MGTA01 Study Notes.docx

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Management (MGT)
Chris Bovaird

MGTA01 Intro to Management "Business" defined: an organised effort - to make or sell a product or service - to customers who need or want something - in order to make a profit • Customers will pay, business must provide • Money in --> Earn "revenues" or "sales" • Money Out --> costs or expenses Profit - Key reason businesses exist Not all organisations are businesses: i.e hospitals, universities churces provide services but are not intended for profit (non-profit organisations) Questions of economics: What to produce How to produce For whom to produce Factors of Production • Land - natural resources, raw materials • Labour - i.e. workers. Businesses need people • Capital – money, or the machines and technologies that money can buy i.e. phones, hammers, software • Entrepreneurs – people who assemble and organise the other factors of production – society and culture who encourage enterprise 2 Types of Economics Systems Command (Planned) Economy: Governments own, control, make most factors 2 Types: “Communism” i.e. North Korea: • Government owns, controls ALL factors, runs ALL industries, makes ALL decisions “Socialism” i.e. Cuba: • government owns, controls most factors, Market Economy: Individuals own, control, make most factors 2 Types “Mixed Market” i.e. Canada, USA, UK, France, China, India: • Individuals own most factors, make most decisions; Governments make regulations, collect tax, run some business “Pure Capitalism” (no examples): • Individuals own and control all factors, make all decisions; Governments leave businesses alone Market – exchanges between buyers and sellers • not a place; a bunch of activities e.g. housing market, labour market How Markets Work: Supply and Demand The law of Supply • If there is a large supply of a product, its price will be low • As the supply increases, the price will drop The Law of Demand • If there is a large demand for a product, its price will be high • As the demand increases, the price will rise. Not all markets are the same: The ability of buyers to negotiate a “good” price depends on the number of sellers in a market i.e. low if you are a buyer, i.e. high if you are a seller Depends on the number of buyers and sellers in the market Degrees of Competition Some markets have lots of sellers (good for buyers, lots of choice, “fair” price) Some markets have few sellers (less choice, good for sellers, higher price) Some markets have only one seller (No choice, great for sellers, high price) Perfect competition: • Lots of suppliers, small • Products nearly identical • Price takers, same price • i.e. carton of milk Monopolistic competition • Lots of suppliers, most are small, some are big • Products are slightly differentiated • Similar, some variation in price • Few big suppliers can charge extra e.g. most coffee shops vs. Starbucks Oligopoly • Small number of suppliers, large • Industry hard to enter, hard to exit • I.e. Canadian banking industry, oil company, telecom, cereal Monopoly • Only one supplier • (by definition) 100% of the market share • Can set of whatever price it takes • i.e. LCBO Chapter 2: Measuring economic performance Measures of economic performance: • Gross Domestic Product (GDP) • GDP growth • GDP/ Capita • Productivity • Unemployment • Inflation GDP: value of all goods and services produced in a country in one year Growing GDP: More people making more gods Falling GDP: fewer people making less stuff Falling GDP: called recession = falling GDP for more than 2 consecutive quarters • A measure of SIZE; a large GDP indicates lots of workers, using lots of resources and capital, producing lots of products of value • Poor countries have the greatest capacity for growth because they start from a low base (percentage) GDP = total size of an economy “per capita” = per person GDP per capita = a measure of relative wealth of the “average citizen” Productivity = outputs (products&services) inputs (people, money, etc.) • Some countries are richer than others as a result of productivity • Better educated, better trained labour force • More money  better technology • More and cheaper natural resources Unemployment = % of people of working age who are actively looking for work, but cannot find any • Labour is underused • Historically, Canada’s unemployment rate is higher than USA Inflation in Canada is generally 2-3% a year • Prices for goods go up but goods are the same; money loses its value • people can afford to buy less; hurts people on fixed income i.e. pensioners • Happens when government prints too much money • suggests there is a shortage of things people want • “Hyper” inflection is when money quickly loses its value in a relatively short period of time Deflation • when demand falls during recessions, some prices also fall i.e. housing prices in USA 2007-2010 “Nominal” GDP = value of GDP simply as it is measured “Real” GDP = Nominal/CPI • discounts inflation Consumer Price Index = measure of monthly price changes Chapter 3: Entrepreneurship and Small Businesses Small business: Textbook definition – an owner managed business with less than 100 employees An entrepreneur is not a job; it is a role, and a personality