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Department
Arts and Business
Course
ARBUS 101
Professor
Mohsin Bashir
Semester
Fall

Description
1 Table of Contents Module 2 - Globalization Module...........................................................................................4 Dynamic Global Market............................................................................................................................4 Getting Involved in Global Trade..............................................................................................................4 Strategies for Reaching Global Markets ...................................................................................................4 Forces Affecting Trading in Global Markets..............................................................................................5 Trade Protectionism..................................................................................................................................6 Module 3 - Role of Government Module................................................................................7 Government Affects Business...................................................................................................................7 Government Involvement in the Economy...............................................................................................7 Crown Corporations..................................................................................................................................7 Laws and Regulations................................................................................................................................8 Taxation and Financial Policies.................................................................................................................9 Government Expenditures........................................................................................................................9 Purchasing Policies..................................................................................................................................10 Module 4 - Teamwork Module............................................................................................. 11 Realities of Teams Today........................................................................................................................11 Stages of Team Development.................................................................................................................12 Five Conditions for Team Success...........................................................................................................13 Meeting Management............................................................................................................................14 Module 5 - Mike's Bikes Module.......................................................................................... 15 Planning ..................................................................................................................................................15 Market Analysis.......................................................................................................................................15 Mike's Bikes Players Manual...................................................................................................................16 Market Analysis.......................................................................................................................................16 Module 6 - Accounting Module............................................................................................ 17 Role of Accounting Information..............................................................................................................17 Accounting Disciplines(Areas).................................................................................................................17 Accounting Cycle.....................................................................................................................................18 Understanding Key Financial Statements...............................................................................................18 2 Applying Accounting Knowledge ............................................................................................................19 Ratio Analysis..........................................................................................................................................19 Module 7 - Marketing I Module........................................................................................... 21 What is Marketing?.................................................................................................................................21 Marketing Mix.........................................................................................................................................22 Providing Marketers with Information...................................................................................................22 Consumer Market...................................................................................................................................23 Module 8 - Marketing II Module.......................................................................................... 25 Product Development and the Total Product Offer ...............................................................................25 Branding and Brand Equity.....................................................................................................................25 Competitive Pricing.................................................................................................................................26 Non Price Competition............................................................................................................................26 Importance of Channels of Distribution .................................................................................................27 Retail Intermediaries...............................................................................................................................27 Promotion and the Promotion Mix.........................................................................................................27 Word of Mouth and Other Promotional Tools.......................................................................................28 Managing the Promotion Mix.................................................................................................................29 Module 9 - Operations Module............................................................................................ 