersed
5. Chance of loss must be measurable/predictable

The Law of Large Numbers

If a large # of people are exposed the same risk, a predictable # of losses will occur during a given period of time; allows insurers to calculate chances that a loss will occur

Rule of Indemnity

Cannot collect more than the actual loss

Net worth



an employer-provided savings/investment program, i.e., a benefit; up to 15% of salary; should diversify portfolio

Individual Retirement Account (IRA)

a way for someone to build a nest egg for retirement; can put in as much as $5k/year; taxes can be deferred until withdrawal

Roth IRA

money grows and can be withdrawn tax-free; recommended for new investors

Credit Card Advantages

1. Convenient
2. Can be used in financial emergencies
3. Required to rent car, book flight, etc.

Credit Card Disadvantages

1. Temptation to overspend
2. Will pay forever
3. Potential for poor credit ratings
4. High interest rates & annual fees

Considerations When Choosing a Credit Card

1. Low interest rates
2. Compare yearly charges
3. Penalties
4. Benefits
5. Interest is on "balance due" not "average daily balance"
6. Grace Period

Pyramid of Wealth

Bottom: savings, CDs, money market funds, term life insurance (emergency funds accessible only when needed)
Middle: growth stocks and mutual funds that accumulate during earning years
Top: blue chip stocks; corporate and government bonds for income/distribution during retirement years

Mutual Funds

can start with a small amount; secret is to invest the same amount each month; growth stock for investors in their 20s

Common vs. Preferred Stock

Common: has voting rights
Preferred: guarantees a dividend

Owner's Equity

consists of both stock and retained earnings

Debt Financing

borrowing and paying interest

When it's smart to borrow...

invest borrowed $ for a greater return on your investment

When it's not smart to borrow...

when the return is less than the amount borrowed

Secured Loans

secured by collateral; results in lower interest rates

Unsecured Loans

"signature loans," higher interest rates

Long-Term Debt Financing

comes from banks or bonds


investors loan money when they buy them; collect regular interest payments; issuer pays investor annual interest rate and the entire amount upon maturity; interest is tax-deductible

Equity Financing Pros & Cons

capital is obtained from firm's own money or other investors
Pros: Don't have to pay back; don't have to pay interest
Cons: Weakens cash position; give up control


Selling accounts receivable

Blue Chip vs. Penny Stock

Blue Chip: stock in one of the company's listed at the top of the DOW
Penny: share in a company with low trade price

Buying stock "on margin"

buying stock with borrowed money

Fundamental Balance Equation

Assets = Liabilities + owner's equity

Current Assets

-accounts receivable
-short term notes
-ending inventory
(can be converted to cash quickly)

Fixed Assets

$ of buildings
$ value of vehicles, equipment, etc.
$ land

Intangible Assets


Current Liabilities

-accounts payable
-short term notes
-accrued salaries
-accrued taxes

Long-term Liabilities

-long term notes (loans)
-corporate bonds

Income Statement Formula

1) Revenue - COGS = gross profit
2) Gross profit - expenses = net profit before taxes
3) NPBT - taxes = net profit


what you received for what you sold

Liquidity Ratios

how quickly a firm can convert assets into cash

Current Ratio

Current Assets/ Current Liabilities

Acid Test

(cash + accts receivable + securities) / current liabilities

Leverage (Debt) Ratios

Total Liabilities / Owner's Equity

Profitability Ratios

EPS, Return on Sales, P/E ratio

Activity Ratios

COGS / Average Inventory Value

Bond Ratings

AAA to BBB = investment grade
rating based on credit worthiness
low rating = higher risk = higher interest rate


Unequal set of results; underlying assumption: wealth can be created; "invisible hand"

Command Economies

Where government largely determines what goods and services are produced, who gets them, and how the economy will grow

Democratic Socialism

Emphasizes social equality but results in very high taxation, less incentive to innovate, brain drain

Free-Market System

When the market largely determines what goods and services are produced, who gets them, and how the economy will grow

Federal Government Economic Goals

1. Economic growth
2. Full employment
3. Stable prices

Economic Indicators

1. GDP
2. Employment figures
3. Price stability

Federal Government Approach

1. monetary policy- control US money supply
2. fiscal- taxing and spending

Supply & Demand

As supply increase, price decreases.
As demand increases, price increase.


Specific, Measurable, Attainable, Reasonable, Timeline

Workers Comp

State/Employer- provided insurance

Term Life Insurance

simple death protection

Whole Life Insurance

combination savings and insurance

Retained Earnings

money kept by a company (what is left after dividends, etc.)

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