type. Personality Traits of Entrepreneurs: • High need for achievement • Internal locus of control • Risk tolerance • Self Confident Need for achievement: “Needs motivation” theory Three basic human motivations: • Need for power (N-pow) - people who are ‘authority motivated’ and need to be influential - Produces a need to lead; personal status and prestige - i.e. CEO • Need for affiliation (N-Aff) - People who need friendly relationships, motivated by interaction with others - Need to be liked and held in high regard; team players - i.e. teacher, coaches in team sports, doctors and nurses • Need for achievement (N-Ach) - People who seek achievement and want to accomplish challenging goals - i.e. entrepreneur and business owners • Entrepreneurs seek challenges, set goals, take risks • Entrepreneurs have a very high need for achievement Locus of Control • A person’s belief about what causes good or bad results in his or her life • The extent to which people believe that they can control events that affect them “Internal” Locus of Control - People believe that events result from their own behaviour and actions - “Internals” try to influence others and assume their efforts will succeed “External” Locus of Control - People who believe that powerful others, fate, or chance determine events - They are less likely to be leaders, to take risks, and less likely to start their own business • Entrepreneurs recognise opportunities, assemble and mobilise resources, and assume risks to realise rewards • Entrepreneurs are “internals” Risk Tolerance Risk defined: uncertainty of outcome • People see risk from new situations, complexity, or the unknown Risk Intolerance - New or previously unknown situations are threatening Risk Tolerance - New or previously unknown situations are desirable • Entrepreneurs start new businesses, try new opportunities, know they might fail • Entrepreneurs are risk tolerant Demographic Traits Kids of Entrepreneurs • Having an entrepreneur in the family is the single most telling indicator of successful entrepreneurs • 80% of entrepreneurs have heritage of family business • Importance of Role Models (Nurture) • Genetic Predispositions (Nature) Immigrant Entrepreneurs • Immigrants/their children are thought to make good entrepreneurs (look for better life) • Need confidence, willingness to take reasonable risks, high need to achieve Entrepreneurs are Older than Employees • The typical Canadian employee is 34 years old; the typical entrepreneur is 42 • It takes experience, confidence, contacts and money to start a business • The average age of starters is increasing Entrepreneurs tend to be Average Students • They are “doers” and not “thinkers”; and prefer action to contemplation • “A” students are more likely to become academics, researchers, professionals (doctors, lawyers) Women are more successful • Women start business with less money • but women owned businesses are less likely to fail, more profitable, grow faster, and take on more employees Chapter 4: Forms of Business Ownership • There are three main forms of ownership in Canada  Sole proprietorship  Partnership  Corporation (There are others, but much less common) Sole proprietorship = business owned by one person (can have many employees, but ultimately one boss) - Supplies all the capital - Makes all the decisions - Keeps all the profits - Responsible for all debts Advantages • Easiest way to set up and form a business  no regulatory requirements, no mandatory accounting needs  Cheap to set up: $60-70 if registered, $0 if not registered (registration is not necessary) • Most common form of ownership Disadvantages • Limits to owner’s skills and resources • Hard to finance (bank loans) • Personal and unlimited liability  “Personal”: Because the owner and the business are one and the same, they are personally responsible to pay bills, settle law-suits, etc.  “Unlimited”: how much the owner may have to pay is unlimited i.e. house, car, life savings Partnership = a business owned and operated by two or more people acting together Advantages • More input, thought (two or three heads are better than one) • More human and financial resources • More credibility (more than one owner) • More contacts and potential customers Disadvantages • Conflict between owners due to multiple ownership • Personal and unlimited liability • Joint and several liability  each partner is responsible for debts of the partnership even when incurred by another partner - Partnership agreements normally include how much money each partner contributed, what each partner must do, how they paid, and how the profits will be distributed - The agreement is between partners only and not binding on others General Partnership  Simplest form of partnership  All partners share in the ownership  All partners share the management  All partners have unlimited liability for debts  All partners have personal liability for debts Limited Partnership  There are partners who take no part in the management of the business  Limited partners supply money only  Limited partners have limited liability (hence they can only lose their investment in the company) Corporations = a legal entity authorised to operate a busi
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