30 Canada Today..........................................................................................................................................30 Canada’s Evolving Manufacturing and Services Base.............................................................................30 From Production to Operations Management.......................................................................................30 Operations Management in the Service Sector......................................................................................30 Operations Management Planning.........................................................................................................31 Production Processes..............................................................................................................................33 Improving Production Techniques and Cutting Costs.............................................................................33 Control Procedures: PERT and Gantt Charts...........................................................................................34 Module 10 - Finance Module ............................................................................................... 35 Role of Finance and Finance Managers..................................................................................................35 Financial Planning...................................................................................................................................35 Need for Funds........................................................................................................................................36 Obtaining Short Term Financing.............................................................................................................36 3 Forms......................................................................................................................................................37 Obtaining Long Term Financing..............................................................................................................37 Module 11 - Ethics and Corporate Social Responsibility Module........................................... 40 Ethics is More than Legality....................................................................................................................40 Ethics Begins with Each of Us..................................................................................................................40 Managing Businesses Ethically and Responsibility.................................................................................41 Corporate Social Responsibility ..............................................................................................................42 International Ethics and Social Responsibility........................................................................................44 Module 12 - Leadership Module .......................................................................................... 45 Managers’ Roles are Evolving.................................................................................................................45 Functions of management......................................................................................................................45 Planning: Creating a Vision Based on Values..........................................................................................46 Decision Making: Finding the Best Alternative.......................................................................................47 Organizing: Creating a Unified System ...................................................................................................47 Leading: Providing Continuous Vision and Values..................................................................................48 Controlling: Making Sure it Works..........................................................................................................49 Module 13 - Human Resource Management Module ........................................................... 51 Working with People is Just the Beginning.............................................................................................51 Determining Your Human Resource Needs............................................................................................51 Recruiting Employees From a Diverse Population..................................................................................52 Selecting Employees Who Will be Productive........................................................................................52 Appraising Employee Performance to Get Optimum Results.................................................................54 Compensating Employees: Attracting and Keeping the Best .................................................................55 Scheduling Employees to Meet Organizational and Employee Needs...................................................56 Career Management: Up, Over and Out.................................................................................................56 Laws Affecting HRM................................................................................................................................56 4 Module 2 - Globalization Module Dynamic Global Market Canada is a large exporting nation as our population is .05% of the world's population Contrast exporting vs. importing and world-wide competition Global trade allows a nation to produce what it is most capable of producing, over and above local consumption; and buy what it needs from other nations which is mutually beneficial (supports free trade - pros and cons in Figure 3.2) Comparative (producing more effectively and efficiently) versus absolute advantage (producing what someone else cannot produce or more efficiently than all other countries) Getting Involved in Global Trade See the list of conditions that might apply to imports into Canada on page 71 See the categories of Canada's merchandise and service trade in Figure 3.3 Global trade is measured by: the balance of trade and the balance of payments. Historically Canada has been extremely dependant on the U.S. as a trading partner Canada has a number of priority markets for future development of trade in: south-east Asia, Australia and New Zealand, Brazil, China, India, Europe, Gulf states among others Canada’s trade priorities for 2013 and 2014:  Concluding the Canada –European Union Economic and Trade Agreement  Seeking an Economic Partnership agreement with India  Advancing free trade negotiations with Japan and South Korea  Negotiating a free trade agreement with the Trans-Pacific Partnership  Developing trade ties with Gulf Cooperation Council Strategies for Reaching Global Markets There are six strategies that can be put on a continuum from least amount of commitment, control, risk and profit potential to most. Licensing when a company sells the right to manufacture its product or use its trademark to a foreign company - licensor may also provide support with the elements of marketing and licensee may also be required to purchase some components and consulting services and pay a royalty. The country(ies) where the licensee can sell this product are also specified in the 5 agreement - often including the country where the licensee is located. The licensee attaches their own labelling to the product and is restricted to where they can sell the licensed product. Licensor pays little money on marketing but carries the risk of: small percentages of the total revenue from the sales in the foreign market and copying of their technology or product secrets by the licensee. Exporting is selling directly into a foreign market - sometimes utilizing export-trading companies that provide many services. Franchising involves the sale of a right to use a business name and sell in a given territory (more control for a franchisor than a licensor). Contract manufacturing is having a foreign company making your product which you attach your company's brand name or trademark (outsourcing) and then sell this product in country(ies) including where the foreign company is located. The product is made according to stringent production standards. International Joint Ventures and Strategic Alliances occur when a partnership is formed. Joint ventures features companies pooling their technology, marketing, management and knowledge to share the risk of selling in a market (often governments mandate that the only way a foreign company can operate is through a joint venture - i.e. in China). With a strategic alliance is a partnership designed to help each company build their own competitive market advantages - no sharing of costs, risks, management and profits. Foreign Direct Investment (F.D.I.) is the buying of permanent property and businesses in foreign nations. Knowledge, technology, skills and increased trade can occur in the host country however profits may flow back to and R and D may only be done in and plum jobs may only exist in the home country. A concern for F.D. I. is expropriation by the foreign government. Another form of F.D.I. is through a multinational corporation. Forces Affecting Trading in Global Markets Sociocultural differences (values, beliefs, rules and institutions) impact the ability to do business and manage employees. Culture also includes: social structures, religion, manners and customers, values and attitudes, language and personal communication. Economic and financial forces include: consumer wealth, exchange rates (how much foreign currency is needed for each Canadian dollar when a foreign buys a product in Canada) and devaluation, and countertrading. Exchange rates controlled by global currency traders or governments directly 6 Legal and regulatory forces are unique to a given country and must be understood. Canadian companies must follow Canadian laws. Physical and Environmental forces or technological forces can act as a restraint - for instance electrical systems. Trade Protectionism Limits importing of goods and services which protects domestic producers, allowing them to survive and grow and produce more jobs (but increases the prices paid by local consumers). What is dumping and why do company's practice it? Tariffs introduced to protect local economies from mercantilism Two types of tariffs: protective and revenue. What is the difference between import quotas and embargos? Non-tariff barriers are not as specific or formal but have the same impact on trade GATT formed to negotiate mutual reductions in trade barriers. WTO replaced GATT to mediate trade disputes. IMF is an international bank focused on supporting countries with a balance of trade problem. World Bank is concerned with developing infrastructure in less-developed countries. Formal trade agreements include: producers' cartels, common market or trading bloc (NAFTA and the EU) where there are common external tariffs, no internal tariffs and co-ordination of laws to facilitate exchanges between member countries. How do producer cartels work? What are the objectives of NAFTA? What is the European Union? What is the impact of the European Union debt crisis on global trade? What other trades agreements are in place? 7 Module 3 - Role of Government Module Government Affects Business The 6 categories of government involvement in business: - Crown corporations - their role in the economy - Laws and regulations - taxation, consumer protection re environmental controls, working conditions and labour-management issues - Taxation and financial policies - collect taxes, to achieve certain goals - Government expenditures - provide direct and indirect aid: tax reductions, grants, loans and loan guarantees - Purchasing policies - single largest purchaser - Services - direct and indirect activities: helping companies globalize, training and re- training the workforce Government Involvement in the Economy We have a mixed economy in Canada which relates to the allocation of resources by both the market and the government We have been over-shadowed by the U.S. economy- developed faster with products either not made in Canada or not available because of a weak east/west distribution system Led the federal government to the development of the National Policy - high protective tariffs Government intervention direct towards creating a stable economy (refer to Chapter 3 re trade agreements) Crown Corporations Reasons they were created: provided services not being provided by businesses (Air Canada), bailed out a major industry in trouble (CNR), and provided special services that were not otherwise available (Bank of Canada) Many crown corporations have been privatized (reducing government involvement in business) to lower prices to consumers through, in part, improved efficiencies (other private industries have been deregulated) Issues with the privatization of the Liquor Control Board of Ontario:  Customer convenience  Revenue sources – ownership versus alcohol taxes  Sin tax as a deterrent to consumption 8 Laws and Regulations Laws derived from: the Constitution, precedents established by judges, provincial and federal statutes, and federal and provincial administrative agencies. Constitution defines the powers by level of government. Federal government’s primary responsibility is economic performance or business operations (they also oversee a number of industries – aeronautics, shipping, railways, telecommunications and atomic energy) List of federal responsibilities on page 105 Responsibilities overlap with provinces on health - federal government responsible but provincial government implements (large and growing transfer payments - we will cover both later) facilitate provinces role Role of the Industry Canada including the Competition Act and other major consumer protection laws in Figure 4.3 on page 105 Charges and fines have been imposed on a number of companies regarding price fixing or retail gasoline(identical prices in and of themselves are not evidence of price fixing) Marketing boards control the supply or pricing of certain agricultural products – give stability to important areas of the economy that are normally volatile (weather, disease, unstable prices and impact of large agri-business companies and millions of independent farmers) Canadian government can grant loans to countries to pay for wheat they buy from Canada Canadian Wheat Board (lost their monopoly late in 2012) markets wheat and barley while other Boards control production through quotas. Marketing Boards may impact normal competitive conditions. List of provincial responsibilities are on page 109. Provincial government’s primary responsibility is on issues that impact provincial residents – two principle areas are health and education (private/public partnerships in health care with private business providing the facilities governments in turn lease) Experience has shown that the P3 module has led to efficiency, cost-effectiveness (in terms of initial construction, replacement and building maintenance), risk transfer to the private partner The Agreement on Internal Trade agreed to reduce and eliminate barriers to the free movement of persons, goods, services, and investment within Canada (we want to reduce extra costs: Internal trade, more efficient, increase market access, facilitating worker mobility 9 Municipal governments provide services such as: wager supply, sewage and garbage disposal, roads, sidewalks, street lighting and building codes Municipal government’s normally play a role in consumer protection – related to serving food and zoning laws (noise, odours, and signs) Taxation and Financial Policies Taxes allow governments to: re-distribute wealth, discharge their legal obligations, pay for public services, pay down debt, fund government operations and encourage/discourage taxpayers/businesses. Taxes collect from: income, sale and property Taxes are the largest expenditure for Canadian families and any change in tax rules need to consider the impact on different groups of taxpayers. Fiscal policy relates to taxes and government spending (keeping the economy stable) – used to stimulate specific geographic or industrial areas but costly for governments. Government spending and deficits and debt – why or why not spend, stimulate the economy versus reducing the interest cost on accumulated debt Some provincial governments, including Ontario, face a bigger debt challenge than the federal government: higher per capita debt, huge interest payments, falling credit rating Annual government budgets tell us: impact on the total debt, how much and where is money to be spent, and impact on taxes Monetary policy relates to money supply and interest rates – what is the role of the Bank of Canada (used to control inflation) and what impact does raising or lowering interest rates have on consumers Impact of subprime mortgage crisis - what was this and what happened in the U.s. re liquidity concerns for banks related to bad mortgage loans Government Expenditures Governments make many payments directly to individuals which increase their purchasing power. Governments spend ongoing money on various services (education, health, roads, ports and airports) to support businesses and individuals and ad hoc money for special on-time issues Governments provide a variety of direct assistance programs to businesses with a specific purpose in mind (examples include industries that are deemed as critical or to save jobs). 10 Transfer payments made by governments to individuals and other governments (equalization payments) to reduce disparities. Purchasing Policies Used to favour Canadian companies as governments are the largest buyers including when certain government purchases are made from foreign companies (government insists that a minimum portion of the end product be manufactured in Canada) Services – see Figure 4.5 on page 122 Industry Canada - Helps small businesses get started - National Research Council supports research Foreign Affairs and International Trade - Helps businesses with exporting and foreign-investments (provides info, marketing expertise, financial aid, insurance and guarantees, publications and suggested contract forms Final Thoughts An industrial policy would have the government take an active role in shaping the long-term future of the economy especially during economic downturns – both pro and con reasons provided. 11 Module 4 - Teamwork Module Realities of Teams Today Personality clashes between team members or disagreements about the level of contribution of individual team members need to be resolved Effective team members are: committed (reliable and trustworthy), willing to offer and ask for help, motivated (invest time and energy to achieve team goals), ensuring that each team member is supported in contributing to the achievement of team goals Teamwork and collaboration at Cisco Systems:  How was the change justified – improve company productivity leveraging past successful experiences with teams  Compare command and control versus collaboration and teamwork – each has their place; the former is needed to implement decisions; the latter is needed to come up with the decision on what to do  The CEO’s biggest challenge – letting go of his authority to make decisions and giving teams the time to come up with the decision Reflecting on Past Team Experiences to Identify Individual Skills Needed for Success in Teams and How Team Members Should Behave Individual differences consist of: work styles, cultural backgrounds, personalities (including introvert and extravert) The act of providing feedback:  is affirmative to the receiver  increases motivation for both the giver and the receiver  promotes learning  improves the relationship between the giver and the receiver  should be: genuinely helpful, affirmative and supportive, collaborative, timely, clear and direct, specific and focused on a limited number of issues and should be checked for understanding, and should provide direction for improvement Strategies to use when receiving feedback:  receiver should control feedback  focus on understanding the feedback, not necessarily agreeing with it  provide information to correct misinformation or misperception  express what you will do with the feedback 12 Stages of Team Development The behaviour of a team changes over time on two dimensions: task behaviour (related to completing all the team activities), and relationship or interpersonal behaviour (related to dealing with each other) This behaviour follows a predictable/sequential pattern including 5 stages Forming Stage:  task behaviour - orientation to the task, ground rules, deciding what experience and information is relevant to the task  interpersonal behaviour - relying on the team leaders in determining acceptable behaviour Storming Stage:  task behaviour - some degree of resistance to the demands of the task based on perception of the difficulty of the task or personal abilities  interpersonal behaviour - conflict due to individual differences or the imposition of structure on individual behaviour Norming Stage:  task behaviour - open exchange of information, ideas and opinions related to the team task as work begins  interpersonal behaviour - acceptance of the team and each other leading to team unity and the avoidance of interpersonal conflict Performing Stage:  task behaviour - implementation of decisions as the team moves to successful completion of the task  interpersonal behaviour - relationship issues have been or will quickly be dealt with so team members focus on effective problem solving Adjourning Stage:  task behaviour - tasks wrapped up and team members move on  interpersonal behaviour - team members thank each other and say good bye At the end the team members should reflect and learn from this experience This developmental sequence is inevitable resulting in significant task performance once the performing stage is reached. A conscious effort to answer questions associated with each behaviour in each stage can more quickly transition a team to the Performing stage. Knowledge about each stage will help in solving any current problems that arise. 13 Five Conditions for Team Success How well a team performs depends on how well a leader designs and supports the team so that the team can manage themselves; not on the leader's personality or management style. Teams can outperform the equivalent number of individuals but often don't because teams haven't typically been used in an individual's life experiences, and the five conditions are not in place at the appropriate time in a team's existence. Support (enacted when team's are first formed) gets team members comfortable thinking and acting at the team level, and include four features:  objective - provides teams with the opportunity to work interdependently to produce something  boundaries - knowing who is in the team supports responsibility and accountability  authority - the team does the work on their own designing their work processes (including norms of conduct) and identifying the resources needed; setting the direction  stability of the team over time - allows for greater team time allocated to working together Compelling Direction (enacted when team's are first formed) controls energy and increases motivation through a collective focus and is provided by someone in authority Enabling Structure (enacted when team's are first formed) will powerfully and efficiently facilitate teamwork, and include three features:  design - needs to be meaningful to each team member to facilitate personal responsibility including trustworthy feedback  norms of conduct - identifies behaviours of team members that will support teams in achieving their goals, including primary (outward focused on a team and its performance) and secondary (behaviours that need to be regulated) enablers  team composition - no more than 4 to 5 team members with a variety of talents and perspectives, including interpersonal skills, which provides optimum marginal productivity Supporting Context (enacted throughout the duration of the team) that enables team performance, and includes three organizational systems:  reward system - provides recognition and reinforcement through being understood, accurately reflecting results achieved and perceived by team members that behaviour can impact the results achieved  information system - provides data to assess performance and plan ahead  educational system - informs team members to increase productivity Expert Coaching (enacted throughout the duration of the team) acts as preventative maintenance, and includes three aspects of interaction:  amount of effort - each team member needs to be held accountable  appropriateness of effort - each team member's efforts needs to be directed to the tasks and informed by a situational (SWOT) analysis 14  level of knowledge and skills - each team member's needs to be compatible with the team goals and objectives and shared The three types of coaching interventions: motivational (when focusing on effort), consultative (when focusing on strategy) and educational (when focusing on knowledge) should be used sequentially through the life of a team starting with motivational. The final challenge with coaching is to make the learning happen, be team members sharing with one another; and through failures and successes. With teams experiencing low levels of performance good coaching needs to focus on the cause (structural or contextual) and not the symptom. Meeting Management Prepare for team meetings by: having an agenda and reading it, being ready to present on your agenda items, be informed on other agenda items, set a time for the meeting, ensure that all team members are informed about the meeting, and be responsible if you are unable to attend a meeting (ensure other team members know of your planned absence, ensure someone else will cover off your agenda items, and inform yourself on what happened at the meeting your missed) At the actual meeting: be on time; first thing, agree on the agenda; ensure everyone has an opportunity to contribute to the discussion on each agenda item; park unplanned for items that come up but are not on the agenda; agree on when the next meeting will happen; and put in place a process for setting the agenda, including responsibility for each item, for the next meeting Deal with personal conflict within a team by: focus on the issue, not the person; remember that confrontation is not a fight; think through the issue; remember the parties to the conflict think they are right; stay focused on the issue; solicit ideas from other teammates to resolve the conflict; ask for help from your TA or instructor 15 Module 5 - Mike's Bikes Module Planning Utilize all the resources available in the module: student presentation on Mike’s Bikes, player’s manual, registration instructions, rollover decision schedule, Mike’s Bikes Change Tracker, reflection template, marking rubric, assignment checklist, sample final report and Help with Google Docs Start the game selling one line and model of bike and by the end of the game selling three lines (mountain, youth and road) and three models (style, design or a combination of both) Your company sells bikes to three types of distributors Your company will be competing against up to 4 other teams in your section of the course in a World Total demand for bikes in a World can change (hopefully increase) as the game progresses Elements of strategy(strategic planning) - from overall to specific: mission, objectives or goals, strategy, and tactics Should be an objective or goal for each of the functional areas: marketing, operations and finance Market Analysis Trade-off in terms quality, advertising, extra support and deliver time, increasing cost versus increasing sales Three different mediums for each of advertising and public relations Distributor sales revenue impacted by the number of bikes sold and the margin on each bike sold Market Research Report provided to every firm in each World at the beginning of each year and should inform decisions for a given year Each type of distributor sells a different percentage of each line of bike There are a differing number of distributors by type with different logistics costs 16 Mike's Bikes Players Manual Introduction and Overview  the single-player version of the game allows you to compete against a single computer controlled competitor where you can roll forward to the next decision period/year or roll back to a previous period/year  the multi-player version will have student teams compete against each other with the goal for both versions being to create the highest shareholder value  the off-line mode allows a team to try different strategies in the multi-player version of the game with all the competitor decisions remaining constant  shareholder value is determined by: current share price, plus the value of all past dividends paid (including interest earned on these dividends)  share price is based on the earnings (profit) per share and the debt to equity ratio  the higher the debt to equity ratio, the higher the risk, the lower the share price  decisions to be made at the start of the game include: retail price, advertising by medium, public relations by medium, sales unit forecast and production level (for one model of mountain bike).  additional decisions as the game progresses include: branding, extra support by retailer type, margins by retailer, capacity, efficiency, quality, repayment of debt or additional borrowing, repurchase of shares or issuance of more shares, payment of dividends, abandon existing model of a bike line, and adding new model and or line of bike (mountain, youth or road)  the elements of strategic planning are: o mission - fundamental purpose of a business o situation analysis - how has your company performed and what does a SWOT analysis tell you o objectives/goals - a desired outcome that should be: clear, specific, stated, ambitious but realistic, consistent with other objectives/goals, measureable, tied to a time period o strategy - a broad plan of action for a given objective/goal o tactic - specific decision for each strategy  for each year of the game you should: do a situation analysis through reviewing prior period results and market research reports, re-visit goals, strategies and tactics, enter your preliminary decisions, review expected results in the Forecast results reports, enter your final decisions Market Analysis  the industry - consumers have high discretionary income, the government has restricted foreign competition  you start as Brand Manager and will ultimately become President of the company  consumers are dissatisfied with the existing maturing mountain bike market  new designs of both models and lines of bikes are being developed 17 Module 6 - Accounting Module Role of Accounting Information Impossible to manage a business without being able to read, understand and analyze accounting reports and financial statements (which reflect a business's health) Accounting is the recording, classifying, summarizing and interpreting of financial events which help evaluate financial condition and the operating performance Managers and other stakeholders of a business use this information in order to make informed decisions Types of financial events reported in the accounting reports of your bike company include:  value of bike sales  cost of bikes sold  amount of money spent on advertising and public relations  amount of income taxes  net profit or loss  money spent on branding Accounting Disciplines(Areas) Managerial – segments of a business, lots of forwarding looking data; compares actual financial performance to: budgets, other firms, past actual performance as a benchmarking activity for both planning and control purposes (also want to minimize taxes); growing importance of sustainability reporting (Green Box on page 493) Financial – total company, used by senior level managers and external users; reports historical results with comparatives; must be provided by all public companies; included in a company's annual report Compliance – involves review and evaluation of accounting records both internally and externally; required of all public corporations; forensic accounting focuses on identifying a company's fraudulent activities Tax accounting – tax returns(both federal and provincial) are required of all businesses; used to determine/confirm income tax and consumption tax - HST; based on an ever changing set of tax laws Governments and not-for-profits – checking the accounting records to ensure the business is fulfilling its obligations and making proper use of the funds they have been provided 18 Every business will make use either of a private accountant(s) - who work as employees of the business; or a public accountant(s) - who are contracted by the business; for the design of an accounting system and the preparation of accounting records Currently 3 professional accounting designations: chartered accountant, certified management accountant, and certified general accountant Accounting Cycle Is all about the specifics of recording, classifying and summarizing financial events in one of three financial statements (in this course we are focused on the 6 step per Figure 16.4 on page 496); bookkeeping responsible for all the steps including the preparation of financial statements; accounting interprets the data in the financial statements and reports the results The basis for the recording of financial events is the fundamental accounting equation re off- setting debits and credits; each of journals, ledgers and a trail balance are part of the cycle; a set of rules (GAAP) govern how financial data is recorded Computers and accounting software have greatly simplified the preparation of accounting records, including the financial reports Understanding Key Financial Statements Balance Sheet – point in time usually at the end of a period; assets, liabilities and equity included Assets – current, capital and intangible; and liquidity Liabilities – current and long-term; and when due Equity – common stock and retained earnings (different terminology dependant on whether the business is a: proprietorship, partnership or corporation Apply the fundamental accounting equation Income Statement – period of time; revenue, cost of goods sold, expenses included and the resulting net profit or loss Revenue – sales are a subset of revenue Cost of goods sold – cost of what was sold, used to determine gross profit Expenses – selling, general and admin, and income tax Cash flow Statement – period of time; any account that has changed as a result of cash received or going out Operations – day to day business Investing – capital assets bought and sold in running a business Financing – cash dealings with owners and lenders Importance of Cash flow – you need cash to pay bills when they are due 19 Mike's Bikes Market Research Reports: Market Information and Distribution Summary Mike's Bikes Industry Reports: Industry Benchmark Report and Market Summary Mike's Bikes Firm Results Reports: Income Statement, Balance Sheet, Cash Flow Statement and Cost of Goods Manufactured and Gross Margin Report Mike's Bikes Product Marketing Reports: Products - Sales, Margin and Production Report Mike's Bikes Operations Management Report: Factory Report Applying Accounting Knowledge Rules of the game – a number of important rules/principles that allow for options in how financial events recorded (GAAP); notes to financial statements explained how the rules/principles had been applied; each county had their own rules many countries, including Canada, have adopted a common set of rules, International Financial Reporting Standards (IFRS); Canadian Crown and public organizations only required to use these rules; United States as yet to adopt IFRS Matching Principle – amortization and valuation of inventory are examples of applying this rule; different options for applying amortization and inventory valuation impact the amounts reflected in the financial statements (see Spotlight on Small Business on page 507) Ratio Analysis Aid in analysis of financial data through calculation of the relationship between numbers reported in the financial statements and comparison of the ratios calculated to: past results, competitors and industry norms/averages Liquidity – ability to pay bills (important to creditors/lenders) - Current ratio - Acid test ratio (impact of inventory that takes longer than other current assets to convert into cash) - norms for both ratios Leverage – use of borrowed funds to finance a business and the resulting risk - Debt to owners’ equity Profitability – effective use of resources to earn a profit - Earnings per share - Return on sales - Return on equity - higher returns expected as the level of risk increases - Timing differences that exist with the numbers used in a ratio calculation (Return on equity and Inventory turnover) require the interim step of calculating an average for any number in a ratio that comes from the balance sheet 20 Activity – effective management of assets - Inventory turnover Leverage, profitability and activity ratios can vary between different industries 21 Module 7 - Marketing I Module What is Marketing? Marketing is a set of business practices designed to plan for and present an organizations' product or service (or ideas) in ways that build customer relationships or activities that buyers and sellers perform to facilitate mutually satisfying exchanges Market is a group of people with unsatisfied wants needs and the resources and willingness to buy Moved from helping the seller sell to helping the buyer buy Role of the internet today – sellers inform customers and cultivate customer relationships with blogs and social networking sites and buyers search for good deals and interact with each other Attributes of the each of the eras of marketing:  Production – demand exceeded supply as focus on more efficient production  Sales – supply exceeded demand therefore focus on persuading customers to buy  Marketing concept – both demand and supply increased therefore focus on being responsive to customers, with 3 parts o Customer orientation – find out what they want and provide o Service orientation – whole organization focused on customer satisfaction o Profit orientation – focus on most profitable products or services so business survives  Market orientation – collect info on customer needs and competitors capabilities and share throughout the organization, use to create value, ensure customer satisfaction and develop customer relationships (CRM) on a long-term basis by delivering value and satisfaction  Social media marketing - building communities or networks, encourage participation and engagement o consumer - online marketing efforts to promote or slam brands and companies; find products/services via social media instead of searching for them o marketers - online marketing efforts to promote brands and companies; increasing sales while cutting marketing costs; communicating directly with customers Non-profits use marketing in support of their mandate to raise funds or obtain other resources in a very competitive market Seth Godin an Otaku’s, product champions 22 Marketing Mix Customers drive the marketing mix: product should exceed customer expectations; while price, place and promotion should lead to the customer seeking out the product and is willing to buy the product given its price Entire marketing process: more than the 4 P's, this process is everything leading to the development and sale  Find - opportunities  Research  Identify target market  Product – involves concept testing and test marketing remembering that most times a product or service is not a pure product or service as per the Service Continum ( i.e. a tailored suit or fast-food restaurant) - use brand as the distinguishing feature of your product or service  Price - impacted by competition, whether the product is new, quality of the product and costs to make the product  Distribute - options based on getting the product to consumers when and where they want it  Promote - informs and motivates, builds relationships with customers, monitors changing wants/needs  Build relationship with your customers Charles Leadbeater, “ The rise of the amateur professional”  Consumers as innovators and how would you implement his approach in your business Article, “Dewing it Alone” – input from Facebook community on topics related to new product development Providing Marketers with Information Market research – identify opportunities / challenges through gathering information from many stakeholders Steps in the market research process:  Define the question – situation, problems/opportunities, alternatives, and information needs; also how to gather and analyze data  Collect data – cost/benefit trade-off, sources of primary and secondary data (Figure 14.5 on page 430 o surveys - done by third parties for objectivity, represent behaviours and perceptions, participation rate low, question of truthfulness (survey basis) o personal interview - higher response rate, more accurate, costlier, can dig deeper o focus groups - small, need a discussion leader, question of group think o observation - mechanically or in person behaviour (i.e. how customers look at products or read labels). 23  Analyze research data  Choose and implement – importance of follow-up as marketing research is continuous Environmental scanning identifies the factors that impact marketing success:  Global – use of internet to reach customers leads to distribution consequences (use of companies like FedEx)  Technological – build customer databases, produced customized goods  Social – population growth, demographic and ethnic groups  Competitive – speed (i.e. use of Internet), service, price, selection  Economic – global economy  Legal and regulatory – enacted by governments (see Role of Government module) Two different markets:  Consumer - goods and services for personal consumption  Business-To-Business (B2B) - goods and services as inputs in producing other goods and services or to provide to others Consumer Market Market segmentation - (a consumer group with similar characteristics that leads to target marketing) is often practiced because of huge number of consumers in the world with very diverse needs, bases includes (see Figure 14.7 on page 437):  Geographic – geography  Demographic – characteristics (age, gender, income, education)  Psychographic – personality or lifestyle (values, attitudes, activities, interests)  Behavioural – toward or with a product (benefits, usage rate, loyalty) Use a combination of bases to come up with a profile Smaller market segments :  Niche – small but profitable  One-to-one – goods or services for individual consumers (travel agents, special order opportunity) Moving to Relationship marketing - a business needs to quickly identify and respond to a customer’s wants and needs in part by understanding a customer’s decision making process  “What is Customer Relationship Management”-what information should you track in terms of your customers  Mass marketing can result in misdirected focus on products and competition Consumer Decision Making Process  Problem recognition - a need arises  Information search - online, personal contact, print material  Alternative evaluation  Purchase decision (or no purchase)  Post-purchase evaluation (cognitive dissonance – reassure consumers) 24 Influences on consumer behaviour as a consumer is involved in the decision making process (Figure 14.8 on page 441)  Marketing mix – 4 P’s  Psychological – perceptions, attitude, learning, motivation  Situational – type of purchase, social surrounding, physical surrounding, previous experience  Sociocultural – reference group, family, social class, culture (values and attitudes), subculture (age, geography, and ethnicity)) Business-to-Business Market Number of customers relatively few Size of a customer is relatively large Market geographically concentrated Buyers more rationale (use product specifications and total product offer) Sales tend to be direct, but not always– no intermediaries Emphasis on personal selling - customers demand personal service Use social media to: support branding efforts, lead generation and traffic building Interview with Pete Carr:  How to approach a prospective customer  What have you learned about extra support 25 Module 8 - Marketing II Module Product Development and the Total Product Offer Marketing is always focused on the value of a product – benefits less the cost Malcolm Gladwell, “What we learn from spaghetti sauce” – consumers not knowing or being able to articulate their needs The total product offer is everything each consumer assesses when buying a good or service – value enhancers, see Figure 15.1. on page 454 Product lines and mixes allow a company to address differing individual consumer total product offers Product differentiation are the unique value enhancers used by a company to create differences when compared to competitors' products Product packaging is an important part of the product offer to both consumers and retailers:  consumers - list of functions on page 455  retailers - use of UPC codes and RFID chips (these chips can replace checkout counters and will track the specific customer buying a product which supports customer specific marketing including "smart" posters - this information is made available to both the retailer and the manufacturer)  bundling - multiple products and/or services sold for a single price Branding and Brand Equity What does a brand do for the buyer – assures quality, reduces search time, adds prestige to purchases What does a brand do for the seller – new product introductions, help promotion, add to repeat purchases, differentiate products so that prices can be set higher Use of trademarks protects brand name and design Brand equity - value of brand name, measure of earning power Brand loyalty - degree of customer satisfaction, leads to re-purchase - leads to brand value - present value of future sales brands likely to generate (determined by independent third parties) Brand awareness - how quickly or easily a brand name comes to mind (directly related to sponsorship) 26 Brand managers - responsible for all elements of the marketing mix for a product line Product Life Cycle Four stages represent sales and profits over time and impact each of the 4 P's as per Figure 15.3 on page 459 Competitive Pricing Pricing objectives (short and long term) include:  Achieving a target return on investment or profit  Building traffic – loss leaders to attract customers  Achieving greater market share - through lowering the price  Creating an image - exclusivity and status  Furthering social objectives - in terms of products that are basic needs (marketing boards and price for food staples)  should be related with other elements of the marketing mix Major approaches to pricing (should be above cost)  Cost-based pricing – what to include in the cost - especially for multiple product firms where some costs cannot be traced to individual products  Demand-based pricing – target costing with price as an input  Competition-based pricing – price leadership based on customer loyalty, perceived differences and competitive environment Break-even analysis – how many units need to be sold to cover all costs - profitability at various levels of sales - costs are either fixed or variable Pricing of new products – skimming - high price, quickly recover costs - penetration - low price, capture large share of market, can't raise prices later Retail pricing strategies – everyday low pricing - lower than competitors and few sales - high-low pricing - consumers than wait for sales - psychological pricing - price points that appear lower than they actually are Different consumers willing to pay different prices or post the price they will pay - i.e. Kijiji.ca Non Price Competition Examples: product image, comfort, style, convenience, durability, service, adding value, educating consumers on how to use the product 27 Importance of Channels of Distribution (value / cost considerations) Differing types of marketing intermediaries (see Figure 15.4 on page 465):  agents and brokers - bring buyer and seller and negotiate exchange (real estate agents)  wholesalers - sells in the B2B market  retailers - sells to end consumers Tasks of intermediaries: transporting, storing, selling, advertising, and relationship building far cheaper than most manufacturer (reduce exchange relationships) Retail Intermediaries Different types of retailers, see Figure 15.6 on page 466 Retail distribution strategy: intensive (convenience goods), selective (shopping goods) and exclusive (speciality goods - retailer carries large inventory and offers exceptional service) Non-Store Retailing  Electronic retailing – selling over the Internet; issues with delivery, dealing with complaints and returns and providing personal help  Telemarketing – selling by phone and issuing a catalogue  Vending machines - dispense convenience goods, provides benefit of location  kiosks and carts – lower overhead, create marketplace atmosphere  Direct selling – in homes or workplaces Comparing different modes of distribution – see Figure 15.7 on page 469 Promotion and the Promotion Mix Each target group will have its own promotion mix (i.e. homogeneous groups of consumers, or large organizations) Integrated marketing communication - designed to create a positive brand image Advertising (keep consumer interest)  Are informative and pays for production costs  See the advantages and disadvantages of various advertising media, see Figure 15.9 on page 470  Advertising is becoming more specialized - in part because of different cultures and languages  Evaluating advertising in terms of: what percentage it is of sales given the relative price of
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